Gordon Brown has said new measures to be put in place will encourage banks to increase lending levels and protect jobs.

Without the new scheme he said jobs would be lost needlessly as businesses struggle to access necessary funding. But some argue that even the new plans won’t cut it. And the news saw bank shares plummet.

The Prime Minister said: “Good business must have access to credit. It is because of this that we are taking the action to expand lending.”

This is the second major plan set out to encourage banks to lend more money.

A list of policies will be put into place, including a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch. Also, the Bank of England will be able to buy assets direct from firms.

Despite the new plans, bank shares have fallen badly. The Royal Bank of Scotland has lost 67% of its value.

The government has not said how much the plans will cost taxpayers.

There are four key points to the government’s latest message:
1) Banks will be able to take up government insurance against unexpected bad debts
2) The Bank will be able to buy up to £50billion of assets in companies in all sectors of the economy
3) Extra time will be given for Northern Rock to repay its loans from the government
4) The governments stake in RBS will increase to nearly 70%. The RBS have also said they suffered a loss in 2008, with asset write-downs of up to £20billion.

According to the insurance scheme, banks will agree with the government what they expect to lose form a particular debt, then the Treasury will sell insurance against around 90% the institutions’ additional losses from the debt.

According to Alistair Darling, banks will have to make specific, legally binding agreements to lend more money, to take out the insurance.

Under its new role, the Bank of England will be able to buy up to £50billion of high quality assets, like bonds and loans, from companies.

Vince Cable of the Liberal Democrats said the plans were inadequate and called for the whole banking sector to be nationalised. He said: “The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times.”

The government has also made changes to its previous bank rescue terms, such as giving Northern Rock longer to repay its loan, after concerns that the repayment timetable given to Northern Rock was forcing it to reduce its mortgage lending too quickly.

The RBS has said it agrees with the Treasury’s plan to swap £5billion of preference shares to ordinary shares and therefore increasing the government’s stake by nearly 12%, reducing the RBS’s annual payments to the government as preference shares have a higher guaranteed rate of return than ordinary shares.