Brown resists pressure to follow Cowen's lead

 

BRITISH REACTION:BRITISH PRIME minister Gordon Brown and the Bank of England are resisting pressures to follow the Irish Government's example and guarantee all British savers' bank deposits, writes Frank Millar,London Editor .

That pressure was mounting from British banks placed at a competitive disadvantage by the Government's decision to underwrite the debts and savings accounts of the six Irish-owned lenders to protect the Irish financial system.

In his emergency statement to the Conservative Party conference on Tuesday, David Cameron also urged the Labour government to produce legislation as early as next week to protect people's savings and deposits, ensure quick payouts and allow everyone "the comfort and security of knowing that whatever happens, their money is safe".

Mr Cameron made no reference to the issue in his closing address to conference yesterday, while Mr Brown's focus was on ensuring that the Lloyds TSB takeover of HBOS goes ahead after declines in banking shares had fuelled speculation that the deal might be in doubt.

Mr Brown had earlier side-stepped the issue when asked about the Irish decision by the BBC's political editor, saying it was important to remember the Irish were dealing "with taxpayers' money" - while repeating that his government had been able to do what was necessary in the case of the Northern Rock and Bradford Bingley.

The expectation is that the Financial Services Agency will recommend raising the amount guaranteed on British deposits from £35,000 to £50,000, although many analysts believe this inadequate.

It was reported yesterday, however, that Mervyn King, the Bank of England governor, would consider Irish-style guarantees to represent "an unacceptable level of moral hazard".

Ministers are also arguing that to follow the Irish example could be counter-productive by raising public alarm about the safety of deposits.

Mr Brown's spokesman said yesterday that any action impinging on the single market would have to be looked at by the European Commission.

Downing Street subsequently said, however, that this comment had been reported "out of context", applied generally to EU member states, and had not been intended as a direct comment on the Irish Government decision.

The EU has already cleared the British Government's nationalisation of the Bradford Bingley bank.

Mr Brown's office denied that the British prime minister had hired investment banks to advise him on a possible plan to guarantee all bank deposits.

The Daily Mail reported that Mr Brown had taken the unusual step of hiring bankers UBS and NM Rothschild to advise him on a possible bank bailout deal, independent of chancellor of the exchequer Alistair Darling.

Mr Brown's official spokesman said the report was "not true".

"Nor do we in Number 10 intend to hire any investment banks.

"We are working hand-in-glove with the treasury as you would expect," he told reporters. - (Additional reporting Bloomberg)