Aid can help banks free themselves of “toxic debt”

The government support package for banks unveiled yesterday can help the financial institutions to free themselves of “toxic” debts, it has been stated.

Ben Read, a managing economist at the centre for economics and business research, explained how the government’s pledge to offer insurance to lenders for bad debts can help tackle the root of the economic downturn.

“Toxic debts were pretty much why the credit crunch started … it is probably quite important that banks manage to get these off the books and can start having the confidence in lending again,” he remarked.

Offering this form of debt help to lenders can contribute towards creating trust between banks, which in turn can benefit borrowers as finance may become more freely available, Mr Read noted.

Included in the government’s support package were plans to offer a capital and asset protection scheme for banks, which will reduce risk in the sector.

By Jamie Price