Finance Matters

LONDON (Reuters) – Prime Minister Gordon Brown called on Sunday for a return to traditional savings and mortgage banking in Britain as he prepares to insure banks against billions of pounds of toxic assets.

Writing in the Observer, Brown said he had asked the Financial Services Authority watchdog to look into how it should control new mortgages for more than 100 percent of a home’s value.

He said that in future that loans should be made on prudent and careful terms, and be available to all borrowers, not just those with large deposits.

“We want to ensure that the new banking system that emerges over the coming years meets all these requirements, and becomes the servant of economy and society, never its master,” he said.

“In short, we need stronger business banks, mortgage banks and savings banks.”

Brown’s Labour government is working out the details of a scheme in which banks including Royal Bank of Scotland and Lloyds would put billions of pounds of troubled assets into a structure that will ensure they are only liable for a proportion of any losses.

The government hopes the insurance scheme will give banks the confidence they need to reopen lending lines frozen by the credit crisis.

Details of how much of any losses the banks will have to accept before the insurance kicks in are expected to be announced by the end of the month.

The government has nationalised or taken majority stakes in a number of banks which faced collapse after the global credit crunch exposed poor controls over lending.

(Reporting by Tim Castle)