Bank intervention and recapitalisation

In order to revitalise the financial sector, the previous Government undertook a series of recapitalistions of UK banks over 2008 and 2009.

In total, this involved capital injections of over £45bn in the Royal Bank of Scotland (RBS) and over £20bn in Lloyds Banking Group (LBG) – created following the merger of Lloyds TSB and HBOS – received £17bn of capital under this scheme. As a result, the Government also became a significant shareholder in RBS and LBG, currently 82% and 40% respectively.

The recapitalisation scheme sat alongside other measures to support the banking system in 2008 and 2009:

The Credit Guarantee Scheme was put in place (October 2008). This scheme provides guarantees on short to medium term debt issued by eligible banks in the wholesale markets, against a commercial fee. The window for new issuance closed in February 2010, although banks can roll over debt issued under the scheme with a further guarantee. Additional information is available on the website of the Debt Management Office (opens in new browser window).
The Bank of England introduced the Special Liquidity Scheme (SLS) to improve the liquidity position of the banking system by allowing banks and building societies to swap high quality but temporarily illiquid assets on their balance sheets for more easily tradable assets. The drawdown period for the scheme closed in January 2009, but the scheme will remain in place until January 2012 – thereby providing participating institutions with continuing liquidity support and certainty.
The Asset Protection Scheme was introduced in 2009. This Scheme was created to enable the UK Government to provide participating institutions with protection against future credit losses on defined portfolios of assets in exchange for a fee. Further information can be found in the Asset Protection Scheme section of this website.
Some short-term loans were also made to banks in this period (from October 2008) – known as Emergency Liquidity Assistance. For more information, please visit the Bank of England’s website (PDF, opens in new browser window).

Full details of the latest status of these interventions can be found in the followingdocument

HM Treasury Annual Report and Accounts for 2010-11 (PDF 735KB)

Bank intervention and recapitalisation

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