Britain and US at odds over further bank bail-outs

Britain and US at odds over further bank bail-outs
Gordon Brown and Alistair Darling are growing increasingly concerned over America's failure to clean up the "toxic" debts of many of its major banks despite repeated attempts to do so.

By Robert Winnett and James Quinn
Last Updated: 11:15AM BST 22 Apr 2009

Although President Barack Obama announced a plan last month to offer fund managers and private investors the equivalent of cheap US government loans to buy up $1 trillion (£681bn) of toxic debts from big American banks, the plan has yet to swing into action with many details still unknown.

There are now growing fears in Westminster that President Obama's proposed "public-private" partnership will fail to solve the problem as there is not sufficient appetite among the investment community to buy up the dubious loans. Mr Darling is understood to believe that President Obama will have to announce a new state package of assistance for American banks. In Britain the Treasury has agreed to underwrite 90pc of losses from questionable loans incurred by banks including the Royal Bank of Scotland.

The Treasury is now concerned that unless a new American package is announced imminently, British attempts to tackle the recession may be hindered. "America will have to announce a new package to help its banks, this needs to be sorted before we can move forward," said one well-placed source.

The growing signs of tension between Westminster and Washington DC – the first between the Brown and Obama administrations – come as the US Treasury completes a series of financial "stress tests" designed to measure the capital requirements of 19 of America's largest financial institutions.

Publication of the test results are scheduled for May 4, and it is thought highly unlikely that the Obama administration will make any move to shore-up the banking system before then.

One source close to the US Treasury expressed surprise that Mr Darling would think the US is not doing enough, given that the public-private partnership to buy toxic loans is just one of a number of programmes launched by the Obama administration to rescue the financial system.

Those programmes include the Federal Reserve's $1 trillion Term Asset-Backed Securities Loan Facility designed to fund new bank lending through buying up existing securities, and efforts to resuscitate the ailing US housing market.

Under President Bush, the US initially apportioned $700bn to rescue its banking system, choosing first to inject money straight into bank's balance sheets, but it has also since been used to help the car industry.


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5196478/Britain-and-US-at-odds-over-further-bank-bail-outs.html

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