Since 2007, the Treasury has made a series of interventions to support the financial stability of UK banking. These interventions supported four broad aims:
In line with international good practice, the Treasury and the National Audit Office have worked to ensure that the scale and costs of the various government interventions are transparent. This page sets out the work the National Audit Office has done on the banking interventions and answers some frequently asked questions.
In 2007, financial markets entered a sustained period of instability, causing difficulties for banks across the world, precipitating a global credit crisis, a widespread economic downturn and, by 2010, concern over certain Eurozone governments’ ability to service their debt obligations. The Treasury, like many other finance ministries around the world, took actions to:
The Treasury’s support to the banks included:
This list excludes loans and commitments to other countries and wider interventions to support the economy, such as the Bank of England’s Quantitative Easing.
The financial crisis has continued and the Treasury, working with the Bank of England, is establishing new schemes to promote lending to UK businesses and protect the UK economy. These are described in Part Three of the C&AG’s Report on HM Treasury’s 2012-13 Resource Accounts.
There were two types of support provided:
|Peak support (£bn)|
|Total peak support||1,162|
These figures set out our calculation of the total peak support provided to banks, including support that was made available but not used by a specific institution. They are calculated by adding all the support schemes together and removing overlaps.
The peak values have been taken from HM Treasury Resource Accounts, Parliamentary supply estimates and NAO reports to Parliament. As each scheme and support facility was available at different times, the total peak support was not all available at a single point in time.
Break-downs of these figures are set out in the C&AG’s Report on HM Treasury’s 2011-12 and 2012-13 Resource Accounts.
31 March 2013
|Sector wide support schemes|
|Credit Guarantee Scheme||250||-|
|Special Liquidity Scheme||200||-|
|Asset Backed Securities Scheme||50||-|
|Unused recapitalisation fund||13||-|
|Other direct support to specific institutions|
|Royal Bank of Scotland|
|Asset Protection Scheme||202||-|
|Royal Bank of Scotland Ordinary and B shares||46||46|
|Lloyds Banking Group|
|Asset Protection Scheme||255||-|
|Lloyds Banking Group shares||21||21|
|Northern Rock and Northern Rock (Asset Management)||60||29|
|Bradford & Bingley||28||16|
Further information and notes to these figures are set out in the C&AG’s Report on HM Treasury’s 2012-13 Resource Accounts.
The total current level of support provided to banks has fallen significantly from its peak level. This is because the sector wide support schemes have been withdrawn; some of the guaranteed debts and assets in the schemes have matured and been repaid; some guarantees to bank depositors and wholesale funders have been removed; and banks have started to repay some of the Treasury loans.Our most recent estimate of the outstanding support is set out in the C&AG’s Report on HM Treasury’s 2012-13 Resource Accounts.
|Total outstanding support as at 31 March 2013 (£bn)|
Furthermore, the Treasury retains the unquantifiable ultimate risk of supporting banks should they threaten the stability of the overall financial system again.
The total current level of support provided to banks has fallen significantly from its peak level.
The £133 billion cash provided has been reduced to £115 billion because:
The total £1,029 billion guarantees and non-cash support has fallen significantly and stood at £26 billion as at 31 March 2013. All of the sector wide support schemes have now closed.
It is likely that a substantial proportion of these schemes and investments will be with us for some time and the eventual profit or loss to the taxpayer will not be known until all the support is removed, the loans repaid and the shares sold.How much the taxpayer will receive will depend on a number of different factors:
The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer of at least £5 billion from taxpayers to the financial sector. This does not include the cost of holding the shares which have not paid a dividend or seen a capital gain. Further details are set out in Figure 8 of the C&AG’s Report on HM Treasury’s 2012-13 Resource Accounts.
The fees and interest were generally set with a view of what the recipient banks could afford at the time, in keeping with the schemes’ aims for financial stability. The £5 billion can be regarded as part of the cost of preserving financial stability in the crisis, and as I reported in 2009, had the support not been provided, the potential costs would have been difficult to envision.
We reported in 2009 that “if the support measures had not been put in place, the scale of the economic and social costs if one or more major UK banks had collapsed is difficult to envision. The support provided to the banks was therefore justified, but the final cost to the taxpayer of the support will not be known for a number of years.”
We have also produced a series of more focused evaluative reports on the value for money achieved by individual parts of the support schemes. Whilst we believe that the overall support package was justified, these reports attempt to look at whether each part was put together in the optimum way. They include:
We expect we will continue to update Parliament on the status of the support schemes so long as they remain material to the public finances.
Reports on the support as a whole