I congratulate my hon. Friend Mrs. Cryer on securing this Adjournment debate. Through the early-day motion and extensive lobbying, she has shown a great interest in the impact of FSCS levies on building societies, and we have previously discussed the matter. I hope to use this opportunity to go into greater detail on the current position.
It is important to set the matter in context. I do not think that I need to say that we are living through extremely uncertain times and that the banking crisis has made the past 18 months challenging for the industry, the Government and the general public. Now is not the time to debate the causes of the crisis or to decide who is to blame. Suffice it to say that the Government took action when they needed to in relation to Northern Rock, Bradford & Bingley and the Icelandic banks. As my hon. Friend noted, no retail depositor in British banks has lost out in the wake of the global financial crisis. I emphasise that the Government remain committed to doing whatever it takes to stabilise the banking system to protect depositors and taxpayers and to support the wider economy.
As hon. Members will be aware, we brought into force the Banking (Special Provisions) Act 2008 to give us the right mix of emergency powers to deal with deposit takers in difficulty. That Act's successor, the Banking Act 2009, reformed those powers and put them on permanent footing. It made some changes to the legal framework for the FSCS and introduced a new bank insolvency procedure, which aims to allow speedier payouts to eligible depositors. We hope never to have to use those powers, but we are now in a position to deal swiftly and precisely, if necessary, with financial institutions that pose a threat to financial stability in the UK.
We have used the powers under the 2008 Act to protect the financial system by, as Mr. Hoban noted, transferring deposits from Bradford & Bingley, Heritable and Kaupthing Singer and Friedlander. We have also ensured that retail depositors in UK branches of Landsbanki and London Scottish have been fully compensated. All that costs money. The Government contributed by paying for the transfer of deposits or compensation when depositors stood to lose more than £50,000. We expect the Icelandic Government to support deposits in branches of Icelandic banks.
That leaves a cost, which falls on the UK FSCS. As my hon. Friend the Member for Keighley clearly outlined, the principle behind the scheme is that the industry mutually meets the costs of compensating retail customers for losses caused by the failure of their peers, be they deposit takers, insurers, or other firms. I did not hear any hon. Member who spoke today argue with the general principle that the industry should meet its own costs of failure.
Under normal rules, a large part of the cost of compensating depositors could have fallen immediately on FSCS levy-paying firms. That would have left deposit takers facing a £1.8 billion bill and other firms a £2.2 billion bill. The Government recognised that that would be a serious burden for many firms and that the FSCS would still need large loans to meet costs over the first £4 billion. Accordingly, we arranged for the Bank of England to make loans. The loans are being refinanced by the Treasury, but they will have to be paid for. The interest costs on the borrowing will be met by deposit-taking firms, and the loans will be repaid over time by FSCS levy-payers after recoveries have been made from the assets of those banks that were the subjects of pay-outs.
As my hon. Friend explained, the deposit-taker category of firms includes banks, building societies and credit unions, which brings us to the nub of today's debate—that building societies believe that it is unfair that they must contribute to the cost of failed banks. I understand that, and I have every sympathy with societies who find themselves in that position.