23 January 2008
Proposals to save troubled bank Northern Rock will protect shareholders and depositors as well as maintain stability in the economy, the PM has said.
Responding to MPs during Prime Minister’s Questions, Mr Brown said that it was right to look at "all the options" regarding the bank and that the Government would pursue "the best deal" for the taxpayer. Intervention had prevented the spread of instability and secured the savings of depositors with the bank, he said.
The PM said:
"The loans and bonds are secured against the assets of Northern Rock, which, as everyone understands, has a high-quality loan book. It is our intention to get the best deal for taxpayers: they will get their money back, and make a profit.
"We will do what is best by the shareholders and the depositors of Northern Rock, and we are determined at all times to maintain the stability of the economy."
On Monday the Chancellor outlined proposals to enable Northern Rock to remain in private ownership while ensuring that the loan extended by the Bank of England is returned with interest. At today’s PMQs, the Prime Minister stressed that under the scheme the Government would be the "first to be repaid".
The PM also said that he was opposed to administration for the bank, which would result in a "fire-sale" with assets being sold at below value and losing "billions of pounds".
Northern Rock entered difficulty when a large increase in defaults on mortgages in the US filtered through to the financial system. Banks have been reluctant to lend to one another for fear of not being repaid, with a number of large institutions incurring substantial write-offs.
Northern Rock had particularly wide exposure to loans based on high-risk mortgages, a strategy described by the Prime Minister as a "bad business plan" and "bad management".
Image copyright: Reuters
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