3 Accountability to Parliament
18. In October 2008, the Treasury authorised the
Bank of England to provide emergency liquidity assistance in the
form of loans to HBOS and RBS and indemnified the Bank against
potential losses, but did not inform Parliament of the support
until November 2009. It is normal practice where a government
department proposes to incur a contingent liability for Parliament
to be informed beforehand. In circumstances where confidentiality
is necessary, long-standing procedures allow departments to inform
the Chairs of the Committee of Public Accounts and the relevant
departmental select committee in confidence. At its peak, the
indemnity covered £18 billion of the emergency support, in
addition to over £100 billion of collateral that the Bank
of England had received from the two banks. By mid-January 2009,
the emergency support had been replaced with other funding, including
using debt issued under the Credit Guarantee Scheme.[27]
19. The Chancellor of the Exchequer had decided,
given the sensitivity of the situation in October 2008, to disclose
the information about the emergency support to as few people as
possible to reduce the risk of leaks. The Treasury had been concerned
to avoid the situation encountered the previous Autumn when emergency
liquidity assistance provided by the Bank of England to Northern
Rock had become public knowledge and had led to a run on deposits.
It considered that the high level of collateral received by the
Bank of England meant that the risk of the indemnity being called
was not high. The support was also intended to be a temporary
measure ahead of implementation of the Credit Guarantee Scheme.[28]
20. The procedures for departments to notify Parliament
of contingent liabilities provide an important constitutional
safeguard. The Treasury accepted that the emergency assistance
provided directly to HBOS and RBS should have been separately
notified. In the Treasury's view, the conventions were still in
place and played an important part in Parliamentary accountability.
These had been exceptional circumstances involving market information
of particular sensitivity. It was aware of Parliament's recent
reaction following disclosure of the support and was keen to learn
lessons from this episode.[29]
21. Whilst the National Audit Office has been able
to examine the action taken by the Treasury to safeguard taxpayers'
money during the crisis, it has not been able to examine directly
the actions of the Financial Services Authority and the Bank of
England.[30] Following
our report on the nationalisation of Northern Rock, the National
Audit office will shortly be appointed as auditor of the Financial
Services Authority.[31]
But this leaves the Bank of England as the only Tripartite Authority
not audited by the National Audit Office.
22. Since the crisis of 2008, the Tripartite Authorities
have been given enhanced powers to deal with financial institutions.
The Banking Act 2009 gave the Financial Services Authority and
the Bank of England enhanced roles in resolving banks that get
into difficulty. The new Act provided for the Financial Services
Authority to determine when the powers in the Act can be exercised
and for the Bank of England to decide whether to exercise certain
stabilisation powers, including the sale of all, or part of a
business to a private sector purchaser, or a transfer to a "bridge
bank", pending a final resolution. The Treasury retains the
right to take a bank into temporary public ownership where there
is a serious risk to the financial system. Ultimately, as this
crisis has shown, significant financial risks can end up being
borne by the taxpayer.[32]
23. The Chairman of this Committee has recently written
to the Chancellor of the Exchequer on the arrangements governing
the audit of the Bank of England. The issue of audit responsibility
is currently with Ministers.[33]
27 C&AG's Report, paras 10 and 11 Back
28
Qq 2 and 74 Back
29
Qq 87-89 and 148 Back
30
C&AG's Report, para 3 Back
31
Committee of Public Accounts, Thirty-first Report of Session 2008-09,
The Nationalisation of Northern Rock, HC 394 Back
32
C&AG's Report, para 2.3 Back
33
Q 156 Back
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