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Contingencies Fund

On 8 October 2008, I announced that by order (The Transfer of Rights and Liabilities to ING Order 2008 No 2666) under the Banking (Special Provisions) Act 2008, the retail deposit business of two Icelandic banks, Kaupthing and Landsbanki, with UK subsidiaries, respectively, Kaupthing Singer & Friedlander (KSF) and Heritable, have been transferred to ING Direct. Acting on the advice of the Bank of England and Financial Services Authority (FSA), and in order to ensure the stability of the UK financial system, the Treasury took action to protect the retail depositors in KSF, a UK-based banking subsidiary of Kaupthing, and in Heritable, a UK-incorporated banking subsidiary of the Icelandic bank Landsbanki. Landsbanki has entered an insolvency process in Iceland. Heritable and KSF are regulated by the FSA. The FSA concluded on 7 October 2008 that Heritable no longer met its threshold conditions, and was likely to be unable to continue to meet its obligations to depositors. The FSA concluded on 8 October 2008 that KSF no longer met its threshold conditions, and was likely to be unable to continue to meet its obligations to depositors. The FSA determined that for each bank there had been an event of default under the Financial Services Compensation Scheme (FSCS). It was then urgently necessary for the Treasury to intervene in the public interest. The Treasury has used the Banking (Special Provisions) Act 2008 to ensure a resolution that fully protects UK retail depositors and preserves financial stability. Savers' money is safe and secure, and customers will be able to access their accounts as usual. This action by the Tripartite Authorities, protects savers' money and provides continuity of business for retail depositors by transferring their deposits to ING Direct. The rest of the business has been put into administration. In time the Treasury will be able to make a claim in the administration of Heritable and KSF as the businesses are wound up and their assets are sold. Under the Transfer Order, the FSCS has paid out approximately £3 billion to enable retail deposits held in Heritable and KSF and covered by the FSCS to be transferred to ING Direct. The FSCS has financed its payout through a short-term loan from the Bank of England, which will be replaced with a loan from the Government after a short period of time. HM Treasury made a payment to ING Direct for retail deposit amounts not covered by the FSCS, amounting to approximately £600 million. In return, the FSCS and HM Treasury have acquired rights in respects of the proceeds of the wind-down and realisation of the assets of the remaining business of Heritable and KSF in public ownership Parliamentary approval for additional provision of £600 million for this new expenditure will be sought in a Supplementary Estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £600 million was met by repayable cash advances from the Contingencies Fund. On 29 September 2008 the Government announced that by order (The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 No. 254) under the Banking (Special Provisions) Act 2008, Bradford & Bingley's UK and Isle of Man retail deposit business along with its branch network has been transferred to Abbey National plc. This transfer follows a competitive sale process for this part of the business. The remainder of Bradford & Bingley's business has been taken into public ownership. This action by the Tripartite Authorities, protects savers' money by transferring their deposits to Abbey. Following the turbulence in global financial markets, Bradford & Bingley found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution. The FSA determined in the morning of Saturday 27 September that the firm no longer met its threshold conditions for operating as a deposit taker under the Financial Services and Markets Act 2000 and FSA rules. The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. It worked over the weekend to bring about the part public, part private solution that best meets those objectives. The transfer of the retail deposit book has been backed by cash from HM Treasury and the FSCS. The FSCS was triggered following the determination by the FSA that Bradford & Bingley was unable or likely to be unable to satisfy claims against it, prior to the making of the Transfer Order. Under the Transfer Order, the FSCS has paid out approximately £14 billion to enable retail deposits held in Bradford & Bingley and covered by the FSCS to be transferred to Abbey. The FSCS has financed its payout through a short-term loan from the Bank of England, which will be replaced with a loan from the Government after a short period of time. HM Treasury made a payment to Abbey for retail deposit amounts not covered by the FSCS, amounting to approximately £4 billion, this sum being net of £612 million receipt from Abbey. In return, the FSCS and HM Treasury have acquired rights in respects of the proceeds of the wind-down and realisation of the assets of the remaining business of Bradford & Bingley in public ownership Parliamentary approval for additional provision of £4.6 billion for this new expenditure will be sought in a Supplementary Estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £4.6 billion was met by repayable cash advances from the Contingencies Fund. An Out of Turn Supplementary Estimate will restore the Contingencies Fund to normal levels, as well as providing for the funding of the recapitalisation scheme measures announced today. The action we have taken demonstrates the Government's commitment to do whatever is necessary to ensure the stability of the financial system, while also protecting consumers and safeguarding the interests of the taxpayer.