To ask Her Majesty's Government further to the Written Answer by Lord Myners on 27 January (WA 329–30), how much Landsbanki paid to the Financial Services Authority to exercise the top-up offered by the United Kingdom Financial Services Compensation Scheme to protect depositors' investments between the €20,887 guaranteed by Iceland's Depositors' and Investors' Guarantee Fund and £50,000; and what proportion of the £1.8 billion repaid to depositors within those limits is expected to be recovered from the bank's assets. [HL1900]

This is a matter for the Financial Services Compensation Scheme (FSCS). We understand the amount cannot be disclosed as this is confidential information.

Firms in each class or sub-class contribute to the related compensation costs, in line with their FSA tariff data as was the case for Landsbanki. The FSCS is a creditor in the administration of Landsbanki Islands HF in Iceland. The position on possible recoveries in relation to the firm is not clear. We cannot provide a figure for the likely recoveries as a result.

To ask Her Majesty's Government further to the Written Answer by Lord Myners on 27 January (WA 329–30), whether their objective of minimising costs to the taxpayer in relation to the United Kingdom branch of Landsbanki was met by HM Treasury's repayment to depositors of £4.5 billion. [HL1901]

On 8 October 2008 the FSA announced that the UK branch of Landsbanki was in default for the purposes of the FSCS. The Chancellor announced that all retail depositors with the UK branch of Landsbanki would receive their money in full. In taking this action the Government had several objectives including maintaining financial stability and the interests of taxpayer protection.

In November 2008 the FSCS began the payout of compensation to UK depositors, which consisted of three elements:

(i) under the EC Deposit Guarantee Scheme Directive, deposits up to £16,872, which should be paid by the Icelandic Dpeositors and Investors Guarantee Fund (DIGF);

(ii) FSCS eligible deposits above £16,872 and below £50,000 paid by the FSCS; and

(iii) balances above £50,000 paid by HMT.

In total, around £4.5 billion has been paid. It is estimated that this includes £2.35 billion that the UK Government paid out to depositors on behalf of the DIGF, £1.4 billion paid out by the FSCS for deposits above €20,887 and below £50,000, and £800 million paid out by the UK Government in respect of deposits above £50,000.

On payout to a depositor, the claim of that depositor against Landsbanki is transferred to the FSCS. However, HMT has a contractual right to recover from the FSCS recoveries referable to the HMT portion (that is, payments to deposits above £50,000). The rights that relate to the depositors' claims of no more than £16,872 will be transferred to the DIGF. However, any such transfer will only take effect upon the coming into force of the “Icesave Refinancing Loan Agreement”,

Information provided by the Resolution Committee for Landsbanki indicates that the FSCS and HM Treasury will make significant recoveries of the compensation paid to depositors through the winding up of Landsbanki.

In relation to the compensation paid out on behalf of the DIGF, on 5 June 2009, the UK Government reached agreement with the Icelandic authorities on a process to ensure the UK is refunded. The terms of the loan arrangements are set out in my letter to the House of 13 January (WA154). They include a state guarantee which, under Icelandic law, must be authorised by the Icelandic Parliament in order to take effect.

A Bill was passed in August to this effect but with a number of conditions introduced by the Icelandic Parliament. Following further negotiations, the loan agreement was amended to take account of these conditions. On 30 December, the Parliament in Iceland endorsed the loan arrangement and agreed a state guarantee. However, on 5 January 2010 the Icelandic President announced that he would not sign the Bill that the Parliament had approved, and instead proposed a referendum. A referendum has been scheduled for 6 March 2010.

The UK Government have received assurances from the Icelandic Government that they remain committed to meeting their obligations and intend to repay the loan in full.

To ask Her Majesty's Government further to the Written Answer by Lord Myners on 27 January (WA 329–30), what were the common law powers used to guarantee and repay all the deposits by United Kingdom retail investors in the Icelandic banks. [HL2055]

The common law powers used by Treasury Ministers to make payments in connection with the retail deposit books of Heritable Bank, Kaupthing Singer & Friedlander and the UK branch of Landsbanki are referred to as the “Ram doctrine”.

These payments comprised loans to the Financial Services Compensation Scheme to cover that proportion of the retail deposits protected by the scheme and cash payments to cover the proportion of the retail deposits which were not protected by the scheme.

This doctrine was set out in a memorandum by the then First Parliamentary Counsel, Sir Glanville Ram in 1945. This explains that as a matter of law a Minister of the Crown may exercise any powers that the Crown has power to exercise, except to the extent to which the Minister is precluded by statute either expressly or by necessary implication.

These powers include the power to enter into contracts or to make payments to others.

The statutory authority for the Treasury to incur expenditure in the course of exercising these powers was provided by section 228 of the Banking Act 2009.