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Britain Boosts Stake In Royal Bank

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By ALAN ZIBEL

The Associated Press

Published: January 20, 2009

WASHINGTON - The day before President-elect Barack Obama takes office, the escalating troubles facing major banks around the world couldn't be clearer.

On Monday, the British government swooped in to boost its stake in troubled Royal Bank of Scotland to almost 70 percent and offered to insure banks against large-scale losses on risky assets in exchange for binding agreements to lend out more money.

It was the second major British bank bailout in three months. Shares of ailing RBS, parent of Providence, R.I.-based Citizens Financial Group., lost two-thirds of their value in Monday's trading. Shares of other European banks plunged as investors worried that one or more banks could be nationalized after RBS said last year's losses could reach $41.3 billion - the biggest ever for a British corporation.

Officials on both sides of the Atlantic have failed to contain the most severe credit crisis in decades.

U.S. officials are talking about establishing a new government-backed bank to remove bad loans and other toxic assets from banks' balance sheets, Treasury Secretary Henry Paulson said last week. In theory, with those assets gone, banks would be freer to make more loans.

The U.S. government has so far provided $192.3 billion to 257 large and small financial institutions in 42 states and Puerto Rico in a financial bailout program that has proven extremely unpopular with the public. Now the government is facing calls to use its power to fire executives at banks that receive government aid.

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