The U.K. government’s plan to insure banks against future defaults on loans will be complicated to implement due to the difficulty( THE PROBLEM HAS TO DO WITH A FAIR EVALUATION ) in valuing toxic assets, industry experts said Tuesday.

The government announced Monday that as part of its second multi-billion-pound bank rescue plan, it would offer insurance for a major part of the credit losses incurred by U.K. banks on bad loans.

Banks will pay a fee for the insurance and will carry some of the residual risk of the loans.

The scheme has been broadly welcomed by the industry, but banking experts warned Tuesday that the difficulty would lie in its implementation.

“It is a very, very good idea, and I don’t want to knock it as an idea, but it will be complicated to implement and, therefore, a relatively slow process( AN ARGUMENT AGAINST NATIONALIZATION PUT FORWARD BY SOME PEOPLE. ),” John Hitchins, U.K. Banking Leader at PricewaterhouseCoopers, said.

Hitchins said the crucial element of the scheme would be placing a value( THE PROBLEM ) on the toxic assets, which include corporate and leveraged loans, portfolios of commercial and residential property loans, and structured credit assets.

“For this scheme to work there has to be a consensus between the industry and the treasury( HERE'S THE BIG PROBLEM, AND WHERE OVERPAYING FIGURES IN. ) as to what the assets are worth on a long-term basis,” Hitchins said. “If the industry and the treasury are out of line, then either the industry will swamp the scheme because it thinks the treasury is offering a deal that is too good to be true, or alternatively it will not be interested because the premium the treasury is charging is too expensive( THERE IT IS. ).”

Hitchins said a period of lengthy and detailed negotiation between the treasury and the banks would now be necessary.

“It won’t have a big impact very quickly because it is going to take a lot of negotiation and a lot of time to come up with the right premium and the right terms and conditions,” he said.

City Minister Paul Myners said in the upper house Monday that establishing the scheme would take six to eight weeks and would involve external advisers, accountants, actuaries and lawyers( IF THIS ENDS UP LOOKING LIKE CRONYISM AND COLLUSION, IT WILL BE A DISASTER. ).

“It will involve a huge amount of data analysis. I envisage well over a billion items( AND YOU SAY NATIONALIZATION WILL BE HARD. ) of individual data reviewed for each bank that approached us in that connection,” he said.

Alistair Milne, reader in banking at Cass Business School, said successfully sorting out the details and implementing the scheme was vital to the U.K. economy.

“It is insurance( THE KEY WORD ) against the collapse of capitalism,” he said. “We have to restore trust in banks and get them lending again.”

Milne said he is confident the details could be worked out and that there would be a strong participation in the scheme by banks.

“My doubts are about whether it will be done quickly and on sufficient enough scale by sufficient countries to really have an effect on the global downturn,” he said. –Ainsley Thomson"