British banking rescue bill sinks

The bill for Britain's banking-sector bailouts has plunged since the peak of the global financial crisis but currently stands at about 512 billion pounds, the government's spending watchdog said Wednesday. The latest estimate, equivalent to 604 billion euros or 808 billion dollars, has nearly halved when compared with the height of the crisis, the National Audit Office (NAO) revealed in a key report.
"The NAO has today reported that the scale of the support currently provided to the banks has fallen from its peak of 955 billion pounds to 512 billion pounds as at 1 December 2010," the watchdog said. "However, the amount of cash currently borrowed by the government to support UK banks has risen by seven billion pounds since December 2009 to a total of 124 billion pounds.
"The Treasury will probably be paying for the support it has provided to UK banks for years to come," it added. The total cost has fallen sharply due to the closure of some banking support schemes and the lowering of deposit guarantees. In addition, some of the bank debt which was guaranteed has now been paid off.
Britain's public finances have been ravaged by the enormous cost of the banking sector bailouts. The nation's retail banks were thrown into chaos by the credit crunch, resulting in the nationalisation of Northern Rock and multi-billion-pound rescues of Royal Bank of Scotland (RBS) and Lloyds Banking Group. The government now owns about 80 percent of RBS and 41 percent of rival Lloyds, while Northern Rock remains in public ownership. The NAO indicated on Wednesday that it was unclear whether the government would recoup enormous losses on its massive stakes in RBS and Lloyds.
"The value of shareholdings are inherently volatile. The paper loss on the shares in RBS and Lloyds was 12.5 billion pounds as at 1 December. "The eventual proceeds to the taxpayer will be highly dependent on the prevailing share price and success of the Treasury's divestment of these holdings." The NAO added that the "most likely scenario" would involve no overall losses on government banking guarantees, such as the asset protection scheme that was designed to absorb "toxic" or high-risk assets from banks.
"The most likely scenario is that the taxpayer will not pay out on the guarantees," said NAO head Amyas Morse. "Optimism on this score should be tempered, however, with the realisation that the risk of further shocks to the financial markets and of significant loss to the taxpayer has not gone away. The government is currently paying about 5.0 billion pounds per year in interest on state borrowing that was raised to finance the purchase of shares and loans to the banking sector, according to the watchdog.