Bilateral Loan to Ireland
Greg Clark Excerpts(12 years, 1 month ago)
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The Financial Secretary to the Treasury (Greg Clark)
I would like to update the House on the loan to Ireland.
Ireland completed the seventh quarterly review of its International Monetary Fund and European Union programme of financial assistance on 13 September 2012, following which, the utilisation period for the fifth instalment of the UK bilateral loan began.
Upon request, the Treasury disbursed the fifth instalment of £403.37 million on 19 October 2012, with a maturity date of 20 April 2020.
The interest rate charged on the loan is calculated as set out in the loan agreement as the UK’s cost of funds plus a service fee of 0.18 basis points per annum, creating an effective per annum interest rate on this tranche of the loan of 2.372%. The UK more than covers its cost of funds.
The Treasury will provide a further report to Parliament in relation to the bilateral loan as required under the Loans to Ireland Act 2010 as soon as is practicable following the end of the next reporting period, which ends on 31 March 2013.
The Government believe that it is in our national interest that the Irish economy is successful and its banking system is stable. The Government continue to support Ireland’s efforts to improve its economic situation.
LIBOR (Wheatley Review)
Greg Clark Excerpts(12 years, 1 month ago)
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The Financial Secretary to the Treasury (Greg Clark)
At the end of June it was revealed that LIBOR—the London interbank offered rate, the benchmark used in trillions of pounds worth of financial contracts—had been subject to repeated attempts at manipulation.
The attempted manipulation of LIBOR is totally unacceptable and has further undermined trust in the financial services industry—without which this vital sector cannot operate.
Although the abuse is by no means confined to London—banks and benchmarks in a number of jurisdictions have been implicated, including Euribor and Tibor—I am determined that we in this country should move quickly to restore credibility to this globally important benchmark and repair the damage to London’s reputation caused by this behaviour and the failure of the regulatory sector to prevent it.
In July, one week after the scandal came to light, the Chancellor asked Martin Wheatley, the managing director of the Financial Services Authority and chief executive-designate of the new Financial Conduct Authority to consider immediate reforms to LIBOR and to report back by the end of September.
On the 28 September—13 weeks later—Mr Wheatley presented his review to the Government. I am very grateful to Mr Wheatley and his team for their excellent work on this matter.
This statement sets out the Government’s response to the Wheatley review of LIBOR.
The Wheatley review made 10 main recommendations:
1. The new Financial Conduct Authority should regulate the submission to, and administration of, LIBOR—and that there should be criminal sanctions for any attempted manipulation.
2. The British Bankers’ Association (BBA) should make an orderly transfer of responsibility for LIBOR to a new administrator, selected by an independent committee.
3. The new administrator should scrutinise submissions and regularly review the effectiveness of LIBOR.
4. There should be a new code of conduct for submitters, approved by the Financial Conduct Authority.
5. LIBOR should, as far as possible, be corroborated by transaction data in line with the guidelines in the review.
6. To improve this ability to corroborate submissions, the number of currencies and maturities for which submissions are made should be cut substantially to achieve a sharper focus on the more heavily used benchmarks.
7. Submissions should be published, but after three months to avoid the incentive for banks to try to flatter their perceived credit standing and reduce the opportunity for collusion.
8. The Government should provide the Financial Services Authority with a reserve power to compel banks to submit to LIBOR.
9. All market participants should consider whether LIBOR is the most appropriate rate for their needs and to ensure that their contracts have workable contingency provisions.
10. The UK, European and international authorities should establish clear principles for global benchmarks.
The Government fully endorse every one of these recommendations. All institutions involved in the process of setting LIBOR should implement them. For those recommendations that require Government action, we will take it without delay.
The Government will bring forward amendments to the Financial Services Bill to implement those recommendations that require primary legislation. These amendments will enable the submission of rates to benchmarks such as LIBOR and the administration of such benchmarks to be brought within the scope of regulation. The power to regulate these activities will be vested in the new Financial Conduct Authority. Existing offences covering the making of misleading statements, under section 397 of the Financial Services and Markets Act, will be extended to capture the making of misleading statements to manipulate benchmarks such as LIBOR. The Financial Conduct Authority will have the lead role in investigating the possible commission of such offences and bringing prosecutions.
Most people expect that the law should be respected and enforced at all levels of society. If someone breaks the law, they should be punished. Where the crime is serious, the punishment should reflect this. The Government also intend to legislate to enable the Financial Conduct Authority to make rules requiring authorised persons to contribute to the LIBOR setting process. Draft legislation and further details of these measures will be deposited in due course in the Libraries of both Houses.
But statutory regulation and criminal enforcement alone are insufficient. LIBOR is a mechanism created by the market for use by the market. That is why it is right that some of Mr Wheatley’s recommendations fall to the industry to implement.
The Government agree with Mr Wheatley that, in order to restore credibility to the LIBOR setting process, the BBA should give up its operational role with regards to the computation, administration and governance of LIBOR. My noble Friend Baroness Hogg has agreed to chair a panel of independent experts tasked with identifying an appropriate successor to the BBA.
Other urgent reforms will be implemented by the BBA and, in time, by the new LIBOR administrator—such as phasing out the benchmark rates for those currencies and maturities wherever they are not heavily used by the market and there is an available alternative.
The recommendation to consider the use of benchmarks in other financial and commodities markets will be taken forward through the relevant international bodies. These discussions have already commenced in the Financial Stability Board, the International Organisation of Security Commissioners (IOSCO) and the institutions of the European Union. The Government stand ready to work with their international partners to ensure that we can have confidence in the integrity of all major global benchmarks.
The Government recognise that the LIBOR scandal cannot be seen as an isolated incident. There are wider standards of integrity and ethics in banking which have compromised the confidence and trust between banks and the businesses, customers and general public they exist to serve.
Parliament has established the Parliamentary Commission on Banking Standards under the chairmanship of the hon. Member for Chichester (Mr Tyrie) and including similarly respected Members of both Houses. We all look forward to receiving the recommendations of the commission by early next year.
The financial services industry is of great importance to this country. It employs, directly and indirectly, 2 million people, in every part of the United Kingdom. The essential condition for the functioning of the financial services industry is trust. The behaviour that has been uncovered in the LIBOR scandal corrodes that trust, and the behaviour of a few has tainted the reputation of an industry in which the vast majority of people have been proud to work, not least because it has been associated with integrity and responsibility.
We owe it to all of those people as well as to the millions of people who rely on the financial services industry in their day-to-day lives and in running businesses to restore that reputation for probity and strength. The reforms that Martin Wheatley has recommended are a significant step towards achieving this goal.
Ireland Loan (Revised Agreement)
Greg Clark Excerpts(12 years, 1 month ago)
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The Financial Secretary to the Treasury (Greg Clark)
I have today placed in the Libraries of both Houses revised copies of the agreement providing a credit facility to Ireland of £3,226,960,000.
This agreement was negotiated between HM Treasury and Ireland and originally signed on the 22 December 2010 following enactment of the Loans to Ireland Act, which received Royal Assent on 21 December 2010.
Parliament will be aware that in July 2011, following the euro area’s commitment to lower the interest rate on their loans to Ireland, the Chancellor committed in principle to lower the interest rate on the UK’s bilateral loan to Ireland. The Chancellor took the view that the UK had been unable to lower the interest rate on its loan to Ireland before that point without effectively subsidising the higher interest rates applicable to the European financial stability facility (EFSF). Changing the rate now ensures that all of the benefit goes to Ireland and not to higher interest rates paid to euro area Governments.
The UK’s loan agreement has now been revised to reflect this change in the interest rate, in which the UK has more than covered its costs of funds. The new rate that will apply to each tranche of the loan represents the UK’s cost of funds plus a service fee of 0.18 percentage points per annum. The UK’s cost of funding is defined as the weighted average yield on gilt issuance in the six months prior to the disbursement of a tranche.
The new interest rate will apply retrospectively to those tranches of the loan already disbursed, to ensure Ireland receives the full benefit of the lower rate. The rates, which apply to the tranches already disbursed on 14 October 2011, 30 January 2012, 28 March 2012 and 1 August 2012, are 3.373%, 2.559%, 2.546%, and 2.534% respectively.
The revised loan agreement also contains further minor amendments, which include taking account of changes made to Ireland’s agreements with other financial support facilities. These amendments maintain the effect of the provisions in clause 7 of the original bilateral loan agreement, on prepayment and cancellation of the loan.
HM Treasury has provided a further report to Parliament in relation to Irish loans as required under the Loans to Ireland Act 2010 alongside this statement.
Financial Policy Committee's Macro-Prudential Toolkit
Greg Clark Excerpts(12 years, 2 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
I have today laid before Parliament a consultation document, “The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools”.
Establishing the Financial Policy Committee within the Bank of England as the UK’s macro-prudential authority is a key element of the Government’s reforms to the UK’s system of financial services regulation, as set out in the Financial Services Bill. The Financial Policy Committee will identify, monitor and address risks to the stability of the UK financial system as a whole.
It is vital that the Financial Policy Committee possesses the necessary tools to address the systemic risks that it identifies. Alongside broad powers of recommendation, the Financial Policy Committee will also have specific powers to direct the regulators to take action, which will be set out by the Treasury in secondary legislation, subject to the affirmative procedure.
Recognising the importance of these tools, the Government have committed to consulting on its proposals for the Financial Policy Committee’s direction-making powers, during the passage of the Financial Services Bill.
This document therefore sets out the Government’s proposals for the Financial Policy Committee’s initial toolkit, which have been informed by the recommendations of the interim Financial Policy Committee in March 2012.
The Government propose to make the Financial Policy Committee responsible for setting the level of the UK’s counter-cyclical capital buffer and to provide the Financial Policy Committee with a direction-making power to impose sectoral capital requirements.
The Government intend to provide the Financial Policy Committee with a direction power to set, and vary over time, a leverage ratio cap, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards.
The document contains draft secondary legislation that will provide the Financial Policy Committee with its directive tools and an impact assessment that contains illustrative estimates of the net benefits of these macro-prudential tools.
The Treasury seeks responses to the consultation on the proposals by 11 December 2012, in advance of laying the secondary legislation before Parliament once the Financial Services Bill receives Royal Assent.
Copies of “The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools” are available in the Vote Office, Printed Paper Office and the HM Treasury website.
Banking Act 2009
Greg Clark Excerpts(12 years, 2 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2011 to 31 March 2012. Copies of the document are available in the Vote Office and the Printed Paper Office.
Oral Answers to Questions
Greg Clark Excerpts(12 years, 2 months ago)
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Gavin Williamson (South Staffordshire) (Con)
15. What steps the Government have taken to reduce the cost of credit to the real economy.
Greg Clark
Goodness. Thank you. I feel like Boris Johnson.
The Government and the Bank of England have launched the funding for lending scheme to enable banks to make loans cheaper and more easily available to households and businesses. In addition, 19,000 cheaper loans have been offered to smaller businesses under the national loan guarantee system.
Gavin Williamson
I welcome my right hon. Friend to his new post and wish him every success. Many businesses in South Staffordshire face a great challenge in raising finance to grow and recruit new workers. Will he explain how the measures that he has outlined will help small and medium-sized businesses in my constituency to grow and expand?
Greg Clark
I am grateful for my hon. Friend’s question. He knows what he speaks of because he is an ex-manufacturer himself—appropriately enough, as a Staffordshire MP, in the Potteries. One of the early successes of the funding for lending scheme is that banks are now targeting manufacturing firms. Just yesterday, RBS said that the scheme would be used for mid-sized manufacturers. RBS has cut interest rates from 3.45% to 2.75% and is looking to increase lending to mid-sized manufacturing businesses, which have so much potential.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
May I push the Minister on this issue and what is happening in the real world? As even Boris would explain to him, the fact of the matter is that we have low interest rates, but people cannot get mortgages to get into the housing market and my constituents, along with people in business across Yorkshire, cannot get decent loans to start businesses or, more importantly, expand their businesses. In the real world, it is not working. What is the Minister going to do about it?
Greg Clark
The hon. Gentleman will know, because he has studied the figures, that mortgage lending has actually been increasing. The point of the funding for lending scheme is precisely to make more funds available. When he studies the detail—I am happy to meet him and go through it with him—he will be able to promote the scheme in his constituency, because his constituents, whether they are businesses or households, can benefit from it.
Karen Lumley (Redditch) (Con)
T1. If he will make a statement on his departmental responsibilities.
Andrea Leadsom (South Northamptonshire) (Con)
I congratulate the Financial Secretary on his new post. Would he be willing—when the dust settles, and in the wake of the LIBOR scandal—to look again with fresh eyes at the possibilities of full bank account portability, which could be a game-changer for British banking, and try to get our economy going again once and for all?
The Financial Secretary to the Treasury (Greg Clark)
My hon. Friend is a distinguished member of the Treasury Committee. The Independent Commission on Banking has considered the matter, and has made some proposals for easier transfer between accounts. It has said that that should be under review, but I shall be happy to meet my hon. Friend, and I understand the case that she is making.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
The number of young people in my constituency who have been unemployed for more than 12 months has risen twelvefold since May 2010. Why does the Minister think that is, and was it a mistake to get rid of the future jobs fund within weeks of taking office?