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How the Government Bailout Banks

By: Emma Eilbeck BA (hons) - Updated: 5 Jul 2010 | comments*Discuss
Bailout Banks Government Uk Economy

The financial situation of the UK banks has got so bad that the government has offered to intervene and offer them money should they need it.

So far the government has offered to pump £37bn into various UK banks.This does not mean that the banks will snatch the money out of the government’s hands it simply means there is a fund there for them if they want or need it.

The government was forced to offer the bailout plan because without it there were questions over the future stability of the banks and how they would survive.

If the government had not intervened and offered some capital the banks were at risk of going under.The banks will only ask for the money if they need it as it is not beneficial for anybody in the finance sector to let the government bail them out.

The government is ultimately lending the banks taxpayer’s money through the bailout so it will need to have some return for their investment. By bailing out the UK banks the government will be hoping that the banks can sort themselves out and get into better health.The UK economy means too much to the government for it to let it fail. It is not clear if the banks will be willing to lend more money to the banks if they need to, but it is unlikely the government will let the banks fail after going to the trouble of bailing them out.

Nationalisation For Banks

The government has not just helped banks through cash injections but it has also nationalised banks such as Northern Rock. This ultimately means that the bank is under the control of the government and the taxpayers. The government has taken control of Northern Rock’s assets and it will continue to do so until the market improves and it is able to find a buyer.

If your bank is one of the institutions that have been affected by the government there should be no reason for you to worry. If you have any money in the banks you should divide it so it is not all in one bank, which lessens the risk of you losing any money.If your mortgage is with one of the banks that has been bailed out by the government this will have little impact on your mortgage.

A mortgage is a debt so you do not have to worry about it being called in or the lender taking your house. There are so many banks that have needed to be bailed out by the government that it is no longer worrying or unusual to be a member of a bank that has needed to be bailed out.

The government’s bailout has gone a long way in restoring confidence into the market and helping to save a number of banks. There is still a long way to go before the overall benefit of the bailout will be shown to the market. It should however give you piece of mind to know that the government is willing to save lenders if they risk extinction.

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