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Banking: Asset Protection Scheme

My Lords, to answer my noble friend’s first question, the asset protection scheme is open to eligible institutions, which are defined for the time being as UK-authorised deposit-takers with a minimum of £25 billion of eligible assets. It is a scheme that is designed for banks; it is not designed for organisations whose primary activity is in another line of business. The agreements reached with the boards of the Royal Bank of Scotland and the Lloyds Banking Group are sufficiently detailed for those boards and the Treasury to enter into commitments, while recognising that much further work needs to be done to be assured that we understand the toxicity of the assets and to ensure that we are putting a sufficiently strong and robust ring fence around the most at-risk assets. The structure of the scheme is designed to ensure that the first loss arising from the normal course of business will continue to be held by the shareholders of the banks, whereas extreme loss, or high-stress loss, will fall into the asset protection scheme in respect of 90 per cent of that loss. Finally, my noble friend asked whether we are underwriting. We are not underwriting a public offer in the sense that we have already committed £4 billion of equity to the Lloyds Banking Group, which is currently held in the form of preference shares. Those are tier one capital, but not core tier one. By converting them to ordinary shares, they become core tier one, and it is those shares on which we are offering a claw-back facility to the other shareholders of Lloyds Banking Group. If those shareholders do not take up those shares, the Government will continue to have a £4 billion exposure, albeit now in the form of ordinary shares rather than preference shares.