Maintaining Financial Stability of UK Banks: Update on the Support Schemes
HC 973, Thirty-Second Report of Session 2010-12 - Report, Together with Formal Minutes, Oral and Written Evidence
- House of Commons - Committee of Public Accounts
- TSO (The Stationery Office)
'Maintaining Financial Stability of UK Banks: Update on the Support Schemes (HC 973)' outlines the Committee of Public Accounts' recommendations that banks should no longer be dependent on taxpayer support following relative stabilisation since action taken in the 2007 crisis in the financial markets.
Action included nationalisation, the purchase of a large number of shares in the Royal Bank of Scotland (RBS) and Lloyds TSB, establishing sector-wide schemes to guarantee banks' debt-funding and protect their assets, and indemnifying the Bank of England against losses for providing temporary liquidity.
The level of explicit support has gone down from nearly £1 trillion to £512 billion, and estimates of the size of the implicit subsidy vary - from as high as £100 billion to just below £10 billion in 2009 alone.
The explicit subsidy includes the fees paid by banks for their use of the Credit Guarantee Scheme which, to date, have been at least £1 billion less than the benefit received by the banks.
These subsidies enable private gains to be made at the expense of public risk, and some of these gains have been used to pay bonuses to staff and dividends to shareholders, rather than enhancing the financial sustainability of the sector. This causes the Committee and the wider public much concern.
For the taxpayer to obtain value for money from ending support depends heavily on a successful sale of the shares in RBS and Lloyds. The government shareholding is far greater than in previous share sales and will require extraordinarily careful handling to protect the taxpayers' interest.
Regulatory and political uncertainty over the banking sector will remain until the Government has responded to the recommendations from the Independent Commission on Banking.
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