Treasury statement on financial support to the banking industry
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Released 13 October 2008
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 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
- 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
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 standardsand 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:
As part of its investment, the Government
has agreed with the banks supported by the recapitalisation scheme a range of
- maintaining, over the next three
years, the availability and active marketing of competitively-priced lending
to homeowners and to small businesses at 2007 levels;
- support for schemes to help people
struggling with mortgage payments to stay in their homes, and to support the
expansion of financial capability initiatives;
- 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:
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 last week.
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.
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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Article Published/Sorted/Amended on Scopulus 2008-10-13 14:55:53 in Business Articles