Readers Question: Just a quick one. Are UK banks paying interest on the government bailout they received?
Not as far as I am aware.
When the UK bailed out the bank we actually bought stocks in the bank. We gave money in return for buying shares. Companies usually pay dividends to shareholders, though the two banks effectively nationalised are not currently paying dividends,
The taxpayer now owns 84pc of Royal Bank of Scotland and 41pc of Lloyds. According to the Office of National Statistics these are now classed as public corporations.
The total cost of the financial sector bailout topped £850bn according to the National Audit Office
The commitments include:
- Buying £76bn of shares in Royal Bank of Scotland and the Lloyds Banking Group;
- Indemnifying the Bank of England against losses incurred in providing more than £200bn of liquidity support
- Guaranteeing up to £250bn of wholesale borrowing by banks to strengthen liquidity
- Providing £40bn of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme; and insurance cover of over £280bn for bank assets.
- Cost of bailout Independent
BTW: This is in contrast to the US, where the government just bought bad debts of the bank and gained much less in return. Buying shares in banks will hopefully give a reasonable return to the UK taxpayer as, since the worst of the credit crisis, bank shares have rebounded. Over the coming years, the government will be able to sell off shares and get the cost of the bailout.
Nevertheless, the banks have still done very well. In any other industry, the government wouldn’t have offered such a generous bailout to save firms from their own recklessness.