Another bank bailout designed to ease credit flow

The government unveiled its latest bank bailout scheme this morning in a bid to free-up credit lines for businesses.

The banks will have to increase lending to firms in return for help from the treasury in propping-up their balance sheets.

Measures include insuring banks on losses against risky loans in return for guarantees that banks will offer more credit to customers like contractors.

A treasury spokesman said: “The government intends to negotiate with the banks participating in certain facilities lending responsibility agreements that will have specific and quantified lending commitments and that will be binding and externally audited.”

Today’s move comes in the wake of the ongoing failure of last October’s first bank bailout to free-up lending to industry.

The spokesman said: “ Over the past two months in particular, the global financial and economic situation has continued to deteriorate. In particular, internationally, banks' confidence to increase lending has been constrained by uncertainty about the value of past investments.

“Lending by foreign banks, non-bank institutions and smaller lenders for UK borrowers has reduced. The government is clear that meeting lending demand to otherwise creditworthy businesses, homeowners and consumers is essential for supporting economic recovery.”