Downing Street Says » LORD MYNERS

Asked about Lord Myners, the Prime Minister’s Spokesman (PMS) told the assembled press that the Treasury had been explaining this as well and it had been set out in the Treasury’s statement yesterday morning.

What the statement made clear was that the insurance would match the duration of the asset. By definition these bonds were longer term assets and they would expect the duration of the insurance contract to be more than five years. This was very different from potential taxpayer liability, because if the bank sold the assets, the taxpayer would no longer be exposed. There were two different issues here; one that related to an insurance contract and one that related to taxpayer exposure.

Asked why the banks would not want to sell the assets, the PMS said that it depended on the price. The first risk was borne by the bank, not the taxpayer. At the moment the banks found it very difficult to sell or value these assets because there was no market. The whole point of what we were doing was to try to ensure that we can get these markets moving again, so in future there would be a market for these assets.

Put that when the Prime Minister referred to temporary liability, he meant less than five years, the PMS replied that it would be temporary liability. We were about to enter into negotiations with the bank in order to get a better understanding of what the exact nature of the assets were on their balance sheet. The Prime Minister had been very clear; the taxpayer was taking on a temporary risk. Asked if that would be less than five years, the PMS said he would not put a timescale on that and it depended on the negotiations and the discussions that we had.

Put that Lord Myners had talked of eight or nine years, the PMS said that we were talking about technical and complex financial instruments and people should talk to the Treasury on the detail. The important thing was to make a distinction between the insurance contract and taxpayer liability.

Asked if there were concerns about what was happening to bank shares today, the PMS said that the Government’s overriding concern was that we did what was right for the economy. The purpose of the announcement yesterday was to do whatever was necessary to remove some of the blockages in the financial systems so that banks could do their job. This was to provide funding and credit for those businesses that wanted to invest and were credit worthy but couldn’t get access to funding and those households that could afford a mortgage but could not get access to them.

Asked if there was concern that the cost of insuring against a UK Government default was now the same as an RBS default, the PMS said that the CBS market for sovereigns was not a particularly liquid market. If people looked at what was happening to the Government bond market, a much more liquid market, UK ten year guilts were about the same as France and lower than many Euro area countries as well as Australia. Obviously there were other countries with much higher ten-year bond yields on their Government debt than the UK had.

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» Tuesday, January 20, 2009

LORD MYNERS

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