Westminster blog

The Icelandic banking saga goes on. The Tories are now calling for an independent inquiry to end the “confusion” over the government’s handling of the crisis.

Mark Hoban, shadow financial secretary, is questioning the basis for the Treasury’s actions and the validity of the explanations provided by Alistair Darling.

He suggests the Treasury were aware of problems many months ago, while local authorities were still happily depositing money with the Icelandic banks for safekeeping. Darling’s team, of course, argue that the breakdown in talks over the stability of the banks is exactly why they were forced to step in.

The points Hoban raised in his letter to Ian Pearson, the Treasury minister, are listed below. The Treasury are unlikely to welcome a independent inquiry. But the lingering suspicions over this episode suggest that the record does need to be set straight.

    * Establish a proper chronology of events from the first time that the Tripartite Authorities became aware of the problems of the Icelandic banking systems and the threat that this posed to the UK banking system to date;

    * Explain the discrepancies between the Chancellor’s remarks that “The Icelandic Government…have me told me yesterday they have no intention of honouring their obligations” and the transcript of the conversation with the Icelandic Finance Minister, Mr Mathiesen, when it was apparent that the Icelandic Government intended to meet its commitments;

    * Explain why the Government was required to use anti-terrorism legislation to freeze Landbanki’s assets in the UK and what other routes were considered;

    * Justify why the Freezing Order froze not just Landsbanki’s own assets but also disrupted the business of its wholesale customers;

    * Set out the discussions that the FSA had with Heritable and Kaupthing, Singer and Friedlander prior to 8th October about their solvency and any actions that they could have taken to strengthen their position;

    * Explain why Kaupthing Singer and Friedlander and Heritable had breached their threshold conditions, thus triggering the transfer of deposit accounts to ING Direct and putting these two businesses into administration;

    * Set out discussions that the Treasury and the FSA had with the authorities in the Isle of Man and Guernsey about the operations of Kaupthing and Landsbanki respectively including any advice given to them; and

    * Establish whether the actions of the UK authorities triggered the administration of Kaupthing, Singer and Friedlander Isle of Man and Landsbanki’s activities in Guernsey.

UPDATE:

Paul Myners, the new City minister, has defended the decision to freeze the Icelandic bank assets in his Lords maiden speech. “It may well have been inelegant. It may well have been a slightly uncomfortable process in which to engage. But it was highly effective in protecting the interests of British depositors and the British economy.”