Downing Street Says » Northern Rock

Asked whether the Prime Minister backed the words of the Chancellor, Alistair Darling, the Prime Minister’s Spokesman said to the assembled press that the Chancellor, the Treasury, the Bank of England and the Financial Services Authority (FSA) were the relevant authorities for dealing with this matter and they had set out the position. The Chancellor spoke on behalf of the Government in such matters.

Asked what Alistair Darling meant when he said, "the Bank of England backs Northern Rock," the PMS said that the Government’s position on the matter was fairly clear and it had been set out by the Bank of England, the Treasury and the FSA. The PMS added that the position had not changed.

Asked if the Bank of England would still lend financial support to Northern Rock if it had no collateral and did the support depend on this issue, the PMS said that the Bank of England had set out the position.

Put that people had not heeded warnings not to panic and could the situation cause panic in the economy as a whole, the PMS replied that as the Chancellor commented over the weekend and again this morning, the world was experiencing a period of volatility in global financial markets that had originated in the United States’ sub-prime mortgage markets. It was an issue that all of the world’s major economies had to deal with. The PMS noted that the UK had the right frameworks in place to steer a course of stability through the current uncertainty. The PMS went on to say that in regards to the economy, the UK was on it’s 60th consecutive quarter of growth, inflation was on target, employment was at a record high and interest rates were low by historical standards. The fundamentals of the economy were sound and the UK was well placed to withstand the kind of global uncertainty seen in the recent weeks and months. The PMS said that the country had a well established framework for monetary and fiscal policy and financial regulation that had withstood a number of global shocks over the past decade, such as the Russian and Asian crisis in the late 1990’s, the dotcom boom and its subsequent fallout, recession in the US and elsewhere earlier on in the current decade and the tripling of oil prices.

Asked if Sir Alan Greenspan was still an advisor to the Prime Minister and what did the Prime Minister think of Mr Greenspan’s comments in the days Daily Telegraph, the PMS replied that Mr Greenspan was an advisor to the Prime Minister. The PMS added that Mr Greenspan had given his views and had been extremely praising of the British economy and the management of it over the past decade.

Put that Mr Greenspan had said there was a grim future ahead in terms of interest rates and the housing market and did the Prime Minister take a similar view, the PMS replied that Mr Greenspan’s position had been caricatured somewhat and he was actually referring in the main to the United States and the global economy. The PMS reiterated that it was inevitable in the global economy that there would be periods of uncertainty, but due to the strength of the economy and the policy framework in place in Britain, the country had been able to withstand these periods.

Asked if the Government had given any thought to guarantee the entire deposits of people who had lodged with Northern Rock, the PMS replied that Alistair Darling had answered the question this morning and he had nothing further to add to that. The Chancellor was making clear that Northern Rock was solvent according to the FSA. Asked why anyone with £100,000 with Northern Rock would leave it there when the Government could only guarantee the first £32,000 that people deposited, the PMS replied that he was not a spokesperson for Northern Rock and all he could say was the FSA had been through the books and had stressed repeatedly that Northern Rock was solvent.

Asked again if any guarantee would be given by the Government regarding customer’s deposits, the PMS stated that the Government’s position had not changed. The PMS reiterated that throughout, the Government had made clear, as the FSA had done, that Northern Rock was a solvent institution and the money was available.

Put that the Bank of England had not communicated the facts as well as they could have done over the last few days, the PMS said that such a matter was not for the Government to comment on.

Asked if the Chancellor had overruled the Governor over the decision of whether the financial facility should be made available, the PMS replied that the decision was one to be made by the Chancellor and it was made in full consultation and following advice from the Bank of England and the FSA. There were well-established procedures and these were now operating.

Asked whether there had been a change in policy by the Bank of England, the PMS replied that he didn’t think there had been, but he was not a spokesperson for the Bank of England and people should address such questions to them.

Asked repeatedly if the Government knew whether Northern Rock would continue to be solvent if every depositor withdrew their money, the PMS said that this was a question for the FSA. The Chancellor had made clear that the money was available for depositors and Northern Rock was a solvent institution.

Asked whether the Government would urge people not to take their money out of Northern Rock, the PMS replied that that was a matter for individuals.

Asked if the Government had received any intonations from any other banks that they might need financial assistance, the PMS again referred to the Chancellors words, that Northern Rock was the only financial institution that had approached the Bank of England for assistance.

Asked if the Government favoured any outcome to the situation, the PMS replied that the Government did not have a particular view on the subject. Asked what "solvent" meant, the PMS replied it normally meant an institution had enough assets to cover their liabilities.

Put that David Cameron had said that the Government had been to blame for building up a culture of borrowing and debt, the PMS replied that it was not for him to respond specifically to any accusation made by the Leader of the Opposition. In general terms, what people had seen over the past decade was a significant increase in household assets. Total household assets were worth over £7.5 trillion now and household net wealth had increased by around 72% in real terms since the beginning of 1997. The PMS added that households were paying a smaller portion of their income in interest, total household sector interest payments were now 9.6% of disposable income, compared to a high of over 15% in 1990, the growth seen in total household debt was currently around the lowest seen in five years and the growth in unsecured consumer credit was the lowest in 13 years. The overall fundamentals of the economy were sound.

Asked whether people should fix the rate of their mortgage for a longer term, the PMS referred people back to the review conducted by Professor David Miles in 2003 on the subject of the Treasury.

1 Comment »

I understand that savers can recover the first full £1000 and then only 90% of the next £33,000.

Why this arbitrary figure? If companies going bust are happily doled out, why can’t the government pass a law to reassure ordinary savers that all the savings are safe, say up to a million pounds.
Comment by George — 17 Sep 2007 on 7:12 pm | Link

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» Monday, September 17, 2007

Northern Rock

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