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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 world.

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 stability.

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 until January.

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 position.

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 public ownership.

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 practice.

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 agencies.

41. These measures are now being implemented. But we must move far more quickly.

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 enforced effectively.

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 regulate.

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 international action.

55. It is right that we look at every aspect - liquidity, capital and regulation - with other countries and of course with the financial sector itself.

56. But it would be irresponsible to speculate on the specifics of future responses.

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 House informed.

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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