New British Bank Agency to Operate at Arm's Length

The role of the company created by the British government to oversee its stakes in banks part-nationalized during the financial crisis will be "to manage the taxpayer's investments, not to manage the banks," two of its executives wrote in the Financial Times newspaper on Friday.

UK Financial Investments Ltd will monitor the recapitalised banks' salaries, board appointments and lending, but will not interfere with their day-to-day running, according to its Chairman Philip Hampton and Chief Executive John Kingman.

New non-executive directors appointed at the banks "will not ... be our representatives and will not report directly to us," they wrote in a joint article published on the paper's Web site.

"The government has been clear that our over-arching objective is to protect and create value for the taxpayer, and that we must operate on a commercial basis at arm's length," Kingman and Hampton wrote.

"We will follow best practice as an investor and have a clear-sighted view of our job -- to manage the taxpayer's investments, not to manage the banks."

British Finance Minister Alistair Darling announced last month that Britain would spend 37 billion pounds of public money to recapitalise three banks hit by the global economic turmoil.

The new agency will develop a plan to sell the government's stake "over time in an orderly way," they added. "This reflects the government's firm view that it has no wish to be a permanent investor in UK financial institutions," they wrote.

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Staff at the banks should be paid "fairly, but not beyond fairly," they said in response to widespread criticism that bankers were rewarded with large pay packets and bonuses even as their businesses were failing.

The pair added that they would "expect and challenge" the recapitalised banks' bosses to consider the links between their business models and the health of the economy. That includes lending money to creditworthy customers, they said.

Prime Minister Gordon Brown has repeatedly urged banks to keep lending to companies and to home owners. Property prices and retail sales have slumped, unemployment is rising and the Bank of England said this week that Britain is probably already in a recession.

The new company will oversee commitments made to the government by the recapitalised banks on home loans and borrowing to small- and medium-sized businesses, but it will not act as a watchdog.

"We have not been asked to act as any kind of general regulator of the recapitalised banks in difficult times," they said. "We have been asked to ensure that the banks deliver on the commitments they have made."

Under the British plan, the government is due to take stakes in the Royal Bank of Scotland, HBOS and Lloyds TSB. Northern Rock, which was already nationalized, and part of Bradford & Bingley will also be owned by UKFI.

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