Government will need to support banks for years

15 Dec 10
The government’s financial support for banks will continue for 'years to come', the National Audit Office has found

By Jaimie Kaffash

14 December 2010

The government’s financial support for banks will continue for ‘years to come’, the National Audit Office has found.

Its report, Maintaining the financial stability of UK banks, released today, found that government support had decreased by £443bn since its peak, but remains at £512bn overall as of December 1. The amount of cash borrowed by the state to maintain the support increased by £7bn since December 2009, to £124bn.

The Lloyds Banking Group and the Royal Bank of Scotland were both recapitalised  in 2008, which gave the government 83% control of the RBS and 41% of the Lloyds Group. The previous Labour government also lent money to the Financial Services Compensation Scheme and to smaller banks, such as the Dunfermline Building Society and the London Scottish Bank, so they could repay customer deposits of over £50,000. It also nationalised Northern Rock and Bradford & Bingley.

Although these were meant to be temporary measures, the NAO warns that ‘winding the support down quickly will be challenging and it is likely that the Treasury will be committed to at least some of its guarantees, loans and share investments for years to come’.

It says that the return to the taxpayer depends on the ability of ministers to successfully sell its shares in RBS and Lloyds and recoup various loans to the sector. However, the government is currently paying £5bn in interest a year on the borrowing to finance the measures. The fees received from the banks are likely to fall in the future, it says.

Amyas Morse, head of the National Audit Office, said: ‘We concluded in 2009 that the support provided to the banks was justified but that the final cost to the taxpayer would not be known for a number of years. A year on and we have more information.

‘The most likely scenario is that the taxpayer will not pay out on the guarantees. Optimism on this score should be tempered, however, with the realisation that the risk of further shocks to the financial markets and of significant loss to the taxpayer has not gone away. The Treasury is likely to be paying for the support it has provided to UK banks for years to come.’

A spokeswoman for the British Bankers’ Association said: ‘Banks have made real progress as the NAO update shows. The report shows that, since this time last year, facilities have been halved and the special liquidity scheme is being repaid faster than expected.’ This supported the view, she added, that ‘when the government chooses to sell its shareholding in three banks, the taxpayer will be in the black.

‘We are well aware of the extent of support for the industry during the crisis and we are committed to repaying the public as quickly as possible.’

Did you enjoy this article?

AddToAny

Top