Today, the Public Accounts Committee (PAC) of the U.K. Parliament released a report entitled “Maintaining stability across the United Kingdon’s banking system” that focused, among other things, on the status of the U.K. government’s ownership interests in various financial institutions.
The report summarized the U.K. government’s actions in response to the financial crisis of 2007-2008 and noted that there had been no disorderly failure of U.K. banks and no retail depositor in the U.K. had lost money. It noted that agreements to purchase shares in and make loans to the banking sector would, by the end of March 2010, result in a net cash outlay of around £117 billion, and that the U.K. Treasury had provided additional guarantees of up to £450 billion to support borrowings by financial institutions and had insured, through the Asset Protection Scheme, over £280 billion in assets held by the Royal Bank of Scotland (RBS).
The report positively contrasted the U.K. Government’s responses in 2008 with the U.K. Treasury’s initial response to the 2007 Northern Rock crisis but noted that Treasury’s team was “stretched” and had to rely extensively on outside advisers. It also stated that extensions of credit by two of the largest recipients of U.K. funds, RBS and Lloyds Banking Group, were falling short of legally-binding commitments entered into by the banks as a condition of their receipt of support.
The report also severely criticized an £18 billion indemnity covering part of the emergency liquidity assistance provided by the Bank of England to RBS and HBOS. Calling it an example of “flouting Parliamentary procedure,” the report stated it was “unacceptable” that the UK Treasury did not notify Parliament of the indemnity despite its highly sensitive nature.
The report cautioned that the final cost of government actions to taxpayers was uncertain and would not be known for several years, but that the government’s top priority was to obtain the best value to the taxpayer from the funds provided to financial institutions. To that end, the report made the following conclusions:
- Legally-binding lending commitments were not being met and the U.K. Treasury has only limited sanctions available to encourage RBS and Lloyds to meet these obligations
- While a profit on the government’s interests in financial institutions was important, the true measure of success will be enhancement of competition in the banking sector
- The lack of resources at the U.K. Treasury means that it is reliant on external advisors and the compensation and bonus practices for such advisors that it now deems unacceptable
- Estimated losses for the taxpayer have fallen sharply in nine months but inevitable uncertainties still surround the estimates