UK banks to benefit as US prepares a multi-billion dollar rescue plan

UK BANKS – including Royal Bank of Scotland, HBOS and Barclays – are set to gain multi-billion dollar benefits from the US Treasury as part of the American government's plans to rescue its crisis-hit financial system.

US Treasury Secretary Henry Paulson yesterday revealed that foreign banks would be able to unload bad financial assets as part of the $700 billion (£381bn) proposal aimed at restoring order during a devastating financial crisis.

Asked if overseas banks with US bases could gain, Paulson told a televison interviewer: "Yes, and they should."

He added: "If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution."

Poulson's comments are understood to be welcomed by UK banks, including Edinburgh-based RBS, and could even fuel a further revival of their share prices when the markets open today.

Last night none of the banks chose to comment as they await the details of the legislation on the bail-out being negotiated by the US Treasury with Congress.

However, Lord Adair Turner, the new chairman of UK's watchdog the Financial Services Authority, said the bail-out being thrashed out in the US could be a "turning point" in the current global financial turmoil.

Turner said: "It's a very major step, which I think may turn to be the turning point, but we don't know that. We are now taking very exceptional measures in what has been an enormous crisis in the global financial system."

He added: "We have got to sort through the remaining steps of the crisis and, hopefully, we are near the end of that. We then have to step back and really work out what has gone wrong."

Paulson is preparing legislation that will allow the US government to buy up hundreds of billions of dollars worth of "toxic" bank assets that have led to the current banking crisis and threatened world economies.

His plans are being described as the largest operation of its kind since the Great Depression, and were last night still being feverishly worked on by officials in Washington.

Emphasising the need for speed, Paulson said that the scheme had "to be clean, it's got to be quick".

He also added that he has been talking to other governments around the world saying he was "aggressively" encouraging them to offer similar relief as the current financial crisis is global.

The UK Treasury said yesterday it had no plans to carry out a similar operation, pointing instead to the government-backed Special Liquidity Scheme launched by the Bank of England earlier this year to help bolster banks' balance sheets.

Paulson's statement, could give a significant boost to three UK banks.

RBS has taken a near-£6bn write-down this year on its billions of pounds worth of credit crunch-related assets, with Barclays suffering write-downs of £2bn and HBOS £1.1bn.

Details of how much they will benefit by were not available last night, but the total for all three is likely to amount to several billion pounds.

However, unlike banks, hedge funds were ruled out as being able to tap in to the unprecedented US bail-out.

Although the finer details of the US plan have yet to be worked out, it would give Washington broad authority to purchase bad mortgage-related assets from US financial institutions for the next two years. The debts would then be held until they can be sold off in the future.

It is hoped that this will allow banks to get on with their normal day-to-day business of lending to consumers and get the economy moving ahead.