HM TREASURY News
Release (PN/19/09) issued by COI News Distribution Service. 26
February 2009
The Government is
today making two important announcements to further enhance
financial stability and support increased lending to homeowners
and businesses. Firstly, the Treasury is announcing the details of
the Asset Protection Scheme, which aims to remove continuing
uncertainty about the value of banks' past investments,
cleaning up banks' balance sheets and providing them with
greater confidence to rebuild and restructure their operations and
increase lending in the economy. Secondly, the Treasury is
announcing an agreement in principle with the Royal Bank of
Scotland (RBS) to participate in the Scheme and other financial
support to meet its objectives of economic and financial stability.
Asset Protection
The Government announced its intention to introduce the Scheme as
part of a comprehensive package of measures to support lending
announced on 19 January. These measures are designed to reinforce
the stability of the financial system following the
intensification of the global downturn and therefore to increase
the capacity of banks to lend. From the outset of the global
financial crisis, the Government has stressed the central
importance of full and accurate disclosure by banks about the
value of their assets as the key to restoring confidence and trust.
The Asset Protection Scheme will play a central role in restoring
confidence in the UK's biggest banks by providing protection
against future losses on their riskiest assets. Banks will receive
protection for a proportion of their balance sheets so that the
healthier core of their commercial business can continue to lend
to creditworthy businesses and households.
In return for access to the Scheme, banks will be required to pay
a fee and enter into legally binding agreements to increase the
amount of lending they provide to homeowners and businesses. The
Government will report to Parliament annually on the delivery of
the agreements.
In addition to the requirements on remuneration imposed as part
of the recapitalisation last October, and the agreement announced
by RBS last week, participating banks will have to develop a
sustainable long-term remuneration policy. This will require them
to review remuneration policy and implement a policy consistent
with the detailed principles in the Financial Services
Authority's (FSA) Code of practice on remuneration policies,
published in draft today.
Participating banks will also be required to meet the highest
international standards of transparency. The Treasury and FSA will
publish a joint consultation document on disclosure standards shortly.
A 'first loss', incurred on future loss events in
relation to protected assets, will remain with banks and the
protection provided by the government will cover 90 per cent of
the remaining loss. The balance of the remaining loss will remain
with the institutions as an additional incentive to manage the
assets prudently.
In determining the pool of assets, banks will be subject to
extensive due diligence on the identified assets, as well as
consideration of their wider balance sheets and strategic plans.
The assets in the Scheme will be "ring-fenced" on a
bank's balance sheet, with separate management and governance
arrangements to ensure that the interests of the taxpayer are protected.
As part of the Government's discussions with international
partners to establish a concerted approach to dealing with
impaired assets, the Chancellor of the Exchequer is today writing
to G20 Finance Ministers proposing a list of key objectives and
principles that all countries should follow when designing
impaired asset support schemes.
The finalised rules of the Scheme will be published on conclusion
of the detailed contractual arrangements between the Treasury and
the institutions concerned.
Agreement in principle with The Royal Bank of Scotland Following
discussions with RBS' new management team, the Government is
today announcing an agreement in principle with RBS covering
participation in the Scheme and a capital injection.
RBS intends to participate in the Scheme in respect of £325b of
assets. RBS will pay a participation fee of £6.5b to the Treasury
in capital. The agreement would see RBS bear a first loss of up to
£19.5b, and make 2009 lending commitments totalling £25b - £9b of
mortgage lending, £16b of business lending.
As part of the Government's commitment to financial
stability, the Treasury will also make a capital injection of £13b
into RBS and commit to subscribe for an additional £6b at
RBS' option.
Full details are set out in the accompanying Regulatory News Statement
Notes for Editors
1. The FSA is today publishing a statement explaining the
regulatory and capital impact of the Asset Protection Scheme. It
is also publishing today a draft Code of Practice on remuneration
policies. Both can be obtained from the FSA at http://www.fsa.gov.uk
2. Further details of the Asset Protection Scheme, and agreement
concerning RBS, including the new lending commitments, capital
injection and participation in the Scheme, are set out in
regulatory news service notices published by HM Treasury and by RBS.
3. Today's announcements build on previous Government
measures to support the economy through the economic downturn:
* in October 2008, the Government announced a comprehensive
package both to support stability of the banking system and to
protect savers and depositors. Similar measures were adopted by
other governments;
* in November 2008, in its Pre Budget Report, the Government
announced a comprehensive fiscal stimulus package to support the
wider economy, businesses, homeowners and consumers. Again,
similar packages have been introduced by other governments;
* in January, the Government announced measures to target the
principal sources of continuing uncertainty in the financial
system, and to improve confidence, allowing UK banks to increase
lending and so play a more effective role in supporting the wider economy.
4. As part of the implementation of measures announced on 19 January:
* last week the Bank of England began purchasing high-quality
private sector assets that companies use to finance their
business. This will free up these markets and help companies meet
their funding needs at lower cost; and
* earlier this week the Government announced that Northern Rock
would increase mortgage lending by up to £14 billion over the next
two years. This, in addition to the lending commitments as part of
today's scheme, will help to fill the gap left by the
withdrawal of foreign banks and other institutions, and the
continuing strains in global capital markets.
5. Implementation of the Asset Protection Scheme will be subject
to further due diligence by the Treasury and its advisers,
execution of legally binding documentation, satisfaction of the
application criteria and asset eligibility criteria of the Scheme,
and satisfaction of applicable conditions precedent to the
accession of the Scheme, including regulatory, state aid and
shareholder approvals.
Non-media enquiries should be addressed to the Treasury
Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk
This Press Release and other Treasury publications are available
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