Government buys £37bn bank stake

Last Modified: 13 Oct 2008
By: Bridgid Nzekwu, James Blake

Gordon Brown confirms the bank bailout plans include buying a 60 per cent stake in RBS, and over 40 per cent of the new Lloyds TSB and HBOS merger.

Less than a week after the government bailout was announced, it has changed, with the taxpayer now becoming a majority shareholder in at least one of the biggest financial institutions in Britain.

Gordon Brown confirmed the £37bn pound investment in three of the biggest lenders, saying "the government must be the rock of stability on which the British people can depend".

The government will take a £20 billion stake in Royal Bank of Scotland, up to 63% of its shares.

Another £17bn will be invested in the bank formed by the merger of Lloyds TSB with HBOS, bringing the public's stake to 41%.

But Barclays said it intends to raise £6.5 billion privately without government help

In exchange for the cash, the government is insisting that senior board members of the banks resign, no cash bonuses be paid and that share dividends be suspended until the taxpayers have got their money back.

In the city, the stock exchange rose over 6 per cent.

How it should work

The government insists it will not get involved in the day-to-day decision making of the banks and that its shares will be held at arms length.

So what will today's historic decision mean for customers, for our pensions and for small business? And will the government come under pressure to ensure lending or lower overdraft charges?

James Blake finds out.