Asset Protection Scheme did not boost lending, says NAO

| December 21, 2010 | 0 Comments

The National Audit Office (NAO) has published a report on the Government’s Asset Protection Scheme (APS) and concluded that it failed in its aim of boosting bank lending.

The scheme, which insurers against losses arising from toxic assets, also did not charge sufficient fees to the banks which participated.

The scheme was established in 2009 to boost confidence in the system following the financial crisis in autumn 2008. It backed assets in Royal Bank of Scotland (RBS) and Lloyds in return for an agreement on lending levels.

However, the NAO highlights that while the mortgage targets were met, the goal for small business lending was not achieved, with a £30 billion shortfall in the year to March.

Meanwhile, according to the Government’s spending watchdog, RBS faces a minimum charge of £2.5 billion but the figure should be closer to the £4.4 billion mark, it said.

In addition, Lloyds could have also been charged up to £4.5 billion but paid £2.5 billion. The bank left the scheme in November 2009.

The NAO’s head, Amyas Morse, comments: “The Asset Protection Scheme has helped the Treasury achieve its primary aim of maintaining financial stability and preventing the huge economic and social cost of the failure of a major UK bank. However, there has been only partial success in one of the Scheme’s subsidiary goals, encouraging bank lending in the UK.”

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