Statement by the Chancellor The Rt Hon Alistair Darling MP on financial markets
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Released 06 October 2008
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1. With your permission, Mr Speaker, I would like to make a statement
regarding developments in financial markets.
2. The events in America over the last few weeks - and in Europe over the
last few days - have again demonstrated the global nature and sheer scale of the
problems affecting the global financial system.
3. What started in America, last year, has now spread to every part of the
4. And the disruption in global financial markets has intensified, especially
over the last few weeks.
5. Mr Speaker, people are rightly concerned about what is happening.
6. And I've made it clear that we will do whatever is necessary to maintain
7. Along with governments across the world, I have a responsibility to
support a stable and well-functioning banking system.
8. Financial transactions are at the heart of everything we do. They allow
people to buy goods, pay for services, buy homes, save for pensions, and invest.
9. So it's essential that we take action to both support the banking system
as a whole - as well as being ready to intervene in particular cases when it's
necessary to do so.
10. It's not a case of doing either one or the other. Both general support
and individual intervention are necessary.
11. And we need to work with other countries to tackle the causes of these
problems - as well as dealing with their consequences.
12. Mr Speaker, let me briefly remind the house what we've done to stabilise
the banking system as a whole.
13. Since April, the Bank of England, with support from the Government,
introduced the Special Liquidity Scheme - providing funding to the banks.
14. The Government has made available in excess of £100bn of long-term
funding to be lent through the scheme - and the Bank of England has extended it
15. I am willing to make further resources available as necessary. The
Governor has made clear that: "in these extraordinary market conditions, the
Bank of England will take all actions necessary to ensure that the banking
system has access to sufficient liquidity".
16. The Bank of England has also continued to inject substantial funds into
the markets through its normal operations - and it will continue to do so.
17. Tomorrow it will put in another £40bn, taking a wider range of security -
and these operations will continue into November.
18. Mr Speaker, we also need to deal with specific problems as they arise -
to maintain stability.
19. In February we took special powers to bring Northern Rock into public
ownership - now seen by most people as the right thing to do.
20. I can tell the House that Northern Rock has now paid back more than half
of the taxpayers' money that was lent to them, and continues to repay its loan
ahead of schedule.
21. In August I announced that the Government would swap up to £3bn of
outstanding debt for equity, if required, to strengthen Northern Rock's capital
22. In September, we amended the competition regime to allow the interests of
financial stability to be considered in the merger between Lloyds TSB and HBOS.
23. We took this exceptional measure because financial stability had to come
before normal competition concerns.
24. And ten days ago, we had to deal with the problems at Bradford and
Bingley. We transferred the savings business, the branches and the related jobs
to Abbey Santander, protecting savers, and took the rest of the company into
25. We acted decisively to protect savers and also to protect the interest of
the taxpayers - ensuring the financial sector bears its share of the costs.
26. Mr Speaker, I've made it clear on many occasions that our priority is to
maintain stability, protect the interests of depositors, and safeguard the
interest of the taxpayer.
27. I want to set out what we have done so far here at home and also to deal
with the developments in Europe over the weekend.
28. The FSA has announced a further increase from tomorrow to the
compensation limit for retail bank deposits - to £50,000 per depositor which
means £100,000 for joint accounts.
29. This measure will ensure that 98 per cent of accounts are fully covered.
30. And the FSA is consulting on whether to increase this limit further, to
ensure that arrangements here continue to be comparable with international best
31. Mr Speaker, I've always been clear that each country needs to do whatever
is needed to deal with its own particular circumstances.
32. However, I also believe that wherever it is possible to do so, countries
should work and act together to maintain stability.
33. This afternoon the European Union Member States have reaffirmed the need
to take whatever measures are necessary to maintain the stability of the
financial system, whether through liquidity support, action to deal with
individual banks or enhanced depositor protection schemes.
34. In light of what has happened over the weekend it's especially important
that EU Member States work far more closely together. So tomorrow I will meet
European Finance Ministers in Luxembourg, to further discuss how we bring
stability to the system and protect depositors.
35. Mr Speaker, this further demonstrates that every country in the world,
Europe included, is being affected by these problems.
36. In the United States, Congress has now approved measures to support their
banking system, which we welcome.
37. Our approach has been different - but what has happened in America
emphasises yet again the need for countries to take whatever action they believe
is necessary - but to also work closely together not just to resolve these
problems but also to try to prevent them happening again.
38. Later this week I will attend the G7 and IMF meetings in Washington.
39. Our aim is to reduce uncertainty and improve confidence in financial
markets by increasing the openness of financial institutions' exposures.
40. We also want to change the improve the effectiveness of credit rating
41. These measures are now being implemented. But we must move far more
42. Here at home, there are a number of specific steps that are necessary.
43. First, the Bank of England will continue to do whatever it takes to make
cash available for banks to lend.
44. Second, the Banking Bill will be introduced tomorrow - building on the
special powers we took in February to allow us to intervene quickly and
decisively. It will also give the Bank of England a statutory role to maintain
financial stability - to complement the role of the FSA.
45. Third, just as at an international level lessons need to learnt, we need
to ensure our regulatory system here is up to the mark.
46. It's not about light-touch against heavy-handed regulation, it's about
making sure that we have the necessary rules in place are that those rules are
47. I have asked Adair Turner, the Chairman of the FSA, to make
recommendations for reforms.
48. And as recent events in financial markets have shown us, regulation
should be about liquidity as well as capital. That's why the FSA is considering
changes to liquidity requirements.
49. They are also looking at remuneration structures in the institutions they
50. Fourth, we must do everything we can to ensure that not only do banks
have the confidence to lend to each other, but also that lending is maintained
to the mortgage market, businesses and individuals.
51. I shall publish Sir James Crosby's recommendations on options for
improving the functioning of mortgage finance markets shortly.
52. Mr Speaker, these are exceptional times.
53. I am in no doubt as to the size of the task facing us and government's
around the world in bringing order to the financial system.
54. The process of change will necessarily take some time to work through and
because we are dealing with international institutions and international markets
it will require action not only at a national level, but also concerted
55. It is right that we look at every aspect - liquidity, capital and
regulation - with other countries and of course with the financial sector
56. But it would be irresponsible to speculate on the specifics of future
57. Indeed, providing a running commentary could add to uncertainty in
already febrile market conditions.
58. But all practical options must remain open to us.
59. And I have made it very clear that the Government stands ready - with the
resources and the commitment - to do whatever is necessary. And I will keep the
60. Mr Speaker, our priority, at home and abroad, is to bring stability to
the financial system, ensure depositors and savers are protected, and defend the
interest of the taxpayer.
61. And I commend this statement to the House.
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Article Published/Sorted/Amended on Scopulus 2008-10-06 18:48:31 in Business Articles