NAO: Government needs better bank data after £850bn bailout

The government was ‘justified’ in bailing out the banks with £850 billion of public money, Whitehall’s financial auditor said today, but it needs better access to bank liquidity data in order to support its fast decision-making.

The National Audit Office said it was right that the country had supported the banks, in order to avert an even worse economic situation and to protect taxpayers' savings.

But it also made clear that the government needed to work on better business intelligence systems, in order to access vital new bank liquidity data gathered by the financial regulator. This would enable regular assessment of the banks’ situation, it said.

In the US, Congress is considering a bill that would build a database to track bailout funds, and enable parties to track risky practices by banks that have received large amounts public money. Little is known about whether it would track the banks' cash and obligations position.

In Britain, reporting and performance measurement systems at the Treasury needed to continue to be strengthened, the NAO said, in order to track changes in the banks’ cash position and obligations, and assess their future liquidity.

In October, regulator the Financial Services Authority began work on a liquidity reporting regime, in which it tracks the banks’ borrowing and liquidity position closely. According to the National Audit Office, the Treasury “should ensure” that the data is considered by the Tripartite Authorities – the Treasury, the FSA and the Bank of England – so that quick pre-emptive action can be taken “where necessary”.

The lack of data available at present from the government meant the NAO could find “no publicly available information” on changes to banks’ borrowing in the wholesale markets, in spite of the near-trillion pound commitment that has been made to them.

The report, ‘Maintaining financial stability across the United Kingdom’s banking system’, praised the government for its decisions in July, when it recognised that “further work was needed” to develop the performance measurement and reporting systems. But indicators on the key data are still being developed, with the goal of delivering “detailed” data and analysis capabilities.

Amyas Morse, head of the NAO, said today: “The authorities need to put formal arrangements in place to evaluate the effectiveness of the support provided to banks in order to inform future policy makers.”

Making up the £850 billion commitment, the government has agreed in principle to provide insurance covering over £600 billion of bank assets, indemnified the Bank of England against losses incurred in providing over £200 billion of liquidity support, and guaranteed up to £250 billion of wholesale borrowing by banks.

It has also provided £40 billion of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme, and committed £76 billion to shares in Royal Bank of Scotland and the Lloyds Banking Group.

But the Public Accounts Committee, which will grill ministers over the findings of the NAO report, issued an angry warning over a decision by the government not to inform parliament of the indemnity provided to the Bank of England.

Committee chairman Edward Leigh said the government had wilfully broken “centuries of constitutional principle” in doing so. He said he was “greatly disturbed” that the government had played “fast and loose” with the rules.

An angered PAC may deliver some tough questions on the issue of the lack of liquidity data and business intelligence analysis by the government, in hearings expected to take place over the coming months.

Copyright © 2009 IDG Communications, Inc.

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