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| Osborne: No Treasury pressure on Co-op over Lloyds deal | Osborne: No Treasury pressure on Co-op over Lloyds deal |
| (8 days later) | |
| Chancellor George Osborne has said the Treasury did not press for a deal for Co-op Bank to buy 632 Lloyds branches. | Chancellor George Osborne has said the Treasury did not press for a deal for Co-op Bank to buy 632 Lloyds branches. |
| In a letter to the Treasury Select Committee, Mr Osborne said the deal "was a matter for Lloyds and the-then regulator, the FSA". | In a letter to the Treasury Select Committee, Mr Osborne said the deal "was a matter for Lloyds and the-then regulator, the FSA". |
| The former chairman of Co-op Bank, Paul Flowers, and Lord Levene have both accused the Treasury of interfering. | The former chairman of Co-op Bank, Paul Flowers, and Lord Levene have both accused the Treasury of interfering. |
| Also, a report by Newsnight said the Treasury argued with regulators about a law that could have blocked the bid. | Also, a report by Newsnight said the Treasury argued with regulators about a law that could have blocked the bid. |
| The chancellor has been answering questions about the Co-op issue at a hearing of the Treasury Select Committee. | The chancellor has been answering questions about the Co-op issue at a hearing of the Treasury Select Committee. |
| Labour MP Pat McFadden said the committee had heard "conflicting advice on whether there was political pressure", citing testimony from Lord Levene, who was leading a rival bid. | Labour MP Pat McFadden said the committee had heard "conflicting advice on whether there was political pressure", citing testimony from Lord Levene, who was leading a rival bid. |
| In written evidence submitted in January, Lord Levene wrote: "We had contacts with senior banking figures, during which it was made clear to us that pressure on LBG [Lloyds] to appoint the Co-op was coming from within the Coalition." | |
| But the Chancellor denied there had been an attempt to interfere in the process. | But the Chancellor denied there had been an attempt to interfere in the process. |
| Newsnight Investigation | Newsnight Investigation |
| According to a report by the BBC's Newsnight, the Treasury disagreed with the Financial Services Authority (FSA) over a rule that could have blocked Co-op Bank's takeover of 632 Lloyds branches. | According to a report by the BBC's Newsnight, the Treasury disagreed with the Financial Services Authority (FSA) over a rule that could have blocked Co-op Bank's takeover of 632 Lloyds branches. |
| Co-op Bank's size meant its parent company should have been regulated like a bank under EU rules. | Co-op Bank's size meant its parent company should have been regulated like a bank under EU rules. |
| The FSA in 2012 wanted the rule to apply, but the Co-op said it would mean that the deal could not go ahead. | The FSA in 2012 wanted the rule to apply, but the Co-op said it would mean that the deal could not go ahead. |
| But the Treasury argued that the rule should not apply. | But the Treasury argued that the rule should not apply. |
| Mr Osborne in his testimony said lawyers disagreed on the relevance of the EU rules, and in the end the Co-op supplied its own plan, with which the FSA agreed. | Mr Osborne in his testimony said lawyers disagreed on the relevance of the EU rules, and in the end the Co-op supplied its own plan, with which the FSA agreed. |
| The rules would have meant authorities could direct Co-op to raise new capital, to reorganize the financial business, and to recruit a new board. | The rules would have meant authorities could direct Co-op to raise new capital, to reorganize the financial business, and to recruit a new board. |
| The extra regulation could have meant its other businesses shouldering any bank losses. | The extra regulation could have meant its other businesses shouldering any bank losses. |
| The FSA clashed with the Treasury in March 2012, and the Co-op warned members it may not go ahead and do the deal it had been working on for a year, Newsnight discovered. | The FSA clashed with the Treasury in March 2012, and the Co-op warned members it may not go ahead and do the deal it had been working on for a year, Newsnight discovered. |
| But the waiver was approved by top bank regulator Andrew Bailey in June that year, and within weeks the deal was back on. | But the waiver was approved by top bank regulator Andrew Bailey in June that year, and within weeks the deal was back on. |
| Bank responsibility | Bank responsibility |
| The EU rules were brought in to ensure that companies owning a bank took on more responsibility. | The EU rules were brought in to ensure that companies owning a bank took on more responsibility. |
| Paul Flowers, the bank's former chairman, told Newsnight last week the Treasury "wanted" the Lloyds deal to go ahead. | Paul Flowers, the bank's former chairman, told Newsnight last week the Treasury "wanted" the Lloyds deal to go ahead. |
| The Co-op proceeded with the bid before being forced to abandon it because of a £1.5bn capital black hole. | The Co-op proceeded with the bid before being forced to abandon it because of a £1.5bn capital black hole. |
| The regulatory exception later allowed the Co-Op to avoid having to rescue its bank on its own, instead asking bondholders to swap their bonds for shares. | The regulatory exception later allowed the Co-Op to avoid having to rescue its bank on its own, instead asking bondholders to swap their bonds for shares. |
| The Lloyds branches became TSB, and will be sold to investors in a share sale. | The Lloyds branches became TSB, and will be sold to investors in a share sale. |