MICHELE NORRIS, Host:
To Britain now, where the government injected an unprecedented $63 billion into the country's leading banks. Prime Minister Gordon Brown proposed the historic move hoping to avert a full-scale collapse of the U.K. banking sector. The cash did come with strings attached. Some of the bank's top executives were ousted. Brown said the cash injection also needed to be accompanied by reforms to the international banking system. NPR's Rob Gifford reports now from London.
ROB GIFFORD: The BBC's economics editor called today perhaps the most extraordinary day in the history of British banking, and that wasn't the only superlative flying around. Billions of dollars had been promised last week by Gordon Brown but had failed to halt the pessimism on world markets. So the prime minister was hoping that committing those billions to three of Britain's biggest banks today would stabilize the British and indeed the global economy.
P: In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about. For savers, for small businesses and for home owners, we must in an uncertain and unstable world be the rock of stability upon which British people can depend.
GIFFORD: The government's massive injection will mean the Royal Bank of Scotland is likely to become 60 percent owned by taxpayers. And the soon to be merged Lloyds and HBOS banks will be roughly 40 percent state owned. In return, the government has demanded the scalps of some of the top executives who got the banks into the mess they're in and the freezing of bonuses to the new leaders within the banks. Crucially, the government has also demanded that mortgage lending and small business lending return to the levels of last year, this being the heart of the problem, that the flow of credit between banks and to the consumers has frozen up. That was welcomed by Steven Alambritis, from the British Federation of Small Businesses.
NORRIS: We're not in recession but we will go into recession if the real economy, that's small businesses, don't get the money they need both to grow or to sustain themselves and this is good news from the prime minister. For their pound of flesh in these major high street retailers, they're asking them to revert back to 2007 levels of giving money to small businesses at reasonable rates.
GIFFORD: But despite today's action, the interbank lending rate remain nearly two percent higher than the base lending rate in Britain today and experts warned that it could take as long as two or three months for that to improve. That said, Bronwyn Curtis, head of Global Research at HSBC Bank, said she thought the government action was clearly the right thing to do.
NORRIS: They've taken action today, there are strings attached, which they should be, because there's always a price to pay when you get money like this. But, you know, it's the right step. Whether it's enough, we won't know because we've seen lots of steps. So far it hasn't been enough. This looks pretty good.
GIFFORD: A month ago, Gordon Brown was on the ropes at home politically. Today, with the news that European countries and now even to some extent the United States are following his lead, it's Brown who's emerged from this crisis as the man leading the efforts to save the global financial system. Rob Gifford, NPR News, London. Transcript provided by NPR, Copyright NPR.
