Bank regulation

Supporting detail:

Managing and concluding the government's shareholdings in certain UK banks

We continue to have shareholdings in certain UK banks (see below). We manage these shareholdings through a government-owned company, UK Financial Investments (UKFI).

UKFI is responsible for developing and managing a strategy for selling the government’s shares in Royal Bank of Scotland and the Lloyds Bank Group. The Chancellor of the Exchequer makes final decisions on the sale of shares.

In June 2013, during his annual Mansion House speech the Chancellor announced that the government is starting to plan for the exit of its shareholdings in Lloyds and RBS.

He set out three objectives for the banks to be guided by, these are:

  1. maximize the ability of them to support the British economy
  2. get the best value for money for the taxpayer
  3. do what we can to return them to private ownership

In September 2013 the government began the process of returning Lloyds to the private sector, when it sold 6 per cent of the shares in the bank, at 75p per share.

In March 2014 the government sold another part of its shares in Lloyds, decreasing its overall shareholding to 24.9 per cent. Then in December 2014 the government announced that it is selling part of its remaining shareholding in Lloyds through a trading plan.

For subsequent disposals the government will consider all options, including a potential retail offering to the general public.

In November 2013 RBS committed to a new direction that will help it boost the British economy rather than burdening it. This is part of the government’s plan for sustaining the economic recovery and creating a banking system that works for Britain. Under this new direction, a bad bank will be created to separate and wind down RBS’s poorly-performing and high-risk assets that are a legacy of what went wrong in its past, enabling RBS to look to the future. But instead of an ‘external’ bad bank that would require more taxpayers’ support, this will be an ‘internal’ bad bank funded by RBS itself.

The publication of RBS’s new direction and announcement of an internal bad bank follows the conclusion of the government’s review, announced by the Chancellor in June, into the case for a so-called bad bank to hold and manage RBS’s legacy assets and what the different options may be.

In January 2012, UKFI managed the sale of the government’s shares in Northern Rock.

Bradford and Bingley and Northern Rock Asset Management, remain wholly owned by the government and are now managed by UK Asset Resolution (UKAR). The government holds 100% of the shares in UKAR, which is managed on a commercial and arm’s length basis by UKFI.

The eventual cost of the support the government provided to the financial sector will depend on a number of factors, including the eventual sale price achieved for the shares in Royal Bank of Scotland and Lloyds Banking Group. The Office for Budget Responsibility (OBR) is responsible for producing the official estimate of the final net cost to the taxpayer. Its latest estimate, contained in the March Economic and Fiscal Outlook 2013, was an expected net loss to the taxpayer of £19.8 billion.