Introduction

Between 2007 and 2010, HM Treasury made a series of large financial interventions to support the financial stability of UK banking. These interventions supported four broad aims:

  • to protect depositors;
  • maintain liquidity for UK banks;
  • maintain capital for UK banks; and
  • to encourage banks to lend to creditworthy borrowers.

In line with international good practice, HM 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.

All figures are based on the most recently published HM Treasury Annual Report and Accounts (currently for the year ended 31 March 2017) and will be updated annually.

Frequently Asked Questions (FAQs)

Q: Why did the Government provide support to UK banks?

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. HM Treasury, like many other finance ministries around the world, took actions to:

  • protect depositors in banks suffering insolvency or a severe decline in market confidence;
  • maintain liquidity to allow banks, whose failure would threaten the overall financial system, to pay claims and outstanding borrowings as they fell due;
  • ensure that banks whose failure would threaten the overall financial system would have sufficient capital to cushion them from losses caused by further deterioration in the financial markets; and
  • encourage banks to lend to creditworthy borrowers.

Q: What support did the Government provide?

HM Treasury’s support to the banks included:

  • Recapitalisation of Lloyds Banking Group (Lloyds) and Royal Bank of Scotland (RBS) through a series of transactions eventually acquiring 83 per cent of RBS (but 68 per cent of the voting rights) and 41 per cent of Lloyds (of both ordinary shares and voting rights).
  • Lending money to the Financial Services Compensation Scheme (FSCS) so it could guarantee customer deposits of up to £50,000. The limit has been increased since then, most recently in January 2017 it was increased to £85,000.
  • Lending directly to insolvent banks so they could repay customer deposits of over £50,000, including to London Scottish Bank, Dunfermline Building Society and the Icelandic Banks – Heritable, Kaupthing Singer and Friedlander, and Landsbanki.
  • Nationalising Northern Rock and Bradford & Bingley (B&B) to protect their depositors and facilitate the orderly unwinding of their obligations and HM Treasury’s guarantees.
  • The Special Liquidity Scheme, introduced in April 2008 and lasting until January 2012, to increase the liquidity of UK banks. It was a Bank of England (BoE) scheme, supported by a HM Treasury guarantee, under which banks swapped assets for more liquid Treasury Bills in return for a fee.
  • The Credit Guarantee Scheme, introduced in October 2008, to help restore investor confidence in bank wholesale funding by guaranteeing certain unsecured debts in return for a fee. The scheme closed in 2012.
  • The Asset Protection Scheme, announced in January 2009, to protect assets on banks’ balance sheets. RBS and Lloyds initially agreed in principle to join, but in the end only RBS joined. The scheme closed in 2012.

This list excludes loans and commitments to other countries and wider interventions to support the economy. One such intervention is the BoE’s Quantitative Easing Programme, more details can be found on the BoE’s website: http://www.bankofengland.co.uk/monetarypolicy/pages/qe/default.aspx.

Q: How much support did the Government provide to UK banks?

There were two types of support provided:

  • Provision of guarantees and other non-cash support. The main items under this heading are the Credit Guarantee Scheme, Special Liquidity Scheme and Asset Protection Scheme, as well as various other guarantees and indemnities provided to UK banks.
  • Provision of cash in the form of loans to the FSCS and insolvent banks to support deposits, and the purchase of share capital in RBS and Lloyds.
Peak support (£bn)
Guarantee commitments 1,029
Cash outlay 133
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 Annual Report and Accounts, Parliamentary supply estimates and National Audit Office (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.

Q: Which banks received support from the UK government?

Peak support (£bn) Outstanding

support

31 March 2017

(£bn)

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 20
Contingent capital 8 0
Lloyds Banking Group
Asset Protection Scheme 255
Lloyds Banking Group shares 21 1
Northern Rock and Northern Rock (Asset Management) 60 7
Bradford & Bingley 46 30
Insolvent firms 11 0
Total 1,162 58

 

 

Further information and notes to these figures are set out in the HM Treasury’s 2011-12 and 2016-17 Annual Report and Accounts.

Q: What is the current level of support provided?

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; some of the shareholdings have been sold; and banks have started to repay some of the Treasury loans.

Total outstanding support as at 31 March 2017 (£bn)
Guarantee commitments 12
Cash outlay 46
Total support 58

 

The £133 billion cash provided has been reduced to £46 billion through a variety of mechanisms (where we have carried out specific work on these a link to our report is included):

  • recoveries from the administrators of financial institutions and repayments by the FSCS levy payers;
  • Northern Rock plc was sold to Virgin Money at the end of 2011;
  • the majority of the government’s shareholding in Lloyds had been sold by 31 March 2017 with all remaining shares sold by 17 May 2017;
  • some of the shareholding in RBS was sold in August 2015; and
  • repayments of government loans by UK Asset Resolution Limited from repayments and redemptions of mortgages and other loans. This has also included the sale of a £13 billion portfolio of the NRAM mortgage book in November 2015 and £11.8 billion of B&B mortgage assets in March 2017.

The total £1,029 billion guarantees and non-cash support has fallen significantly and stood at £12 billion as at 31 March 2017. All of the sector wide support schemes have now closed and the figure now solely relates to Northern Rock and B&B undrawn loan facilities.

Some parts of these schemes and investments may be held by the Government for some time and the eventual profit or loss to the taxpayer will not be known until the loans are repaid or the shares are sold. As at 31 March 2017 the outstanding schemes and investments related to Northern Rock and B&B and the government’s shareholdings in RBS and Lloyds are:

  • Loan repayments from Northern Rock and B&B. The Treasury expects to recover the funds lent to Northern Rock (NRAM) and B&B from the cash flows generated during their wind-down (interest, repayments and redemptions of loans) as well as proceeds from asset sales such as the £11.8 billion sale of B&B mortgages in March 2017. As at 31st March 2017, the outstanding loan balance was £24.6 billion. In April 2017, proceeds from the B&B sale were used to repay the loans from HM Treasury and FSCS reducing the outstanding loan balance by £11.4 billion.
  • Shareholdings in Royal Bank of Scotland (RBS). The shares in RBS were purchased for £46 billion. The shareholding comprised ordinary shares, B shares and a single Dividend Access Share. In August 2015 some of the ordinary shares in RBS were sold for around £2.1 billion. In March 2016, the final Dividend Access Share dividend payment of £1.2 billion was received, bringing the total receipts to £1.5 billion and retiring the Dividend Access Share. All B shares were converted to ordinary share for market value during the 2015-16 financial year. As at 31 March 2017 the remaining ordinary shares held by HM Treasury had a market value of £20.4 billion and represented a stake of 71 per cent.
  • Shareholdings in Lloyds Banking Group (Lloyds). The shares in Lloyds were purchased for £20.5 billion during the 2009 calendar year. The initial shareholding represented 39 per cent of the total shares in Lloyds and comprised solely ordinary shares. This has been reduced through sales, two accelerated book-builds in September 2013 and March 2014, and two trading plans which ran from December 2014 to June 2016 and October 2016 to May 2017. At 31 March 2017 the government’s shareholding had reduced to £0.9 billion, less than 3 per cent of the total. During April and May 2017 HM Treasury sold its remaining shares in Lloyds, fully returning it to private sector ownership on 17 May 2017.

Q: Did the support achieve value for money for the taxpayer?

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 look at individual aspects of the support. They include:

We will continue to update Parliament on the status of the support schemes and major transactions, where appropriate.

Other related NAO reports

Reports on the support as a whole

Last updated: July 2017