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Government wants to increase rates on £20bn FSCS loan

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 provided loan facilities of approximately £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 today, 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 bps 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 robustly defensible to the public and to Parliament.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Surely someone just needs to stand up and state, as the rules of the FSCS were not followed (i.e. there is a CAP on the protection levels) – the industry can’t be expected to pay the GOVERNMENTS compensation on something?

    The Government wanted 100% compensation – so they should pay the balance, over and above the FSCS levels!

  2. Paul

    The government pays nothing, its the tax payer.

  3. ‘Negotiating’ ??

    Who is negotiating for the FSCS – their indirect bosses, the Government? Likely to be a bit of a one-sided discussion?

    Incidentally, if LIBOR had gone the other way and the terms were now more generous than the current cost of govt borrowing – would they be renegotiating the rates downwards?

    Same old bloody story – how thick are these people that they never considered that moving rates could work against them? Didn’t think of fixed rate – took the variable rate risk but now, in effect, want compensating for their own stupidity!

  4. Then why isn’t the taxpayer paying?

    The bulk of the Savers – didn’t take advice from anyone in the FInancial Services Industry (and so only the Banks finacially benefited) – the Government overstepped the FSCS levels

    So, why are we being asked to pay soemthing which we had no direct or indirect involvement on AND the rules we have to follow are broken?

    The equivalent would be me self servicing my car – breaking it somehow – and the Government gives me a new car – and asks the Car Industry to pay for it!

    Would any other industry permit this to go on? – No!!!!

    What ever happened to ‘caveat emptor ‘?

    (Yes – this current position does annoy me!)

  5. The FSCS is as bancrupt as everything else, i pitty me and everyone else on this forum

  6. Paul,
    FSCS has nothing to do whether advice was given or not. It is a levy on the whole industry not just FA’s. As a product manufacturer why should I pay a levy for failed banks (we are not a bank) and Structured Products (we don’t do them either). We don’t give advice so why should we pay compensation to failed advice firms?

    The point is we all benefit from and paid for an FSCS lifeboat – the trouble is the government were responsible for holing several vessels below the waterline and even throwing people over the side many more needed rescue than the lifeboat ever expected. Hence Taxpayer pays for the ‘Wrecklessness’ of the government it elected’.

  7. If you think it’s bad now – have a read of this!

    “In their response to the Joint Committee on the draft Financial Services Bill the Financial Services Authority (FSA) used the justification of “Public Policy” to call for changes to the law to remove the direct link that exists in law between causation and compensation.

    The effect of the FSA’s proposals will result in advisors being required to compensate not only for the affects of inappropriate or bad advice, but also in cases where the advice that they have given is correct, but during the course of the advice being given an FSA rule, however minor, has been broken. This might include for example failure to record the issue of a key facts document or Initial Disclosure Document.

    Scary!

  8. Re Anonymous | 10 Nov 2011 4:10 pm

    And I always though public policy was related to Government. Is this an admission that the FSA is indeed a Government department that should be funded by the tax payers?

    Also can you imagine the outcry if banks tried to wriggle out of a loan agreement of LIBOR+30bps.

  9. Andy – Fair point – hence why there is the FSCS – however the government, without Consultation basically said to all those people “Don’t worry, you have made a mistake – but someones else will pay for it”.

    If the FSCS/Government had paid out, up to the limits – I would agree we would have all benefited.

    But the way it has been done, in effect destroyed the value of advice AND makes a mockery of the rules.

    Why pay for advice when the Government will give you your money back if you get it wrong?

    Why do we follow the rules – when the Government can ignore them?

    It’s a lose lose for us (all).

    (The tax payer will atleast get their money back – will we?)

  10. OF COURSE THE FSA IS A GOVERNMENT DEPARTMENT, despite the lie regularly trotted out by the likes of Mark Hoban that it’s independent of government.

    Can anyone think of ANY organisation whatsoever whose web address has the letters gov in the middle? gov means GOVERNMENT.

    The FSA was set up by the government. Hector Sants was appointed by the Treasury. The government decrees the FSA’s lack of accountability. The government has by statute accorded the FSA immunity from prosecution. The government decides on the FSA’s statutory responsibilities and objectives. The government has decided that the FSA is to be rebadged as the FCA. The government has decreed that the FCA, like the FSA before it, will be accountable only to its own board (which, of course, means accountable to nobody).

    Hector Sants knows this and told Andrew Tyrie back in March that the only way in which the FSA and the FCA can be made in any way accountable is for the law to be changed (by the government). How much more blindingly obvious can it be? The FSA is a branch of goverment funded by the private sector. Anyone who says otherwise is either a knave or a fool (and, whatever else he may be, I don’t think Hoban is a fool).

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