2008 United Kingdom bank rescue package

[1] The first public indication of the crisis was in February 2007, when HSBC issued its first-ever profit warning as a result of losses incurred by its U.S. consumer finance arm.

In an effort to stop the panic, on 17 September 2007, the then UK Chancellor of the Exchequer, Alistair Darling, announced the government would guarantee all Northern Rock deposits.

[4] In addition to cash support, the UK government enacted a number of other schemes involving financial guarantees with the aim of restoring confidence in the banking sector.

[4] Subsequently, broadly similar measures were introduced by the United States and the European Union in response to the financial crisis.

Alistair Darling UK Chancellor of the Exchequer 2007–2010 "Back from the brink" 2011 The first public indication of the crisis was in February 2007, when HSBC issued its first-ever profit warning as a result of losses incurred by its U.S. consumer finance arm.

On 13 September the BBC reported that Northern Rock had been granted emergency financial support by the Bank of England in its role as lender of last resort.

The same month, Royal Bank of Scotland launched a £12 billion rights issue to supplement its equity capital.

Following the market disruption caused by the Lehman collapse, attention turned to HBOS, then the UK's largest mortgage lender.

At the same time, the UK government brokered an agreement with Lloyds Bank to acquire HBOS in a private sector deal.

[14] Darling instructed the Treasury to prepare a recapitalisation plan that envisaged the injection of billions of pounds into UK banks in return for equity.

Banks that accepted rescue packages had restrictions on executive pay and dividends to existing shareholders, as well as a mandate to offer reasonable credit to homeowners and small businesses.

The scheme was designed to allow banks to issue debt guaranteed by the government, with the intention of enabling them to borrow more, and more cheaply, and hence lend more.

Under the SLS banks were provided with the means to swap illiquid assets, such as mortgage-backed securities, of designated quality for Treasury Bills.

This would have the effect of increasing the asset prices of the bonds purchased, thereby lowering yields and dampening longer term interest rates.

In August 2022 the Bank of England reiterated its intention to accelerate the QE wind down through active bond sales.

On 28 September 2022 the Bank of England issued a Market Notice announcing its intention to "carry out purchases of long dated gilts in a temporary and targeted way".

[23] This was in response to market conditions in which the sterling exchange rate and bond asset pricing were significantly disrupted following a UK government fiscal statement.

[24] The Bank stated its announcement would apply to conventional gilts of residual maturity greater than 20 years in the secondary market.

The Bank also announced that its annual £80bn target to reduce the existing QE portfolio remained unchanged but, in the light of current market conditions, the beginning of gilt sale operations would be postponed to 31 October 2022.

It was obvious that they wanted the government guarantee to underpin their lending and to expand the special liquidity scheme, but they were less keen on raising capital.

In both cases, the government sold well below the average price of 499p per share it had paid, with the June 2018 transaction representing a loss of £2.1 billion to UK taxpayers.

This was followed by an announcement in July 2021 that the UK government would carry out open market sales in NatWest for a year from August 2021.

The "bad bank" was Northern Rock (Asset Management) plc, which held and serviced the closed mortgage book.

[35] Prime Minister Gordon Brown suggested that the government's actions had 'led the way' for other nations to follow whilst Shadow Chancellor George Osborne stated that "This is the final chapter of the age of irresponsibility and it's absolutely extraordinary that a government has been driven by events to today's announcement"; in addition to offering opposition support for the plan.

[36] Darling said in 2018 that the country was hours away from a breakdown of law and order if the Royal Bank of Scotland had not been bailed out and people could not access money.

[37] On 8 October 2008 there was a strategic and co-ordinated global effort by seven central banks to calm the financial crisis, by cutting interest rates by 0.5%.

The British rescue plan differed from the initial United States' $700 billion bailout under the Emergency Economic Stabilization Act of 2008, which was announced on 3 October and entitled the Troubled Asset Relief Program (TARP).

The U.S. program required the U.S. government to take an equity interest in financial organisations selling their securities into the TARP[38] but did not address the fundamental solvency problem faced by the banking sector; rather was aimed at tackling the immediate funding shortfall.

[5] Paul Krugman, writing in his column for The New York Times, stated that "Mr Brown and Alistair Darling, the Chancellor of the Exchequer have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up."

He also stated that "Luckily for the world economy,... Gordon Brown and his officials are making sense,... And they may have shown us the way through this crisis.