Downing Street Says » Northern Rock

Asked what involvement the Prime Minister had had in the Northern Rock decision, the Prime Minister’s Spokesman told the assembled press that the Prime Minister had been kept up to date with what had been happening by the Chancellor of the Exchequer. Asked if the Prime Minister agreed with the Chancellor that part of the blame for the situation lay with the United States, the PMS replied that the Prime Minister had no difficulty with what the Chancellor had said, but he did not think the Chancellor was attributing blame. The Chancellor was simply saying that there was uncertainty in financial markets, which originated in the United States. The PMS added that it was an uncontroversial statement of fact. Asked if the Chancellor’s words reflected the Prime Minister’s view, the PMS said they did indeed reflect the view of the Prime Minister.

Asked whether the Prime Minister supported Northern Rock paying interim dividends, while borrowing money, the PMS responded by saying that the Prime Minister thought there was a very well established system for dealing with financial stability issues of this kind. There were tripartite arrangements in place involving the Treasury, the Financial Services Authority (FSA) and the Bank of England and that was the correct procedure for dealing with such issues. Pressed on whether the Prime Minister supported Northern Rock paying dividends while borrowing money from taxpayers, the PMS reiterated that the Prime Minister believed there were established procedures for dealing with these issues. These were in place and operating in this case.

Asked whether the Chancellor consulted the Prime Minister before he was given approval by the Bank of England on the issue, or whether the Prime Minister was told after a decision had been made, the PMS said he did not want to get into exactly what meetings took place and at what time, but the Prime Minister had been kept informed throughout the process. Asked if the Prime Minister’s approval was sought on the matter, the PMS replied that it was a decision made by the Chancellor.

In answer to the suggestion that other banks may be affected in the same way and how great was the concern that the situation could lead to more widespread problems, the PMS said that as the Chancellor had been making clear that morning, the FSA had judged that Northern Rock was solvent, that it exceeded its regulatory capital requirement and it had a good quality loan book. The PMS added that it was not an issue of insolvency with Northern Rock and there were facilities in place to provide support. As the Chancellor had made clear that morning, Northern Rock was the only institution that had approached the Bank of England and requested support of this kind.

Asked whether the Prime Minister was glad that he wasn’t Chancellor anymore, the PMS replied that when he was Chancellor, the Prime Minister had dealt with a whole series of instances of financial instability.

Asked what the Prime Minister would say to those people who had mortgages with Northern Rock, the PMS replied that what the Prime Minister would say is what the Chancellor had said that morning. The Government had set up the FSA ten years ago and they had made clear that people could carry on repaying their mortgages, that mortgages would be given in the normal way and depositors could carry on putting money into the bank. The PMS said that the FSA had looked at the books of Northern Rock and made that position clear.

Asked how worried the Prime Minister was that such problems would spread to other mortgage providers, the PMS reiterated that Northern Rock was the only institution that had approached the Bank of England for assistance and it was not a solvency issue for the company. It was an issue relating to Northern Rock’s liquidity and the fundamentals of the economy remained sound. The country had seen positive economic growth for 60 consecutive quarters, growth had been slightly above trend recently, inflation was back to target, employment was at a record high and unemployment was falling.

Asked if the Prime Minister had a concern that although the economy might continue to perform well, this incident might have an effect on financial services, the PMS replied that a system was in place for financial regulation. It was established ten years ago involving the Treasury, the Bank of England and the independent FSA and it was recognised as being a good system. It had been tested before and there were procedures in place to deal with these issues.

Asked if the arrangement was at a net cost or net profit to the Government, the PMS said that there was no impact on public finances and it was part of the Bank of England’s liquidity support operation. The PMS said that it was provided from the Bank of England’s balance sheet, but clearly the terms of the support operation were a matter for the Bank of England.

Asked if the Prime Minister was relaxed about the amount of money people were borrowing, the PMS replied that there was nothing to add to what the Chancellor had said on the matter. The fundamentals of the economy were sound, inflation was back to target, employment was at a record high, unemployment was falling and the country had had 60 consecutive quarters of growth.

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» Friday, September 14, 2007

Northern Rock

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