View from City Road: Lloyd's will not be bankrupting the backbenches

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The Independent Online
How likely is it that investors will be made bankrupt at Lloyd's? This has become a political question, since the Goverment's majority would be eroded if a significant number of the Conservative MPs who are members of Lloyd's appeared in Carey Street. They would be disqualified from the House.

Hold back your tears. Lloyd's is no ordinary financial institution. It is supported by wealthy individuals who must produce private resources of up to pounds 250,000 before they are admitted to the market and allowed to share its fortunes. More than 17,000 underwriting members are on the rampage over their losses.

As the crisis has mounted over the past three years, the authorities at Lloyd's have become more sensitive, at least to the predicament of the market, if not that of individual members. Without members there is no capital: without capital the market will die. So there has been a slow shift of policy towards insulating members from the losses they face.

Nobody, says Lloyd's, is driven into bankruptcy any more because they cannot meet their commitments. Rather, they are required to move into a more modest house, sell a few valuables, and pay what they can over an agreed period of time. It is, if you like, a grinding, long drawn-out bargaining session, to which neither side can admit too openly.

Naturally, members dislike this prospect almost as much as bankruptcy. More than 30 action groups seek restitution for losses. Many do not want to pay a penny, yet this is an investment that was capable of yielding 25 per cent returns or more when business was going well.

Now here is a funny thing. Suddenly, the members' campaign for financial help receives a setback - Lloyd's new management team last week said it could conjure up much less than expected to meet losses. Equally suddenly, the members' anger boiled over in suggestions, first made over a year ago, that MPs may be facing ruin, triggering by-elections and the loss of the Government's majority.

This crude attempt to lean on the Government is a measure of the members' frustration. Most are coming to realise that up to pounds 120m will have to be spent from their own depleted resources to fight expensive legal actions. Others are resentful that the Government and Lloyd's will not offer direct aid.

But the Government should sleep easily. It does not even have base motives - let alone higher ones - for intervening on the members' behalf. Lloyd's realises that it is not in its interest that members, in Parliament or elsewhere, should be made bankrupt. Those backbench votes will be poorer and maybe wiser - but still Tory.