Transcript of press conference given by the Prime Minister and the Chancellor of the Exchequer on the financial situation.
Read the transcript:
Prime Minister:
Over the last few days we have shown we are determined to take all the far reaching decisions needed to support British families and British businesses through these difficult times. So today we are implementing the restructuring plan we announced last Wednesday, action that we are taking to deal with the impact and the root causes of the current financial instability, the excessive and sometimes undisclosed risk-taking by financial institutions which didn’t have adequate capital or proper transparency.
Now the action we are taking is unprecedented but essential for all of us. It is not just important to economists and financial experts, it is something that matters for every family and business in Britain. In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about. For savers, for small businesses and for home owners we must in an uncertain and unstable world be the rock of stability upon which British people can depend.
So in addition to the extra liquidity the Bank of England is continuing to provide this morning, Alistair Darling has made two major announcements.
First, British banks are being strengthened today through the injection of nearly £50 billion of new capital from the government and from the markets. There is not a bank in the world that has not been affected by the global storm, some more than others, but at this time of uncertainty we want British banks to be able to lead the world and to be as strong and as well capitalised as any across the globe. So that is why we have agreed to make a series of commercial investments amounting to £37 billion of public money in a number of UK banks: £20 billion in the Royal Bank of Scotland, and following the takeover of HBOS by a strong bank – Lloyds TSB - £17 million in the merged bank. The government will not be a permanent investor. Over time we intend to dispose of all these investments in an orderly way. In the meantime our shares will be held at arms length.
Other banks have agreed that they will themselves inject additional capital, and as part of the plan we are laying down conditions to ensure the taxpayer gets a fair deal. First, bringing an end to rewards for failure. The board of the banks which receive injections of capital from the taxpayer will take no cash bonuses this year. It has also been announced today that four senior board members will be leaving their positions. And going forward the rewards will only be, and firmly based on, performance and long term value creation. Our action is driven by our values, for this government, and I believe for the whole country, the guiding ideal is fair reward for hard work, for effort and for enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have to pay. Second, there will be no dividends paid until the government’s preference shares have been fully redeemed. Third, and most important, we have secured strong commitments to immediately restore and maintain the availability of loans for home buyers and small businesses at competitive business rates. The government will appoint independent non-executive board members to the two banks in which we are injecting capital. And finally, the taxpayer will secure a full and fair share of the upside which will come over time as the banking system recovers its strength.
The Chancellor has also announced this morning the terms of our guarantee for new lending across the banking system. Each bank will be offered a guarantee at an individually determined risk-related price to allow the medium term markets to reopen, enabling banks to lend to each other and to support the financial system more generally while protecting the taxpayer by charging a market-determined rate.
Extra liquidity, including in dollars, announced this morning, recapitalisation, resumption of medium term lending, these are the measures we need to ensure the return of good banking and to ensure the safety and stability of the public’s savings.
But the events of the last few weeks have made clear once and for all that these are global problems that require global solutions. I warmly welcome the fact that under the strong leadership of President Sarkozy, Barroso and Trichet, the Euro area countries have now agreed to take action on liquidity, capital and funding guarantees together. I will meet other leaders of the European Union later this week and it is important that America and Europe work together so in advance of any international meetings, I spoke to President Bush last night after returning from Paris, and we agreed the common ground for action in our two continents.
I believe that only by global action can we fully restore the confidence that is needed and build the international financial order, and I will put forward proposals for major reform of the international institutions in a speech in the City later this morning.
For people on modest and middle incomes, the banking system isn’t an abstraction, it is a lifeline. What we are talking about today is not just the detail of policies needed within the financial system, but the stuff of everyday life, whether savers feel confident putting money away for a rainy day, whether the small businessmen and women with ideas can get the money they need, how homeowners feel safe and secure about the future.
To let the chips fall where they may would be the height of irresponsibility, it would be a failure of leadership at precisely the moment vigorous action is needed to protect people who need that help most. And if we pull together as a country we can come through these times stronger and not weaker.
We are showing today that we are willing to invest assets our country has to strengthen the banking system, but the most precious asset of all is something that if lost can only be restored, not by words but by actions, and that is the asset of trust and confidence. Confidence about the future is needed for confidence today, it is to build the trust and confidence we need that is the purpose of today’s far reaching announcements.
Chancellor:
Last week I set out the principles that would underpin our approach and I said that there were three things necessary: one is that there had to be immediate support through central banks, and that was put in place last week and as the Prime Minister has just said, the Central Bank announced this morning further unlimited support in the dollar market. The second thing that was important was to ensure that government was ready to guarantee inter-bank lending. Why is that important? Because that is what will eventually free up lending to individuals, to businesses. And the third element was to ensure that we helped banks recapitalise and build up their capital positions to take account of the turbulence that we see in the world markets today.
Now the majority of British banks have done that through normal market operations and each one has made their individual announcement this morning. But in the case of two groups – HBOS-Lloyds TSB and RBS – the government has made a significant and substantial investment available. We are doing that because we need to stabilise the present position and strengthen the position of British banks. That is absolutely essential.
There is one further thing too that is important, and that is that we are doing everything that is necessary here, we are doing it decisively, we are doing it quickly, but that also needs to be replicated in other parts of the world with other governments doing similar things. And it is striking that in my conversations with my counterparts at the G7 and the IMF in Washington over the weekend, and with the Prime Minister’s discussions with his colleagues in France yesterday, that right across the world governments are now ready to do whatever it takes, whatever is necessary, to stabilise and strengthen the banking system and to help us deal with the uncertainty and turbulence.
As you just said, the key here is restoring confidence and trust and I believe this is a significant and necessary step along the way to doing that.
Question:
Prime Minister you talked of being the rock of stability. In the past nationalisation was seen as the quicksand of instability. How do you ensure that these nationalisations of banks are not producing the slow death of important industries at a very high cost to the taxpayer?
Prime Minister:
I think it is now generally agreed right across Europe and increasingly across America that to recapitalise the banks and to strengthen them is absolutely essential. We would prefer other investors to come in, and many will, but as the last resort it is right that the government is prepared to take the steps that are necessary. If we can strengthen our banks then our holdings will be temporary. We are ready to move them on to other investors when it becomes the right time to do so. So this is not a standard public ownership, this is government buying shares, allowing the banks to be run commercially, making sure that we can encourage other investors into the banking system, and then because our holdings are temporary, being ready to sell them when the banks are strengthened.
I think you will find that in the rest of Europe over the next few days exactly the same thing is going to happen, and I think you will find that there are some discussions taking place in America around the Paulson plan about the use of the 700 billion that has been approved by Senate and Congress for purposes that we are talking about this morning.
So this is perhaps the first government to do what I believe a large number of the governments are going to do over the next few days and it is about restoring trust and confidence in the banking system which is absolutely essential for a successful banking system to flourish.
Chancellor:
[Indisitinct] these banks will be run at an arms length away from government, Ministers will not be taking day to day decisions. There are strings attached to the investment, as the Prime Minister has just said, but our intention is that these banks will continue to operate on a commercial basis. And we have said, we don’t want to be in the business of running banks, we do and we are in the business of stabilising and strengthening banks, that is our purpose and that is what we intend to see through.
Question:
I don’t need to tell you that money doesn’t grow on trees. I wonder if you could explain to British taxpayers where this £37 billion is coming from and what the implications are for the nation’s finances both in terms of borrowing and future taxation. And just on a technical point, I am not quite clear on this no dividends until preference shares have been fully restored. My understanding was that you weren’t taking preference shares in some of these companies. Could you just outline how long it will be before you think dividends will be paying, because obviously that will be a disincentive for other investors to come in?
Prime Minister:
These are investments that we are making in banks. This is not just pumping money in, these are investments we are taking in the form of shares. We believe that these shares will grow in value over the next period of time, but whatever happens these are assets that we have taken in the form of shares in return for the money that government invests. And I believe that the stability of the banking system depends on us taking this action, and therefore the fate and the fortunes of families in our country depend on us being radical in the steps we have taken. We will publish at the time of the pre-budget report what is happening as a result of this debt in the country, but I have to say to you that we face this situation as a country with relatively low national debt because of the steps we have taken since 1997 where we wiped off perhaps more than around £100 billion of debt by reducing the proportion of debt in our national income. So we are taking the right decisions. These are not payments that have been made without either strings attached or without an asset being taken in return, and we believe that this is the best way of safeguarding our banking system, but also a good investment for the nation that has become necessary as a result of events. All the conditions that are attached to this I think are designed to satisfy the public that we are taking into account all the worries that people have about how the banking system has behaved. And so there are conditions attached about executive remuneration, about dividend payments and about the resumption of lending, which is the most important thing, to mortgages and to businesses.
Chancellor:
I think there is a distinction to be made between this sort of investment where, as the Prime Minister has said, we are investing in banks where as conditions improve we will get our money back, and of course we also get dividends and the guarantees of lending come at a cost, the banks have to meet those costs and that comes back to the taxpayer. And there is a distinction between that and general government borrowing if you like. Now I will set out our forecast in the usual way as you would expect in the PBR, but you always have to remember that if we didn’t do any of this there would be a massive cost and I think our firm view is that it is necessary to act and I think people will generally support that.
You asked about the balance between preference and ordinary shares. I said in the statement in the Commons last week that we would be prepared to take both. You have to get the right balance here. The preference shares have the advantage that they are a first call, the banks do have to pay us a premium for having these shares, but if you have too many preference shares that puts a burden on the banks that actually might be counter-productive. So the bulk of the shares in relation to RBS and to the Lloyds TSB-HBOS group are ordinary shares, but they are investments, you know when eventually we come to sell them we will get the money for them and of course we will get dividends. But you do need to strike that right balance and if you want further information the Treasury is running a technical briefing for your benefit at the end of this.
Question:
Now that taxpayers have these figures in front of them in black and white, can you understand why they might today be a little aghast at the extent of the risk to which they are being exposed, much of it really as a result of the reckless behaviour by the banks. And secondly, can you give us an update on the talks with Iceland, the Prime Minister there was still being a little frosty about Britain’s approach to these wholesale depositors at the weekend?
Prime Minister:
I can understand people’s concern about what has been happening in the banking system and I think that is why you will see that we have laid down very tough conditions about any support we are prepared to give. So there are going to be no cash bonuses for this year; in 2009 any bonuses have got to be based on the principle that we are rewarding effort and enterprise and not short term irresponsibility; a number of people will be nominated by the government as independent members of the boards of these banks; and of course no dividends will be paid until the preference shares have been redeemed. So we are taking pretty tough action and I believe we are meeting the public’s concerns about behaviour that was unacceptable. At the same time, as I said, I think the public recognise the importance of having a sound banking system and therefore it is right for us to take the action. When markets fail and are not able to resolve the problem, it is right for the government to move in. You will see this happen in other countries. We are probably the leader in this at the moment, but other countries will do similar things over the next few days. And the reason is we want to get the normal process of banking resumed so that savers can have confidence in the system, so that mortgages can again be provided so that small businesses are not denied the funds that they need, and the banking system is the lifeline for all these things. And it is important therefore, if the markets have ceased to function in the proper way, that we intervene to do the right thing. And as Alistair has said, we believe that these are investments that are made at the bottom of the market that will yield returns in future, but at the same time of course we are doing this because it is absolutely essential that we move quickly to have a sound and healthy banking system.
Chancellor:
I met the Icelandic Finance Minister in Washington on Saturday afternoon and I said to him that it was imperative that this situation is resolved as quickly as possible. Now you will know that last week, as soon as it became apparent that Iceland had decided to leave out British depositors from what they were proposing, that we took action to secure assets of the bank, and I said that we want to resolve that but the Icelandic government needs to take a decision to resolve its own problems, and they are reflecting on that. There will be a further announcement in relation to Landsbanki very shortly, action that I have taken to allow British businesses and depositors to be able to operate, and we have done that by taking a security over assets that we have in this country. But the key thing here, obviously we have protected retail depositors, but the key thing is that we resolve this with the Icelandic government. The Icelandic government has really got to face up to the fact that it has got substantial problems that can only be resolved by taking some pretty far reaching action. In the meantime I will continue to do everything to protect our interests.
Question:
Prime Minister in America there are a number of investigations under way which could lead to criminal proceedings, do you think there are grounds where similar investigations should be undertaken in this country?
Prime Minister:
Well if there are any grounds for these investigations, these investigations should happen. I think we are dealing with probably a more general issue that is worrying the public. That is while most of us believe that the economy, businesses, the way we live our lives should be based on rewarding hard work and effort and enterprise and responsible risk-taking, some of the systems of remuneration in our banking system have been based on taking excessive risks and irresponsible risk-taking and it is by rooting out that behaviour, and not rewarding it, that we will see some of the changes that are necessary. Now there are other issues about transparency and I will be talking about that later this morning about major reforms in the international system, because it is not clear when you have international companies operating in different areas that the supervisory system can pick up things that are happening that may and should have been investigated. But it is a matter for the authorities if anything further than that is decided upon.
Question:
Prime Minister, do you and the Chancellor know exactly what you are buying into? In other words, do you believe that they, the people you are investing with, know what you are buying into? To what extent are there toxic shocks still in the pipeline that may yet weaken even your investment still further?
Prime Minister:
Well it is precisely to deal with any questions like this that we are strengthening our banks. The banks must be stronger to deal with any eventualities. One of the problems there has been is that our financial institutions have been so highly leveraged that they are not able to deal with some of the problems that have hit them, and when asset values fall they have been put at risk. So yes the Treasury, under Alistair’s leadership, has been looking at these issues. But the key point here is, and this has now been recognised I think around the world, you must have stronger financial institutions that are able to cope with what difficulties arise. And let’s be clear, the Royal Bank of Scotland is a bank for example that has 11 million investors and operates in very many countries, it is the sixth biggest bank in the United States of America and it is and should be a strong bank. And that is why we are investing to make sure that it has a strong enough capital base for the future.
Chancellor:
We quite deliberately have taken a cautious approach here. The Financial Services Authority, knowing that we are still going through a turbulent period, knowing that as these conditions continue it poses fresh challenges for banks, it decided that in assessing the capital requirement they should take a cautious approach and therefore raise more than you might do in normal conditions. So we have tried to take account of that, but as we have been saying, I think the steps we have taken will go a long way in trying to resolve some of the uncertainties there have been around over the last few weeks.
Question:
Can you just tell us about the independent non-executive board members you are going to appoint? Do you know who they are at the moment? When are you going to be in a position to appoint them? Will they have like a civil service background or a business background? And obviously last week you denied here in this press conference that Fred Goodwin was not part of the deal, but this morning he has walked away from RBS, can you say again that that wasn’t part of the deal with the bank?
Chancellor:
On both those points, firstly the decision in relation to Sir Fred Goodwin was taken by the bank’s board and as I understand it they decided that this would happen were the RBS group to come to the government to ask for the sort of support they are asking for. So that decision was taken by the board. In relation to the more general point on directors, we will be announcing that in the next few days. My clear intention is to put people on to the board who understand the business and therefore you are looking for people with a banking background rather than a civil service background. These banks must be run on a commercial basis and they must be run by people who understand what is happening and understand the conditions they presently face.
Question:
Just two things to check: on bonuses, is it just the board members who are foregoing bonuses or will that apply to everyone working at a bank like the Royal Bank of Scotland; and secondly, what happens if this plan doesn’t work, is there a Plan B?
Chancellor:
In relation to bonuses, that measure is in relation to board members. What I don’t want to do is to end up in a situation where somebody in the middle ranks or the lower ranks are actually doing something that is pretty helpful for the bank and finds that they are not suitably rewarded. As both of us have said, we are not against bonuses in themselves because bonuses are a very good way of getting people to do good things and to serve employers of their bank well, but it is quite clear that in the current circumstances it would be absolutely nonsense for board members to be taking bonuses. And I suspect you will find too that people pretty near the top will be dealt with in exactly the same way. So you know I think there is a very clear message that is being sent out as far as that is concerned.
Prime Minister:
And let me just also say that bonuses in future will be based on the principle that it is the long term success of the company that is the issue, not short term financial deals without necessarily anything to benefit the company other than the transaction itself. And when you ask about the future, look we will do whatever it takes. We have taken unprecedented action today, and that will be followed in my view by similar actions in other countries. There will be international agreement on further measures where necessary, but I just repeat we will do whatever it takes to deal with this problem.
Question:
Prime Minister your plans for 42 days detention without charge will almost certainly be defeated in the House of Lords today. Will you seek to overturn that defeat when the Bill returns to the House of Commons in November?
Prime Minister:
I think the House of Lords should take the advice of the House of Commons on this matter. We discussed it pretty fully and I am not going to presume the result in the House of Lords. I believe the House of Lords should take the advice of the House of Commons.
Question:
Prime Minister where exactly do you see the turning point in this situation where it went from being economic turbulence to being something that threatened global meltdown? How important do you think it is that the Paulson Plan is recalibrated and with more [indistinct] than you saw perhaps in the original approval of the plan in Congress?
Prime Minister:
What we have seen over the last few days, and why we did what we did last Wednesday, was we saw that simply to inject liquidity into the system gave you an overnight breathing space but it didn’t solve the fundamental problem. And as Hank Paulson has seen, it is necessary to deal with the bad assets in the system. What we have proposed is that three things go together and you cannot have a solution that is going to work without these three things happening at the same time. First of all the short term liquidity, which has been extended, as Alistair has said, today. Secondly, the medium term funding that allows banks to resume the business that banks are there for after all, and that is to lend to and support and receive deposits of businesses and families; and then thirdly, that the banks themselves have got to be stronger and they have got to be capitalised in a way that they are strong enough to deal with the problems that we face. Now it so happens that European banks are more highly leveraged than American banks, but I think both authorities in Europe and America are coming to the same conclusion, that we need to strengthen the capital base of our banks and that is a matter for decision by America but it is within the scope of what has already been announced as the Paulson Plan.
Question:
[Inaudible]
Prime Minister:
We believe that the action we have taken in the last few days will start to make a difference, but we have got to hope that other countries will follow. This is a global problem. Let’s be honest, if a sub-prime mortgage market in the States can eventually bring down a country, which is what is happening with Iceland with all its banks failing, and at the same time can cause billions of dollars in European banks and financial institutions that have to be examined for whether they are credit worthy, then you are talking about a global problem that is spread as you know with things happening in Asia that we would not want to happen. And therefore there has to be globally coordinated action. We are building towards even stronger action on the reforms in the international financial system, but our first challenge is to stabilise the financial system and get markets moving forward again.
Question:
Prime Minister you have made a very clear stand on bonuses, but Fred Goodwin and some of the other executives who are going to be leaving the board are in line for some very hefty payouts and people are going to be pretty angry if they are being paid out of taxpayers’ money. What can you do to stop that?
Prime Minister:
Well as I understand it Sir Fred is announcing that he is not taking any severance payments and it is for him and his board to explain what they are doing, but as I understand it he has made that announcement. Let us also remember, so you are clear, that there are no bonuses for board members in both HBOS and RBS over the course of this year, in some other companies it will be bonuses only in shares if there are bonuses. But the principle is set down that bonuses must be built on long term performance in the future and I think that is what the public want to see. Look, we run a country where ordinary businesses are built around work and enterprise and responsible risk-taking and I think people will now be determined that we root out the irresponsible risk-taking that has happened, and that is what our proposals are designed to do. So as you know the four [indinstinct] of two companies are leaving or announcing their departure today, that is a matter for the companies to announce in detail for themselves.
Question:
Prime Minister what is your opinion of councils, including the north east, that invested millions of pounds in Icelandic banks and will they get their money back?
Prime Minister:
Well Alistair has already explained what we are doing on that.
Chancellor:
Look, we need to try and resolve this problem with Iceland. I have made it very clear to the Icelandic authorities that they cannot get into the position where they cut off everybody else that doesn’t happen to be in Iceland, and that means they have got to resolve their own problems and they are probably going to have to do that with international help, and I think they are very focused on that. In the meantime, as I have said, we have taken steps to reserve the assets we have got in this country and I know that the local authorities had discussions with Ministers in the Department of Communities and Local Government and will continue to discuss it with them.
Question:
The statement this morning said that you are seeking to maintain the same level of market share and the same levels of lending for RBS and HBOS. On the levels of lending, is this prudent given that in 2007, the year that caused this problem, are those prudent levels of lending?
Chancellor:
Yes. These figures were reached as a result of a discussion both with the FSA and with the banks’ new management teams and the banks’ new management teams would not sign up to something they didn’t think was prudent. And of course it is on the back of us making very substantial capital available to these banks, so they are not announcing it without that; the two things go together. But what we are anxious to ensure is that if the taxpayer is prepared to make that investment, the taxpayer is entitled to see something from it, but what we have announced is prudent and it has also been agreed with the bank as well as obviously the FSA.
Prime Minister:
For the benefit of other people who may not have seen this, over the next three years the availability and active marketing of competitively priced lending to homeowners at at least the equivalent to that of 2007, and arrangements also for small businesses.
Question:
Prime Minister you spent at least part of the weekend going round the country trying to sell this rescue package to various groups of taxpayers. Do you get a sense now that you have finally got the public on your side?
Prime Minister:
I think people are worried about what is happening at the moment and therefore they want to know what the government is doing. I want to assure people that first of all we are taking the action that is necessary to stabilise the system; and secondly, where we have to use taxpayers’ money to make sure that things move forward, that we are getting best value for taxpayers’ money. And I think people want to know that this is not at the expense of our investments in the Health Service and our investments in schools and they want to know that these, this year and next year, are continuing to move forward. I think that is the set of questions that I am having from members of the public. From business, they want to know when lending will resume from the banks and the central part of the deal today is of course that the banks, as we have just listed, are saying that they will restore the lending that is necessary. They have a guarantee that has been given by the government that will allow them for the next six months to make longer term arrangements about lending each to one another as banks and then use the money of investors so that they can lend to homeowners and to businesses. So what we want to do is to both reassure people we are taking the action that is necessary, to explain how the country can deal with this, and actually explain how we are leading in trying to resolve what are the fundamental issues that have emerged from this banking crisis, which is not essentially just a question of there being enough liquidity in the system. There are flaws that have got to be sorted out and that is what we are doing now.
Question:
Prime Minister you have mentioned today the consequences of excessive and sometimes undisclosed risk-taking. If we look at where we are today, isn’t one of the conclusions that taxpayers are entitled to draw that the regulatory regime that you set up has failed and needs to be reviewed?
Prime Minister:
Alistair will add something here, but look you have got a situation where there was a lot of money that was not on balance sheet, that is particularly true of America and it may have been difficult for regulators to spot just how much diversified lending was taking place by the individual companies. So some companies have been writing off something in the order of $60 billion that was not on balance sheets but has been brought back on to the balance sheets to be wiped out as a worthless asset. So there are situations where the regulator could not have known what was happening, and indeed perhaps some members of the bank boards did not know what was happening. Over Northern Rock, the FSA agreed that it should have been pursuing both solvency and liquidity. I think in future regulated systems there will be greater attention to the issues of solvency and liquidity and probably a pro-cyclical attitude that where you are in a period of growth you have got to lay aside more for the possibility that there will be contraction. So changes are going to be brought about in every regulatory system, but I do say to you we are in a global financial economy now. What is so clear to me, and I have been saying this for many, many years, if you have got global financial flows, if you have got money crossing frontiers you can’t just have national systems of supervision, you must have a global framework, and that is what will come out of the problems that we have had. I will be pushing this argument forward at the meetings in the European Council on Wednesday and all the other international fora.
Chancellor:
In 1998 we set up the FSA and remember at that time we brought together 8 or 9 different regulatory bodies in this country. The system that we had then was far too fragmented, a lot of duplication, and we brought them altogether in one single regulator, and interestingly the Americans are just putting in place exactly that model, indeed other people have done it as well. I draw two lessons from what has happened in the last year, eighteen months. The first is that far more attention needs to be paid to risk-taking by board members. It really is quite extraordinary that boards themselves didn’t more fully understand what risks that they were allowing their banks to become exposed to and you have seen the consequences here, in some banks in particular. The first line of defence, not just for shareholders but for everybody else, is to make sure that the boards are up to the job. Now I think the regulatory system needs to ask some serious questions to ensure that people have risk monitoring measures in place. Northern Rock didn’t for example, they weren’t nearly as robust as they should have been. The second lesson I draw is this; that of course you need a robust domestic supervisory system, but you also need one that can take account of the fact that nearly every institution we have now is operating across the world, so that when things start to go wrong say in the sub-prime market in America, that is clocked in every regulatory body across the world and that we don’t just look at the solvency of institutions but what happens if liquidity dries up. Now I think this is an example of where the regulatory system needs to evolve. What has happened in the last 7 or so years is a complete change in the sense that there was a lot of money around at the moment, it was looking for places to go to get rewards, and I think the international supervision and cooperation needs to be very significantly strengthened and if we do that there is no reason why we can’t continue to have a regulatory system that is up to the mark, but we do need to make some improvements to it.
Question:
Prime Minister do you think this is it, is the last call on the taxpayer to repair the banking system, can you keep within the numbers that you outlined last Wednesday? And how important is it for you to be able to do that for other countries to follow your example?
Prime Minister:
Well I think as you can see from Alistair’s figures that we are recapitalising the banking system today so it is being strengthened by £37 billion of public money, but there is also around £10 – 13 billion being injected into the banks themselves by their own efforts. So the figure of £50 billion is being met in two ways, by the public guarantees and by the market themselves. But I have already said to people we will do whatever it takes. This is the first financial crisis of the global age, it is in part the result of the global trade and global cash flows that happen across the world that are going to be typical of a globalised economy for years to come. The oil crisis we have had in the last few months is part of this remaking of the world on a global basis, you have had demand but supply does not match it. Financial problems have arisen because we have got national supervision but a global financial system, and we have now got to make the changes that are necessary to recognise that we are in this global age. Now I need, as all other countries need, there to be international cooperation because what we can do on our own is not as great as what we can do working with other people to solve the problems that we face. I want to see the banks capitalised in other countries, I want to see medium term lending begin again in other countries, I want to see the liquidity that is necessary for the system to be available in all countries. But in time we will also need a relationship with Asia about what they might do, there are issues about macro-economic policy that are coming up, and I think the more international cooperation we have the better and I will be proposing means by which we do this later today and when I go to the European Council on Wednesday. This is not just the time to stabilise the system, it is the time to sort it out and that is why we have got to look at the far reaching reforms that are necessary and we start with these reforms now, we don’t wait.
Question:
Just on that last point, the first financial crisis of the global age, can you paint for us a bit what you think the financial sector will look like after this first great crisis, will it be smaller, less of an engine of growth in the economy, just something that we are not accustomed to? And can I just ask you one other slightly related point which is do you know how long you will be having shares in these companies, and of course you don’t know definitively but do you have an idea, are you talking about months, are you talking about years or is it completely unknown?
Prime Minister:
Look the prospects for the global economy over the next 20 years are very strong indeed. Whatever the difficulties we have today, let’s not be under any illusion, whatever happens in the growth rates of a number of different countries in the next year or two the world economy will double in size over the next 20 years. That means there are double the opportunities for businesses available in the next 20 years, that means a financial sector that is strong will benefit over the next 20 years as the flow of money to the global economy. So being optimistic about the future and actually the chance that Britain has to be one of the great leaders in this future means that we should immediately sort out the problems that we have got now. We are dealing with the first set of problems that arise when you have an international economy that has never worked as an international economy before, once we deal with these problems you can see the huge opportunities that are available for British business, and British talent and British skills in the years to come. But that economy has got to be built around principles and that is why I emphasise, the principles that most people understand is that you reward work and effort and responsibility in risk-taking, not irresponsibility, and you reward enterprise. These are the principles on which good business practice is based, these are the principles that create wealth in our country, these are the principles that businesses over centuries have actually followed to make them successful, and where there is irresponsible risk-taking, either in this country or other countries, we have got to use the supervisory system to root that out and that is what we are going to do.
Chancellor:
I agree with what you are saying. And I think, as I was saying this morning, it is important to remember that no matter how difficult things are today, and just as there are threats and risks from globalisation there are massive opportunities and I believe that our financial services industry in this country is fundamentally strong, will get through this and it will continue to do well in the future.
Question:
[Inaudible]
Chancellor:
On that point, again I have said this before, we are in this for as long as it takes. It is necessary to stabilise and strengthen the position, but I have also said the British government is not in the business of running banks, you know we are in the business of stabilisation, that is what we will do and we will do it for as long as it takes.
Question:
Last week the government met with the Local Government Association and decided that they had not taken undue risk with investing in the Icelandic banks, but it has since become clear that some were investing as little as less than a month ago. Are you going to rethink that position now on those councils that did so?
Chancellor:
As I said earlier, there is a discussion taking place between local government and with the Department of Communities and Local Government and those discussions will continue.
Question:
Given the sums of money that are now being invested by the British taxpayer, do you think there is a case for an official government inquiry into the source of this crisis? And secondly, related to that, why did you make Alan Greenspan your economic advisor since he was the chief proponent of the deregulation of derivatives, widely seen as the source of the problem we are now going through?
Prime Minister:
If I may say so, Alan Greenspan was the first to recommend in the United States the Resolution Trust Corporation that has been taken up by all parties in the United States of America, he has actually led the way in proposing a solution to this problem. As far as how we will move forward, the important thing is to take action now to stabilise the system. I think you will see over the next few days that we think it is important not just to stabilise the system but to assure people that the problems that have existed do not happen again. So we will move straight to proposing measures that we believe the international community should adopt as a whole so that we not only stabilise the system, but make sure that we have the right architecture to prevent these problems starting again. Now no doubt there will be all sorts of articles written and all sorts of discussions about the future, but we are not going to wait. We are going to move forward not just with the measures we have announced today, but with further measures that we hope we can get other countries to agree on, as they have agreed on some of the measures that we have proposed in the last week, so that we can actually make the reform of the international financial system happen as soon as possible so that people can be assured that problems that have developed in the past few years would not happen again.
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