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FSCS faces interest rate rise on £20bn loan deal

Treasury financial secretary Mark Hoban says the Government is looking to increase the interest rate paid by the Financial Services Compensation Scheme on its £20bn loan agreement.

In 2008, the Treasury pro-vided loan facilities of around £20bn to the FSCS in relation to the failure of Bradford & Bingley, Heritable, Kaupthing, Singer & Friedlander, London Scottish Bank and the UK branch of Landsbanki during the financial crisis.

In a speech at the Building Societies Association’s annual lunch in London last week, Hoban said the terms of the loan are now up for renegotiation. He said: “It is vital that new terms are reached which are fair to taxpayers and levy payers alike.”

Hoban said the current interest rate on the loans of Libor + 30 basis points was set at a time when Libor was over 7 per cent and the sector was experiencing crisis conditions.

He says: “That rate is no longer appropriate. Libor is now 1.7 per cent and the FSCS loan rate is now below the Government’s own cost of financing. This is not acceptable and the Government is, therefore, negotiating revised terms with the FSCS.

“Affordability for the sector will be a key consideration but any deal must also be fair to taxpayers and industry and be robustly defensible to the public and to Parliament.”

CandidMoney.com founder Justin Modray says: “The Government needs to strike a balance in terms of offering an interest rate that is commercially viable and treats the taxpayer fairly without placing too great a levy on the industry.

“Levy payers have suffered in the past couple of years so the Government is facing quite a difficult balancing act.”

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