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Banking: Iceland

Volume 704: debated on Tuesday 14 October 2008

Today, my right honourable friend the Secretary of State for Innovation, Universities and Skills (John Denham) has made the following Written Statement.

Acting on the advice of the Bank and the FSA, my right honourable friend the Chancellor of the Exchequer last week took action to protect the retail depositors in three Icelandic banking operations in the UK: Icesave, a UK-based branch of Landsbanki; Heritable, a UK-based banking subsidiary of Landsbanki; and Kaupthing Singer & Friedlander, a UK-based banking subsidiary of Kaupthing Bank. Using powers under the Banking (Special Provisions Act) 2008, retail deposits in Heritable and Kaupthing Singer & Friedlander have been transferred to ING Direct. Savers’ money is safe and secure. The Chancellor has also guaranteed retail deposits in Icesave in full.

The Treasury and the Financial Services Compensation Scheme are working with the Icelandic authorities and their deposit insurance scheme to ensure that depositors in Icesave are paid back as quickly as possible. The Bank of England has also provided a short-term secured loan of up to £100 million to the London branch of Landsbanki, to help ensure an orderly wind down and maximize the returns to UK creditors. The Government have also frozen the funds and financial assets held by Landsbanki. This is a precautionary measure to protect UK economic interests and we are continuing to work closely with the Icelandic authorities to ensure a fair process for UK creditors.

Over the past few days, the Higher Education Funding Council for England (HEFCE) has been seeking information from higher education institutions about whether they have deposited money in these Icelandic banks.

Universities are independent charitable bodies, and take their own banking and investment decisions. But the HEFCE has a responsibility to keep under review the financial health of higher education institutions that receive public funding.

The HEFCE has informed the Government that there are 12 universities which held deposits with Icelandic banks that have recently entered into administration. The total amount deposited was around £77 million.

Clearly, this is a serious matter for each of these universities, and officials from HM Treasury are engaging with them and the HEFCE about their concerns. However, it should be noted that the HEFCE has concluded that no university is at risk as a result of its exposure to Icelandic banks. Certainly no university faces a level of exposure that would raise questions about its continuing solvency. Students, businesses, charities and others may deal with universities with exactly the same level of confidence as before. The HEFCE will be on standby to provide advice and expertise to any institution affected by these problems.

It is important that the funding council is able to hold full and candid discussions with universities about their financial affairs. For this reason, its policy, which the Government support, is not to disclose information about individual universities.

My right honourable friend the Chancellor of the Duchy of Lancaster (Liam Byrne) has made the following Written Ministerial Statement.

Over the past few days, the Cabinet Office has been working actively to determine the economic situation some charities may find themselves facing.

Only a small fraction of a total of £56 billion-worth* of investment assets held by general charities* is invested in Icelandic banks.

As agreed at a meeting between Ministers and charity representatives on Friday 10 October, the Cabinet Office is working with ACEVO, NCVO, CFDG and CAF to ascertain the full extent of investment assets affected by the position of Icelandic banks.

We are working closely with the Charity Commission, the sector’s regulator, to support charities which have deposits in Icelandic banks. We are also discussing directly with affected charities their concerns.

Acting on the advice of the Bank and the FSA, my right honorable friend the Chancellor of the Exchequer last week took action to protect the retail depositors in three Icelandic banking operations in the UK: Icesave, a UK-based branch of Landsbanki; Heritable, a UK-based banking subsidiary of Landsbanki; and Kaupthing Singer & Friedlander, a UK-based banking subsidiary of Kaupthing Bank. Using powers under the Banking (Special Provisions Act) 2008, retail deposits in Heritable and Kaupthing Singer & Friedlander have been transferred to ING Direct. Savers’ money is safe and secure. The Chancellor has also guaranteed retail deposits in Icesave in full. The Treasury and the Financial Services Compensation Scheme are working with the Icelandic authorities and their deposit insurance scheme to ensure that depositors in Icesave are paid back as quickly as possible.

The Bank of England has also provided a short-term secured loan of up to £100 million to the London branch of Landsbanki, to help ensure an orderly wind down and maximize the returns to UK creditors. The Government have also frozen the funds and financial assets held by Landsbanki. This is a precautionary measure to protect UK economic interests and we are continuing to work closely with the Icelandic authorities to ensure a fair process for UK creditors.

We are working with HM Treasury to do what we can to support those organisations with investments in Icelandic banks, and ensure they are in the strongest possible position to protect their investments.

In the light of recent global economic events, the Government are more determined than ever to support the third sector through the upcoming months and years. We are committed to ensuring that charities are supported in resolving any short-term issues they may face as well as supporting them in the long term.

We are working closely with sector leaders, representing small and large organisations, and Ministers will co-chair, alongside Stuart Etherington, an upcoming NCVO sector-wide summit to tackle upcoming issues.

A survey released by the commission this morning has revealed that one in four charities has already put in place measures to deal with the economic downturn. The commission is keen to provide further advice and guidance for charities and trustees via its helpline and website.

We are confident that the sector is in better shape than ever before to meet the challenges ahead. Its income from Government has doubled over the past 11 years to a total of £11 billion a year.

I will continue to represent the interests of the sector at the newly founded National Economic Council, which will consider the impact of the current financial crisis on the economy as a whole.

* General charities are defined as “private non-profit making bodies serving persons”. This excludes sacramental religious bodies or places of worship, UK Civil Society Almanac (2008).

* UK Civil Society Almanac (2008).

My right honourable friend the Secretary of State for the Department for Communities and Local Government (Hazel Blears) has made the following Written Ministerial Statement.

A number of Icelandic banks went into administration in the middle of last week. It quickly became clear that many local authorities were among those who had deposits in those banks. The Government’s first priority has been to do everything we can to help local authorities, along with other creditors, to get back the money which they had deposited in the banks. In parallel, my department has been working closely with the Local Government Association to ensure that individual authorities which are experiencing severe short-term difficulty get assistance to help them through this period. We are doing this to protect individuals, communities and the local services on which the most vulnerable people in our society depend.

We have put in place a five-point plan:

my right honourable friend the Chancellor of the Exchequer froze the UK assets of Landsbanki last Wednesday, to ensure that local authorities and other creditors are treated fairly; and an HM Treasury delegation was sent to Iceland on Friday to discuss ways in which deposits could be protected;

in relation to the banks in administration in the UK—Kaupthing Singer & Friedlander and Heritable—we are working to ensure that deposits are recovered as quickly as possible; and the Local Government Association has opened discussions with the administrators, Ernst and Young;

the Local Government Association agreed with the Government last week that it would undertake an urgent analysis of the effects of the situation on individual local authorities, to provide a full picture of the impact on local government. As part of that exercise, which is nearing completion, the LGA has asked any local authority which is facing severe short-term difficulties to let it know as a matter of urgency. My right honourable friend the Minister for Local Government and my honourable friend the Economic Secretary to the Treasury met the Local Government Association last Thursday, and we will be meeting again this week. My honourable friend the Minister for Policing met the Association of Police Authorities on the same day;

we have established a joint rapid response unit with the LGA and Improvement and Development Agency—which is already operational—to provide sector-led support to authorities facing severe short-term difficulties. The Government and the LGA will agree an appropriate set of ways to assist authorities in that position; and have agreed that we will look at the issues facing each authority on a case-by-case basis; and

the rapid response unit now has a team of experts in local authority financial management and Treasury management in place, ready to go immediately into any authorities which need that assistance. Her Majesty’s Inspectorate of Constabulary is similarly ready to provide support for police authorities.

Our guidance to local government on investments makes clear that “the general policy objective is that local authorities should invest prudently the surplus funds held on behalf of their communities”. It emphasises that “priority should be given to security and liquidity” and goes on to say that “it will be appropriate to seek the highest rate of return consistent with the proper levels of security and liquidity”. This guidance appears to have been adhered to.

Many authorities have already publicly stated that any risk is not a threat to frontline services—but a small number of authorities may have specific problems, which is why we have put in place support and expertise which is immediately available. No local authority has told the LGA that it is in such short-term difficulty that it cannot pay the wages of its staff.

The Government and international partners have already acted to support stability of the banking system. The LGA and the Government encourage all councils to continue managing their finances prudently and sensibly in difficult times.

My honourable friend the Minister for Policing met the Association of Police Authorities last week and my right honourable friend the Home Secretary is keeping in close touch with the situation to ensure that the steps we are taking are applied as necessary to police authorities.

We will continue to monitor the situation closely and to take appropriate action.

This set of actions should be seen in the context of the wider action taken last week by my right honorable friend the Chancellor of the Exchequer. Acting on the advice of the Bank and the FSA, my right honorable friend the Chancellor of the Exchequer last week took action to protect the retail depositors in three Icelandic banking operations in the UK: Icesave, a UK-based branch of Landsbanki; Heritable, a UK-based banking subsidiary of Landsbanki; and Kaupthing Singer & Friedlander, a UK-based banking subsidiary of Kaupthing Bank. Using powers under the Banking (Special Provisions Act) 2008, retail deposits in Heritable and Kaupthing Singer & Friedlander have been transferred to ING Direct. Savers’ money is safe and secure. The Chancellor has also guaranteed retail deposits in Icesave in full. The Treasury and the Financial Services Compensation Scheme are working with the Icelandic authorities and their deposit insurance scheme to ensure that depositors in Icesave are paid back as quickly as possible. The Bank of England has also provided a short-term secured loan of up to £100 million to the London branch of Landsbanki, to help ensure an orderly wind down and maximize the returns to UK creditors. The Government have also frozen the funds and financial assets held by Landsbanki. This is a precautionary measure to protect UK economic interests and we are continuing to work closely with the Icelandic authorities to ensure a fair process for UK creditors.

My honourable friend the Minister of State, Department of Health (Ben Bradshaw) has made the following Written Ministerial Statement.

Acting on the advice of the Bank and the FSA, my right honourable friend the Chancellor of the Exchequer last week took action to protect the retail depositors in three Icelandic banking operations in the UK: Icesave, a UK-based branch of Landsbanki; Heritable a UK-based banking subsidiary of Landsbanki; and Kaupthing Singer & Friedlander, a UK-based banking subsidiary of Kaupthing Bank.

Using powers under the Banking (Special Provisions Act) 2008, retail deposits in Heritable and Kaupthing Singer & Friedlander have been transferred to ING Direct. Savers’ money is safe and secure. The Chancellor has also guaranteed retail deposits in Icesave in full. The Treasury and the Financial Services Compensation Scheme are working with the Icelandic authorities and their deposit insurance scheme to ensure that depositors in Icesave are paid back as quickly as possible. The Bank of England has also provided a short-term secured loan of up to £100 million to the London branch of Landsbanki to help ensure an orderly wind down and maximize the returns to UK creditors. The Government have also frozen the funds and financial assets held by Landsbanki. This is a precautionary measure to protect UK economic interests and we are continuing to work closely with the Icelandic authorities to ensure a fair process for UK creditors.

There are no strategic health authorities, primary care trusts or NHS trusts with any Exchequer funds (ie, taxpayers’ money) residing in Icelandic banks.

There is one organisation, Hammersmith Hospitals NHS Charities, which has £1.65 million of charitable funds deposited in the Icelandic bank, Kaupthing Singer & Friedlander. Hammersmith Hospitals NHS Trust has now merged with Imperial College NHS Trust, but the charity arm is still going through the merger process. The trust is working with its legal team and the Financial Services Compensation Scheme to ensure it protects these deposits.

In addition, there are two NHS foundation trusts with money deposited in Icelandic bank accounts.

The Christie Hospital NHS Foundation Trust released a statement on Friday 10 October confirming that it has a deposit of £7.5 million with the Icelandic bank, Kaupthing Singer & Friedlander. £1 million of this is NHS money and £6.5 million charity money. The Christie Hospital has taken legal advice and is working closely with the Financial Services Authority to ensure that it protect its deposits.

Central and North West London NHS Foundation Trust also has a deposit of £1 million with the Icelandic bank, Kaupthing Singer & Friedlander. All of this deposit is NHS money and the trust is working with its legal team to ensure that it protects its deposits.

The Christie Hospital NHS Foundation Trust and Central and North West London NHS Foundation Trust have confirmed that in neither case will any potential loss give rise to concerns as to their ability to continue to provide services.