3 November 2009

 

We are making the banks safer, stronger and better for the consumer.

 

The break-up of the rescued banks will create three new banks.  It’s the biggest shake up of the high street for a generation increasing competition and benefiting consumers with better rates and services.

 

The situation has improved largely due to Government action.  We are now announcing the outcome of the negotiations on the Asset Protection Scheme (APS) and the improved structuring of these deals:

 

o       RBS will participate in the APS under revised terms that improve incentives and deliver better risk-sharing with the private sector.

o       Lloyds will not participate in the APS and instead will raise additional capital predominantly from the private sector, as well as paying a fee to the taxpayer for the implicit protection provided to date. This will reduce the risk borne by the taxpayer, improving value for money; [details of both below]

 

This is a better deal, reducing the total assets protected by the taxpayer under this scheme by over £300bn

 

The likely costs to the taxpayer and the risks on the impact on the public finances have been reduced.  Both banks will still be required to meet tough conditions on pay and lending.

 

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  • Legally enforceable Lending Commitments have been entered into, increasing lending to businesses and mortgages by £39bn.

 

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  • Tough rules on bonuses going beyond even G20 rules: No cash bonuses will be paid to any staff this year earning over £39,000.  So staff in branches will be protected.  Executive Board members will have any bonus deferred until 2012 and subject to clawback.

 

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  • Each bank has agreed to publish a ‘Customer Charter’ for lending to small and medium enterprises and will reinforce its commitment to meeting all reasonable applications for finance from viable businesses.

 

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  • A commitment to ensure charging for current accounts and overdrafts is transparent and fair and customers are not overcharged

 Q & A

 

Why is it a good deal for consumers? 

This is the biggest shake-up of high street banking in decades: delivering better rates and services.  It will bring new entrants into the market (14% market share limit for current accounts and SME accounts).  Existing players like Barclays and HSBC won’t be able to buy these parts of the business being sold off.

 

Will we get our money back?

That is our intention.  We will sell our shares at a time when we think we can get good value for the taxpayer.

 

What’s the effect on pay and bonuses?

The new G20 rules are introducing tougher bonus policy for all retail and investment banks in the UK:

• Transparent, variable, and with no multi-year guaranteed bonuses.
• A substantial part must be deferred over a number of years, not paid immediately;
• Subject to claw-back, to ensure pay is aligned with long-term performance;

But we are rightly going even further than these rules for banks we part-own.  No cash bonuses will be paid to any staff this year in RBS or Lloyds earning over £39,000 (so protecting those in branches).  Executive Board members will have any bonuses deferred in full until 2012 and subject to clawback.  This goes much further than the G20 agreement and further than any other banks in the world.

 

Will this increase bank lending to businesses and mortgages?

The Government is taking action to ensure competitively priced credit continues to be available to business and households through the lending commitments.  In line with this, the lending commitments with RBS and Lloyds Banking Group will mean:

·         For LBG an additional £14 billion to households and businesses on commercial terms over the 12 months from March 2009;

·         For RBS an additional £25 billion, on commercial terms over the 12 months from March 2009.

·         The Government will report annually to Parliament on the delivery of these commitments.

 

What about next year’s commitments?

Similar lending commitments were made in respect of the 12 months from 1 March 2010 and will be reviewed to ensure that they reflect the economic circumstances at the time.  We are already working with RBS and Lloyds Banking Group to set these targets.

 

What more can the Government do to increase lending to small businesses?

As part of the APS negotiations, Lloyds and RBS have both agreed a ‘Customer Charter’ on good practice for SME lending. These charters will apply to over 98% of their business customers. The details will be specific to each bank but both charters will:

• commit to meet all reasonable applications for finance from viable businesses,
• make clear promises on the competitive pricing of loans, overdrafts and fees, and
• support businesses in temporary difficulty and into the recovery.

Through the Lending Panel, the other major lenders are also committed to delivering a Customer Charter for SMEs and we will be working with them on the details of this.

 

What can I do about businesses in my constituency having trouble accessing lending?

There is also a contact point for MPs wanting to raise issues about specific businesses in your constituency.  You can phone Dept for Business (BIS) on 020 7215 6777 and ask for the ‘MPs hotline on business’. 

What is the situation on job losses?

RBS yesterday announced 3,700 fewer jobs by May 2010. No compulsory redundancies as far as possible, focusing on re-location / voluntary redundancy.  Every job loss is very regrettable, but the banks need to restructure.  The Government will continue to give support through the extra resources given to Job Centre Plus to ensure that those that lose their jobs will be offered support and if necessary training to find new jobs.  The Financial sector is an important sector with over 1m employed – the majority outside of the South-East.  The measures we’ve taken to stabilise the banking system have supported jobs in the financial sector.

 

The Government is providing extra investment today, however RBS was effectively bankrupt last October.  If the government hadn’t stepped in the whole bank would have gone down with massive job losses.

 

What is impact on Lloyds Foundation?

We have received assurance from Lloyds Banking Group that, under their proposals, the Foundations will receive the full value of the existing agreement. This means that, at a time when the Group is loss-making, existing commitments can be honoured and funding to charities in Scotland will not be reduced. In fact, Lloyds are looking to agree a longer term financial and strategic relationship with the Foundations that will enable charities across the UK to grow and prosper.