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Why does Lloyds bank need additional finance from the taxpayer?

Lloyds bank is rumoured to be on the verge of asking the UK government for an additional £5 billion from taxpayer coffers at a time when the UK banking sector has made strides but the likes of Lloyds bank and Royal Bank of Scotland still appear to be struggling. It seems that the call for extra funding centres upon the banks recent agreement to join the government's asset protection scheme and the billions of pounds which were required as a premium.

Now that Lloyds bank is attempting to raise more capital from shareholders it has only just found out that the UK government would expect an exit fee of around £1 billion to leave the asset protection scheme. There is also some concern about the strength of the Lloyds bank balance sheet in the medium to longer term with a number of stress tests proving inconclusive over the last few months. It is believed that regulators are taking a tough line with the Lloyds bank balance sheet which may be the reason why the company has decided to approach the UK government.

The situation is almost certain to come to a head over the next week because ultimately the confusion and uncertainty is starting to impact on sentiment and the share price.

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