Banking: Iceland

House of Lords written statement – made on 14th October 2008.

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Photo of Lord Drayson Lord Drayson Minister of State, Department for Innovation, Universities and Skills, Minister of State (Department for Innovation, Universities and Skills) (Science and Innovation)

Today, my right honourable friend the Secretary of State for Innovation, Universities and Skills (John Denham) has made the following Written Statement.

Acting on the advice of the Bank and the FSA, my right honourable friend the Chancellor of the Exchequer last week took action to protect the retail depositors in three Icelandic banking operations in the UK: Icesave, a UK-based branch of Landsbanki; Heritable, a UK-based banking subsidiary of Landsbanki; and Kaupthing Singer & Friedlander, a UK-based banking subsidiary of Kaupthing Bank. Using powers under the Banking (Special Provisions Act) 2008, retail deposits in Heritable and Kaupthing Singer & Friedlander have been transferred to ING Direct. Savers' money is safe and secure. The Chancellor has also guaranteed retail deposits in Icesave in full.

The Treasury and the Financial Services Compensation Scheme are working with the Icelandic authorities and their deposit insurance scheme to ensure that depositors in Icesave are paid back as quickly as possible. The Bank of England has also provided a short-term secured loan of up to £100 million to the London branch of Landsbanki, to help ensure an orderly wind down and maximize the returns to UK creditors. The Government have also frozen the funds and financial assets held by Landsbanki. This is a precautionary measure to protect UK economic interests and we are continuing to work closely with the Icelandic authorities to ensure a fair process for UK creditors.

Over the past few days, the Higher Education Funding Council for England (HEFCE) has been seeking information from Higher Education Institutions about whether they have deposited money in these Icelandic banks.

Universities are independent charitable bodies, and take their own banking and investment decisions. But the HEFCE has a responsibility to keep under review the financial health of higher education institutions that receive public funding.

The HEFCE has informed the Government that there are 12 universities which held deposits with Icelandic banks that have recently entered into administration. The total amount deposited was around £77 million.

Clearly, this is a serious matter for each of these universities, and officials from HM Treasury are engaging with them and the HEFCE about their concerns. However, it should be noted that the HEFCE has concluded that no university is at risk as a result of its exposure to Icelandic banks. Certainly no university faces a level of exposure that would raise questions about its continuing solvency. Students, businesses, charities and others may deal with universities with exactly the same level of confidence as before. The HEFCE will be on standby to provide advice and expertise to any institution affected by these problems.

It is important that the Funding Council is able to hold full and candid discussions with universities about their financial affairs. For this reason, its policy, which the Government support, is not to disclose information about individual universities.