RBS drops £8bn insurance policy

Royal Bank of Scotland tonight cancelled an £8 billion Government insurance policy in the latest stage of its efforts to get back on its feet after from the taxpayer bailout.

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The move is part of the bank's efforts to get back on its feet following the taxpayer bailout

Royal Bank of Scotland tonight cancelled an £8 billion Government insurance policy in the latest stage of its efforts to get back on its feet after from the taxpayer bailout.

It marks the end of a period in which it spent around £3.8 billion in exchange for Treasury guarantees that provided a buffer against further problems threatening its financial health.

The bank remains 80% state-owned following its near-collapse at the height of the financial crisis, but regulators have now agreed that it does not need to pay £320 million a year for the Contingent Capital Facility.

Under the arrangement, up to £8 billion would be poured into RBS, in exchange for shares, should the level of capital held by the lender fall below a certain level.

But RBS says it has now taken action to strengthen its capital position and so has been able to cancel the CCF with effect from today, having gained approval from the Bank of England's Prudential Regulatory Authority.

The bank had entered into the arrangement for five years to 2014 but the final payment will no longer be due. It has paid a total of £1.28 billion for the insurance up to now.

Tonight's announcement represents a rare piece of good cheer for RBS, after a period in which it has been hit by the latest in a series of embarrassing IT meltdowns as well as a 100 million US dollar (£61 million) fine over sanctions-busting allegations.

The bank has also faced claims that it drove distressed firms to collapse to buy back their assets at rock-bottom prices.

It had entered into the CCF arrangement as part of the Asset Protection Scheme (APS). It exited the APS in October last year after it had paid £2.5 billion since signing up in February 2009.

RBS never had to make a claim from the scheme, which provided backstop credit insurance for a portfolio of RBS assets and derivative exposures.

It played an important part in stabilising market perceptions of the bank after the impact of the financial crisis became clearer and the share price fell to a low of 10p in February 2009.

The Government had agreed to insure £282 billion of assets when RBS formally entered the APS and those assets had fallen to around £105 billion by the time it left the scheme last year.

Last month, RBS announced that it was to create an internal "bad bank" of £38 billion of problem assets.

It acknowledged it would make a substantial loss this year as the faster run-down of those assets would cause an accounting write-down of £4.5 billion.