On 26 February 2009, the Government announced its Asset Protection Scheme (the Scheme), which forms a significant part of the Government's measures to deal with the financial crisis.
This statement sets out the Financial Services Authority's assessment of how the Scheme will affect the capital position of any participating firms. The exact capital impact will depend on, among other things, the size of the first loss deduction. However, the Financial Services Authority expects there will be an improvement in the Core Tier 1 ratio which will make it easier for the provision of new lending by participants.
The Scheme is designed to provide protection against credit losses occurring on specified pools of assets above a certain threshold (The first loss). It is intended that the Scheme will target risky and uncertain assets, including those that are most likely to be adversely affected by economic conditions.
The Treasury will reimburse the participating firm, for a portion (usually 90 per cent) of all losses that exceed this first loss amount.
The Scheme will affect the capital position of any participating group. Specifically, the first loss portion that is retained by the participating group will be met with a deduction from capital, but the risk weighted assets of the protected portfolio will be significantly reduced.