The main concept of the £50 billion rescue deal announced today by the UK government is the ability for the UKs largest banks to request additional capital in exchange for the government taking a stake in their businesses. But how will this work? Is there a risk to tax payer’s money?

One part of the deal which will no doubted miss the headlines is the fact that this is a wholly voluntary scheme and while the Royal Bank of Scotland has already announced that it wants to use the facility, no other UK banks have come forward as yet. This now begs the question as to whether the UK tax payers money will be used to shore up banks with are not able to attract commercial lending because of their underlying quality of business.

Could UK tax payers end up supporting the system by the very fact the option is there for all banks but end up taking equity stakes in the more risky banks of the sector?

To put the investment into context, £50 billion equates to over £1,000 for every many woman and child in the UK and is a serious investment and a serious risk in current market conditions. There is also speculation as to how the government will be able to sell the idea of owning stakes across the board while having nationalised fully the likes of Northern Rock and Bradford and Bingley. Is there not a conflict of interests here?

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