Q&A Bail-out bonanza

Why do they keep coming back for more?

Are the government's bank bail-out plans failing?

It is too early to tell, but the initial reaction appears to be sceptical. In October when the government bought £37bn of shares in Royal Bank of Scotland, HBOS and Lloyds TSB, it stopped banks sliding into the abyss. However, now businesses are complaining that they are not able to obtain credit, while mortgages have also dried up. Addressing the lack of finance for home loans is the main reason the government is putting another £14bn into Northern Rock.

Why aren't the banks lending?

The banks argue that there has been a steep reduction in demand for loans. They have also taken a more conservative approach over to whom they lend.

Why do the banks keep coming back for more help?

The toxicity on the banks' balance sheets could take years to unravel. The banks' problems are exacerbated by each fresh downturn in the economy. Banks are coming back for more taxpayer support because problems keep emerging. In the US, Citigroup, once the world's biggest bank, is regarded as too big to fail and is now in discussions about its third bail-out as the continuing decline in asset prices, particularly houses which have fallen 27% in a year, eat into its financial strength.

Who else wants a bail-out?

Insurance company AIG is already 80%-owned by the US authorities and is in discussions about its third bail-out. The car industry received $13bn in emergency aid in the dying days of the Bush presidency. In the UK, the car industry has also called for help from the Treasury.

What is the US government doing?

Barack Obama is trying to find ways to set up a task force on the car industry and is in talks with AIG about its deteriorating financial health. AIG is rumoured to have made a loss of $60bn for the final quarter of last year - the biggest in US history. The administration is trying to attach as many conditions as it can to taxpayers' money spent on propping up banks and businesses.

Is the world's banking system solvent?

Let's hope so.

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