In a move designed to prevent the credit crisis causing more damage to the banking system and the economy, the Bank of England has announced details of a $100 billion bank rescue plan.
This follows last week’s news that America’s largest bank, Citigroup, is set to shed thousands of jobs after being hit by more than $15 billion of write downs. It also emerged that the Royal Bank of Scotland would ask its shareholders for more than $10 billion to bolster its reserves in the aftermath of losses from investments linked to the US subprime crisis.
Injecting this money into the markets is designed to make it easier for banks to lend money to each other, to ease the credit crunch. At the moment they can’t sell or use mortgage backed assets as a way of raising funds, which means there is less money available to lend to people who want to buy homes, depressing the housing market with a knock on effect for the rest of the economy.
The Bank of England’s plan has been welcomed by the banks. But do you think that politicians should step in to stop private companies like banks from failing? Should the banks have used better business models to avoid this crisis? Or are the banks innocent victims of external global forces?Could the economy survive if a bank went under?