Alan Johnson MP

5 November 2009

 

This week the Government announced the biggest shake-up of the high street for a generation.

 

The break-up of parts of Royal Bank of Scotland and Lloyds Banking Group will create three new banks. It is a better deal for taxpayers, reducing the total assets protected by the taxpayer under this scheme by over £300bn. It is also a good deal for consumers because competition will increase - with Lloyds and RBS selling off 900 branches across the UK; 5 million current accounts; and 300,000 accounts for small and medium businesses.

 

Plus we are requiring:

 

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

 

• Tough rules on bonuses: No cash bonuses will be paid to any staff this year earning over £39,000 (i.e. mostly protecting staff in branches) - going beyond even the G20 rules.  Executive Board members will have any bonuses deferred for three years. This represents the toughest controls on bonuses anywhere in the world.

 

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

 

When the banks faced collapse last year and the global recession hit, it was right to protect savers and to support businesses and families from going under. The alternative would have been disastrous. That is why we took the action we did, intervening first to rescue Northern Rock and then Bradford and Bingley - action opposed by the Conservatives.

 

We also announced the Asset Protection Scheme (APS). The APS saw the Government protecting a pool of impaired assets in participating banks in return for a bigger taxpayer stake and binding lending agreements. This week we announced the outcome of negotiations on the APS. As part of this week’s deals:

 

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

 

• Lloyds will not participate in the APS and instead will raise additional private sector capital and pay 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.