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Cost of insuring RBS debt hits credit crunch high

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  • 10/08/2011
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Cost of insuring RBS debt hits credit crunch high
The cost of covering state-owned Royal Bank of Scotland's debt against default is higher now than in the run up to the collapse of Lehman Brothers in September 2008.

Financial information firm Markit data showed that the cost of insuring against default by RBS over five years, as measured by credit default swaps, was higher than at certain points in 2008, according to The Guardian.

Quotes to insure Lloyds Banking Group quotes against default are also priced higher, in moves that one senior analyst described as “irrational” – although he noted that there was a lot of uncertainty about regulatory change in the banking sector.

Equivalent insurance for other banks has also risen sharply in the past few days. The government has pumped £45bn of cash into RBS to keep it afloat since 2008. The bank’s crucial core tier one ratio is reportedly 11.1% at the end of June, which is well above the regulatory minimum.

Lloyds has received some £17bn of taxpayer funds and also has a capital ratio well above minimum requirements and paid back all the funds its received through the special liquidity scheme to demonstrate its ability to raise funds on the money markets.

Shares in RBS and Lloyds and were among those taking the brunt of anxiety about the global economy and the eurozone debt crisis, despite the fact the FTSE 100 index managed to end a seven-day losing streak to close 95 points higher yesterday.

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