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RBS hands over £325bn worth of risky assets to Govt’s protection scheme

RBS is the first bank to sign up to the Government’s new asset protection scheme, with a deal to hand over £325bn worth of risky assets to be “ring-fenced”.

Under the scheme, participating banks will receive protection for a proportion of their balance sheets so that the healthier core of their commercial business can continue to lend to creditworthy businesses and households.

In exchange for protection, the bank will have to pay a participation fee and sign a legally binding agreement to lend to homeowners and businesses.

A first loss will remain with banks that sign up to the deal while the Government will protect 90 per cent of the remaining loss. The balance of the remaining loss will remain with the institutions as an additional incentive to manage the assets prudently.

RBS’ first loss is around £19.5bn, while £325bn of the firm’s assets will be protected under the scheme. RBS has paid a participation fee of £6.5bn to the Treasury and has committed to lending £25bn over 2009, of which £9bn will go towards mortgages and £16bn will be lent to businesses.

The Treasury has also announced it will make a capital injection of £13bn into RBS and has committed to subscribe for an additional £6bn at RBS’ option.

Participating banks will also have to develop a sustainable long-term remuneration policy, consistent with the FSA’s code of practice published in draft today, and meet the highest international standards of transparency.

Chancellor Alastair Darling is set to write to the G20 finance ministers proposing a list of key objectives and principles that all countries should follow when designing impaired asset support schemes.

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