Notification of Contingent Liability

Thursday 21st June 2018 Written Statements

[The Chancellor of the Exchequer (Mr Philip Hammond)]

I have today laid before the House of Commons a departmental minute describing the contingent liability associated with the new financial framework between HM Treasury and the Bank of England (the “Bank”) ¹. On this occasion it has not been possible to notify Parliament in advance of the contingent liability coming into effect, which is due to the market sensitive nature of the measure.

The contingent liability arises from the new capital framework under which the Treasury commits to provide a capital injection to the Bank in the event that its level of loss-absorbing capital drops below a floor level. At present that floor is set at £500 million. The Bank’s level of loss-absorbing capital will be raised to £3.5 billion during 2018-19. This is part of wider reforms to the financial arrangements between the Bank and Treasury, including clearer principles regarding risk-sharing in future Bank operations.

It is not possible to quantify the size of the contingent liability given the unprecedented nature of economic conditions required for the liability to crystallise. A full departmental minute is laid in the House of Commons providing more detail on this contingent liability.

¹As set out in a memorandum of understanding:

https://www.gov.uk/government/publications/financial-relationship-between-the-treasury-and-the-bank-of-england

[HCWS791]