A Treasury Minute dated 6 November 2008 informed Parliament that the Bank of England had provided a short term loan facility to the Financial Services Compensation Scheme (FSCS) to enable the FSCS to pay out to eligible UK retail depositors in Icesave, the internet product made available by the UK branch of Landsbanki.

That Minute also informed Parliament that this loan will be replaced with a loan from the Government at a time to be negotiated between the Bank of England and the Treasury. The Treasury and Bank of England have agreed that this loan transfer should take place on 29 January 2009 and as a result the Treasury made a payment to the Bank of England of £3,109,742,000 (three billion, one hundred and nine million, seven hundred and forty two thousand pounds).

Part of this loan will be paid back by the FSCS on an interest only basis for the first three years, plus any recoveries made through a claim on Landsbanki in that time. The FSCS will then use levies to repay the remaining balance. The remaining part of the loan is expected to be repaid by the Icelandic Depositors’ and Investors’ Guarantee Fund (DIGF). The Treasury is in negotiation with the Icelandic authorities with a view to their guaranteeing this repayment in line with their responsibilities under EEA law and the Deposit Guarantee Scheme Directive.

On 1 December 2008, the Government announced that they had put in place arrangements to ensure that all eligible retail depositors—that is, those depositors who are eligible to claim under the FSCS—in London Scottish Bank plc will receive their money in full, including those with balances above the £50,000 FSCS limit.

In order to enable the FSCS to make these payouts the Treasury has advanced £100,000,000 (one hundred million pounds) to the FSCS on 29 January 2009. Part of this advance will be paid back by the FSCS on an interest only basis for the first three years, plus any recoveries made through a claim on London Scottish Bank plc in that time. The FSCS will then use levies to repay the remaining balance. The remaining part of the advance will be recovered from the rights which HM Treasury have acquired in respects of the proceeds of the wind-down and realisation of the assets of London Scottish Bank plc which is in administration.

Parliamentary approval for additional cash cover of £3,209,742,000 (three billion, two hundred and nine million, seven hundred and forty two thousand pounds) for this service will be sought in the Spring Supplementary Estimate for HM Treasury, as the Winter Supplementary Estimate included a provision for this expenditure. Pending that approval, urgent expenditure estimated at £3,209,742,000 (three billion, two hundred and nine million, seven hundred and forty two thousand pounds) will be met by repayable cash advances from the Contingencies Fund.