Speculation across the media has intensified that UK taxpayers may become liable for £500bn worth of bad loans and investments made by Royal Bank of Scotland and Lloyds Banking Group. It would be part of the government's Asset Protection Scheme, under which taxpayers insure banks against future losses from such assets. The idea is to draw a line under bad assets to free up cash that the banks can lend to companies and individuals. RBS and Lloyds are understood to be hoping to insure £250bn of assets each.
 
One of the sticking points in the negotiations is the amount of losses the banks would have to take themselves before the taxpayer starts paying.

The original plan under the Asset Protection Scheme was that the banks would pick up the first 10% of losses, but forcing RBS and Lloyds to take on £25bn of losses each would risk weakening rather than strengthening them. There is also the question of what fees the banks would have to pay for the insurance.

The fees are expected to be paid in preference shares, which would not carry voting rights, so that the government's stake in the banks would not increase above the current 70% of RBS and 43% of Lloyds. But it could mean that the government's control over the banks' profits and assets could approach 100%, which according to many experts would amount to economic nationalisation - if not formal nationalisation.