Transfer of the European Bank for Reconstruction and Development Contingent Capital Liability

I am today laying a departmental minute to advise that HM Treasury (HMT) intends—subject to the standard procedure for notification to Parliament of the assumption of contingent liabilities as described below—to transfer the contingent liability of £1,738,000,000 with respect to the European Bank for Reconstruction and Development (EBRD) from the Foreign, Commonwealth and Development Office (FCDO).

This transfer provides HMT with financial and accounting responsibility for the EBRD to match HMT’s longstanding policy responsibilities. HMT is not incurring or undertaking a new contingent liability—the EBRD’s standing contingent liability is swapping from the FCDO to the HMT balance sheet. This will not produce a net budget impact on either Department’s balance sheet as it is budget neutral and will appear as nil in the 2021-22 main estimates. The EBRD’s shareholding is held by the UK Crown, meaning it is at HMG’s discretion to determine which Department holds the EBRD’s callable liability.

The EBRD is a multilateral development bank (MDB) where HM Government (HMG) has an 8.52% capital shareholding. The Chancellor is UK governor at the EBRD, and the Foreign, Commonwealth, and Development Secretary is the UK alternate governor. The UK’s overall capital contribution totals £2,300,000,000, of which previous payments have made up the 20% “paid-in” capital contribution requiring a cash transfer. The other 80%, £1,738,000,000, is “callable capital”—the EBRD has the right to call for payment for these shares if there is a crisis affecting the bank’s assets or liabilities. No MDB has ever issued a call to payment on callable capital shares.

Although the EBRD has the right to call for payment of this callable capital incurred when the initial capital instalment was paid, no such instance has occurred in any MDB in the past. EBRD has a AAA credit rating, with a diversified portfolio of investments across a large range of countries. As of June 2020, the EBRD held €29.8 billion in equity (including shareholders’ subscribed capital) and €11.6 billion in its reserves. Again, the transfer of the contingent liability from FCDO to HMT swaps the liability between balance sheets but does not incur or undertake further liabilities. If the liability were to be called, provision for any payment will be sought through the normal supply procedure.

[HCWS860]