10 December 2009

Audit Office report on maintaining financial stability across UK banking system

Given the scale of economic and social costs if one or more major banks had collapsed, the public support provided to UK banks was justified. Total public support currently totals £850 billion, but the final cost to taxpayers will not be known for a number of years.

The National Audit Office has concluded that the public support provided to UK banks by the Treasury was justified, given the scale of the economic and social costs if one or more major banks had collapsed. In providing that support, moreover, the Treasury met two of the government’s principal objectives: protecting depositors’ money in banks and maintaining the stability of the financial system. The final cost to the taxpayer will not, however, be known for a number of years.

 

Today’s overview of the government’s response to the crisis shows that the purchase of shares by the public sector, together with offers of guarantees, insurance and loans made to banks, reached £850 billion, an unprecedented level of support. However, there have been no disorderly failures of UK banks and no retail depositor in a bank operating in the UK has lost money. And, by the end of November 2009, the banking sector as a whole had benefited from improved confidence. But, in 2009-2010 lending to businesses is not likely to meet targets.

 

The scale of the loss to the taxpayer will not be known for years to come. The Treasury estimated in April 2009 that of the loss may be between £20 billion and £50 billion, the wide range reflecting the inevitable uncertainty involved in such an estimate. Total losses will depend on losses from the Asset Protection Scheme and the price at which the government sells its holdings in RBS and Lloyds.

 

The Treasury expects by April 2010 to have spent £107 million on advisers, some of whom had to be employed at short notice. In total, just under £100 million is expected to be refunded by the banks. Two sets of financial advisers – from Credit Suisse and Deutsche Bank respectively - who were each appointed on retainers of £200,000 a month for a year. The contracts included provisions for success fees of up to £5.8 million, payable at the Treasury’s discretion.

 

 

The British Bankers’ Association made the following comments on the report:

 

‘The figures have been exaggerated and cannot simply be added up. As the report points out, the final net cost to the taxpayer of the state support for the UK financial system cannot yet be estimated, but it will more likely now be below the £20 - £50 billion range originally estimated by the Treasury. The £850 billion number is a gross figure - so you need to deduct things like guarantees and indemnities which will end in the near future. Most banks have not required any injection of funds from the tax payer. Where it has been needed, the money will, over time, be repaid with interest, to the benefit of taxpayers. Banks have been a long term mainstay of the UK economy contributing billions in tax annually. They have already restructured and strengthened their balance sheets in response to the global financial situation. They are working to help the UK economy recover and to support businesses and individuals. Misleading headlines do not help. Everyone needs to pull together and get on with the job of getting this country out of recession’.  

Press release

BBA statement