British Government Nationalizes the Mortgage Lender Bradford and Bingley to prevent a second bank run

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British Government Nationalizes the Mortgage Lender Bradford and Bingley to prevent a second bank run

The government announced yesterday, 29th September 2008, that it is to Nationalise the ailing mortgage lender Bradford & Bingley (B&B); after Northern Rock this will be the second british bank this year to be taken into public ownership.

The move came after an announcement last week that B&B would close it’s mortgage business to new deals; and it would also make all of it’s in branch mortgage advisors redundant.

The timely move by the Government, will prevent the banks savings deposits from being withdrawn in a manner similar to that experienced by Northern Rock; many will regard this as a prudent move by the Government and one will reassure voter that Gorden Brown and the Chancellor Allistair Darling are more than capable of leading the country through the current, financially taxing time.

The Spanish banking group, owner of the British bank, the Abbey, is to take over the £20 billion bound savings and deposit business of B&B whilst the Government will assume responsibility for the £41 billion worth of mortgage assest which will be sold on once the market stabilises.

B&B’s mortgage business is said to be extremely volatile as much of it, nearly 75% is geared towards the buy-to-let market in the UK. Many buy-to-let landlords are scratching there teeth as property values are shrinking. As many have come to the end of their fixed rate deals, or facing an imminent end they are forced to search a market for better mortgage deals which simply do not exist. One of the problems that these landlords are facing is the threat of falling into negative equity and having mortgage payments exceed their rental income.

As well as the take over and nationalisation of B&B and Northern Rock the government is proposing additional changes to the banking bill. The treasury will protect savers to the value of £50,000. Additionally, it is also making agreements with the FSA to protect the tax payer when British banks are nationalised; banks will be liable for the financial risks taken by the tax payer. The Government assures the public that there will be no burden to the tax payer from the nationalisation of B&B.

The situation with B&B is very different to that of Northern Rock in that the Government have managed to find a buyer for the ailing bank’s savings and deposits business. Northern Rock, Britain’s mortgage lender was nationalised in January after a wiling buyer could not be found. Nine months later the Bank is still in Government hands.

Many are now looking over the water to the American senate to approve some version of the Federal Government proposed package, a deal which has already been rejected twice in the house. Many financiers believe that it is this deal which will stabilise the American and in turn the global financial markets.

The rescue package was initially aimed at buying mortgage assests which would be sold on at a later point will be backed by the federal government. Speculation is that it will now be amended to protect the American’s savings and deposits to the tune of £250,000.