British pump more cash to bail out Royal Bank of Scotland

LONDON -- Britain announced a second rescue plan for the country's ailing banks Monday, hoping to thaw frozen lending by offering to insure banks against large-scale losses on bad assets they already hold.

Stock investors, however, were spooked by fears that the second bank rescue plan in three months was a step toward full nationalization of one or more banks. Fears focused on the Royal Bank of Scotland , which said that it is likely to report a record full-year loss. Its shares closed down 67%.

"There is a great deal of uncertainty. There seems to be some concern doing the rounds that the group will be totally nationalized sometime in the near future," said Keith Bowman, analyst at Hargreaves Lansdown stockbrokers.

RBS said its losses for the full year could be as much as $41.3 billion, which would be the biggest ever by a British corporation.

Prime Minister Gordon Brown said Monday that the government has increased its stake in RBS to almost 70%, but declined to say if he believed the bank will eventually be fully nationalized.

Brown said the government would offer to insure banks against default on toxic loans in return for a fee and legally binding commitments to make credit more available to British businesses and home buyers.

Brown's plan will also see about $74 billion set aside to create a fund for the Bank of England to buy high-quality loans and other assets directly from banks. That plan is also aimed at bringing down borrowing costs.

Britain's Treasury said precise details of the program would be finalized later this month.

Both Treasury chief Alistair Darling and Brown acknowledged that October's pledge of about $55 billion to bail out Britain's banks hadn't done enough to encourage them to resume normal lending volume.

"Good businesses must have access to credit; jobs should not be lost needlessly," Brown told reporters at his Downing Street office. He said stimulating lending is vital to spark Britain's economy and to limit job losses.

Britain's Treasury said the government will offer to insure banks against losses on about 90% of specific shaky loans. The plan would require banks to identify their riskiest assets, which could be insured with government backing.