Even prior to the government's intervention in the banking sector, it appeared that it would have little chance of meeting its fiscal rules. But the bailout package has now rendered them completely irrelevant. The financial crisis forced the government to announce a three-part package, each element aimed at a slightly different aspect of the problems in the banking sector. The government will inject up to ￡37 billion into RBS, Lloyds TSB and HBOS to recapitalise these banks in return for a combination of ordinary and preference shares. In addition, the Special Liquidity Scheme was doubled in size to ￡200 billion to give banks more freedom to raise market funds by improving the collateral they can offer. Finally, a new government-backed company will be established which, for a fee, will guarantee new short- and medium-term debt issues by banks with maturities up to three years for use in refinancing maturing interbank borrowings. The government expects the take-up of the guarantee to be of the order of ￡250 billion.
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