Treasury statement on financial support to the banking industry
London, 13 October/GNN/ —
HM TREASURY News Release (105/08) issued by COI News Distribution Service. 13
With continuing exceptional instability in the global financial markets, the
Government is today taking decisive action, by implementing the comprehensive
set of measures it announced on 8 October, to make commercial investments in
UK banks and building societies to help stabilise their position and support
the long term strength of the economy.
The overall aim of these measures is to support stability in the financial
system; to protect ordinary savers, depositors, businesses and borrowers; and
to safeguard the interests of the taxpayer. In summary, the measures intend to:
* provide sufficient liquidity in the short term;
* make available new tier 1 capital to UK banks and building societies to
strengthen their resources permitting them to restructure their finances, while
maintaining their support for the real economy, through the recapitalisation
scheme which has been made available to eligible institutions; and
* ensure that the banking system has the funds necessary to maintain lending
in the medium term through the credit guarantee scheme available to eligible
institutions in relation to new short and medium term debt issuance.
The authorities have continued their detailed discussions with the
institutions who confirmed their participation in the recapitalisation
scheme last week. These institutions committed in aggregate to increase their
total tier 1 capital, either through their own actions or, where requested,
through support from the Government’s recapitalisation scheme in the form
of preference and ordinary share capital.
The Government is making capital investments to RBS, and upon successful
merger, HBOS and Lloyds TSB, totaling £37 billion.
Following the completion of these capital investments, each of the above
institutions will have a Tier 1 capital ratio in excess of 9%, well above
international minimum standards and at a level that should put them on a
strong footing for the future.
All participating institutions are eligible to take advantage of the
Government’s credit guarantee scheme. The Debt Management Office is today
announcing the general arrangements for operating the scheme. Further
details relating to fees, the period under which guarantees will be issued
and the application process can be found in the Market Notice which is being
published by DMO at: http://www.dmo.gov.uk/
As part of its investment, the Government has agreed with the banks supported
by the recapitalisation scheme a range of commitments covering:
* maintaining, over the next three years, the availability and active marketing
of competitively-priced lending to homeowners and to small businesses at
* support for schemes to help people struggling with mortgage payments to
stay in their homes, and to support the expansion of financial capability
* remuneration of senior executives – both for 2008 (when the Government
expects no cash bonuses to be paid to board members) and for remuneration
policy going forward (where incentive schemes will be reviewed and linked
to long-term value creation, taking account of risk; and restricting the
potential for “rewards for failure”);
* the right for the Government to agree with boards the appointment of new
independent non-executive directors; and
* dividend policy.
The recapitalisations are designed to enable participating banks to achieve
prudent but efficient capital structures. The Government intends to create a
new arms length body to manage the Government’s shareholdings in recapitalised
institutions on a professional and wholly commercial basis, and seek to
effectively realise value to the taxpayer. Transparent arrangements will
be put in place to ensure that any role for the Government in relation to
investment decision-making is clearly defined.
The Government is not a permanent investor in UK banks. Its intention,
over time, is to dispose of all the investments it is making as part of
this scheme in an orderly way. To reflect the implementation of the scheme,
the government will tomorrow announce a revised debt remit for the Debt
Management Office. Further information is available at: www.dmo.gov.uk
The measures the Government is announcing today support stability in the wider
financial system, and protect the interest of taxpayers, depositors and savers.
The Government has informed the European Commission of the schemes. The
Government stands ready to provide support through the schemes to all eligible
institutions, on the basis of the conditions set out in its announcement
The Government is continuing to collaborate internationally to stabilise and
strengthen the global financial system, following the meetings of G7 and
G20 Finance Ministers and the IMF on Friday and Saturday. Other countries
have announced measures to stabilise their own financial systems.
In parallel with other central banks, the Bank of England is today announcing
expanded swap lines with the US Federal Reserve and that the Bank will supply
dollar liquidity to the banking system against collateral at a pre-set price
with no fixed limit on the amount. The Bank will continue to take all actions
necessary to ensure that the banking system has access to sufficient liquidity.
With the first successful implementation of the schemes announced last week
now completed, the Government has taken decisive and extraordinary action
to support the banking system during this period of exceptional financial
turbulence, and to strengthen the system for the future as markets stabilise.
Notes to Editors
1. This press notice is not an offer for sale of the securities to be
issued pursuant to the recapitalisation in the United States or any other
jurisdiction. The securities to be issued pursuant to the recapitalisation
have not been registered under the U.S. Securities Act of 1933, as amended
(the “Securities Act”) and may not be offered or sold in the United States
absent registration or an exemption from the registration requirements of the
Securities Act. There is no intention to register any part of the securities
to be issued pursuant to the recapitalisation in the United States or to
conduct a public offering of securities in the United States.
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Source: HM Treasury