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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.

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Today’s overview of the government’s response to the crisis shows that the purchases 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 there may be a loss to the taxpayer of 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.

As a condition of the recapitalisation scheme, RBS and Lloyds agreed to targets for retail mortgage lending and business lending: RBS would lend an additional £25 billion in 2009-10, and Lloyds an additional £14 billion. To date, both banks are on track to meet their retail mortgage lending commitments but lending to businesses is likely to fall short of the targets. The Treasury is monitoring progress and meets each of the banks regularly. The only formal sanction available if targets are not met is a potential refusal to extend guarantees for wholesale borrowing under the Credit Guarantee Scheme.

"It is difficult to imagine the scale of the consequences for the economy and society if major banks had been allowed to collapse. The Treasury was justified in using taxpayers’ money to safeguard savings and stabilise and restore confidence in the financial system.


"But the big question is what all of this will eventually cost the taxpayer. This will take time to answer. What we do know is that how the eventual sale of RBS and Lloyds is managed will be crucial to protecting the public interest. The structure of the UK banking system has changed beyond recognition. When it comes to selling its stakes in the banks, the government has to be mindful of the proceeds for the taxpayer but also of the implications for competition in the UK market, so that customers get a fair deal.


"As the crisis begins to subside, lessons must start to be learned. The authorities need to put formal arrangements in place to evaluate the effectiveness of the support provided to banks in order to inform future policy makers."

Amyas Morse, head of the National Audit Office


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