The Financial Secretary to the Treasury (Mr Mark Hoban)
HM Treasury and the Financial Services Compensation Scheme (FSCS) have agreed revised terms on the loans made by HM Treasury to the FSCS in 2008-09 in relation to the resolutions of Bradford and Bingley plc, Heritable Bank plc, Landsbanki Islands, Kaupthing Singer & Friedlander Ltd, and London Scottish Bank plc. The amount outstanding under these facilities is as follows: Bradford and Bingley £15.65 billion; Landsbanki £1billion; Kaupthing Singer & Friedlander £954 million; Heritable £149 million; and London Scottish £187 million.
With effect from 1 April 2012, the interest rate on these loans is 12-month LIBOR plus 100 basis points. This rate is subject to a floor equal to the Government’s own cost of borrowing as represented by the gilt rate over an equivalent duration to the projected repayment period on the relevant loan.
FSCS and HM Treasury have agreed the period of the loans will reflect the expected timetable for FSCS to realise assets from the estates of Bradford and Bingley and the other failed banks. FSCS expects to receive full repayment of the debt owed to it by Bradford and Bingley as the residual assets of the bank are wound up. The estates of the other failed banks might not repay in full the principal owed by FSCS to HM Treasury. Where this occurs FSCS expects to levy the deposit taking sector for the balance of the principal on these loans.
There will be an annual cap on the amount of interest the industry will have to pay through FSCS levies. This cap will be set on the advice of the Financial Services Authority (FSA) (and in due course the Prudential Regulatory Authority (PRA)) and will take into account other FSCS and similar commitments. Any interest charges exceeding the annual cap will be capitalised and repaid from levies on deposit-takers.
FSCS and HM Treasury have agreed that the terms of the agreements will be reviewed every three years in the light of market conditions and of actual repayments from the estates of the failed banks.