Congress Reject US Banking Rescue Package September 30th, 2008
To say that yesterday (29th September) was an interesting day for the global banking sector is quite an understatement and there could well be more trouble to follow.
In this country, it was announced that the Bradford and Bingley was to be nationalised, with the government buying out the company’s mortgage and personal loans business and selling the savings onto Santander.
At the same time in the US, politicians announced a $700 billion plan to rescue the American banking and mortgage loan sector, by buying out bad credit loan debts accrued by the banks in an attempt to restore some liquidity to the sector. Meanwhile, one of the US’s largest banks, Wachovia, was taken over by Citygroup bank and Fortis was saved by a rescue plan from three Governments.
The rescue plan from the US Government had been developed over the end of last week and the weekend and was announced yesterday morning, but the plan was rejected by Congress when they voted on it later on in the day, by 228 votes to 205.
The original plan was to release $250 billion immediately, with an additional $100 billion made available on request to buy out bad mortgage loan debts and a further $350 billion to be released at a later date. In return for the funding, the Government would take a stake in each of the banks.
George W Bush is expected to make a statement today following the rejection of the bail out plan and a new package needs to be agreed urgently in order to rescue the global banking and mortgage loan sector and prevent further casualties.
Share prices in banking stocks took a large hit yesterday and the same is expected for today. So far this year, fourteen commercial banks have collapsed and unless something is done soon, more are likely to follow.