---

Banking Bill

I do not think that Amendment 8 is required. I believe that the purpose behind the amendment is to ensure that the authorities have regard to all the objectives of the special resolution regime; that is, they cannot ignore one or more of the objectives when undertaking action within the special resolution regime. The Bill lists five objectives to which the authorities must have regard when taking action within the special resolution regime. Those objectives are, "““to protect and enhance the stability of the financial systems of the United Kingdom … to protect and enhance public confidence in the stability of the banking systems of the United Kingdom … to protect depositors … to protect public funds … to avoid interfering with property rights in contravention of a Convention right (within the meaning of the Human Rights Act 1998)””." In response to the observation from the noble Lord, Lord Blackwell, my interpretation is that it is not intended that that should override our obligations or the obligation to property rights under the Human Rights Act 1998. I believe that the requirement to have regard to all the objectives is already implicit in the Bill as its drafting does not refer to ““one or more”” of the objectives but simply to, "““the special resolution objectives””." That fact is reinforced in the code of practice, the draft of which states that, "““the Authorities must consider the effect of their likely actions (including inaction) and assess them in the light of the objectives””." For that reason, I do not believe that the noble Lord’s amendment is necessary. As Members of the Committee may know, further information and explanation of the special resolution regime objectives is set out in the draft code of practice. However, while the Bill is clear that the authorities should have regard to all the objectives, the code also makes it clear that the specific relevance and application of the objectives may change; for example, as the threats to financial stability change over time or depending on whether public funds have been invested in a bank or decisions affect public funds. Furthermore, the Bill and the code state that the objectives have not been ranked. That is important because it recognises that the relative weighting and balancing of objectives will vary according to the circumstances of each bank failure, including circumstances specific to the failing institution and general circumstances relating to the wider financial system. I will consider this point in more detail when I respond to the noble Baroness’s second amendment in this group. However, this point does not change the fact that the authorities need to consider each of the SRR objectives. For those reasons, I would ask the noble Baroness not to press this amendment. Amendment 18, on balancing the objectives, states that the code of practice under Clause 5 should include provision on, "““how the special resolution regime objectives are to be balanced against each other””." Perhaps I may set out why such an amendment is unnecessary. As the noble Baroness and other Members of the Committee will be aware, one of the main purposes of the code of practice is to provide guidance on the SRR objectives as set out in the Bill. Part 1 of the draft code of practice, on which we have recently consulted, includes information on the meaning of the objectives, the authorities’ regard to the objectives, and the balancing of the objectives. It is no accident that the code already includes detailed provision for each of these areas. Clause 5(2)(a) states that the code may provide guidance on, "““how to achieve the special resolution objectives””." For this reason, I do not believe that the proposed amendment is necessary. The matter of how the authorities balance the objectives in each case is important. As each resolution will be different, the Bill makes clear in Clause 4(9) that the objectives are to be, "““balanced as appropriate in each case””." The draft code also indicates that the, "““relative weighting and balancing of objectives will vary according to the particular circumstances of each failure, including … circumstances specific to the failing institution; and … general circumstances relating to the wider financial system””." Allow me to provide an example of how the weighting of an objective may change. The objective to protect public funds, for example, will become more relevant to the treatment of a bank within the SRR once significant amounts of public funds have been invested in it. Before such an investment, the objective would have been about avoiding contingent risk to public finances. Once an investment is made, however, the objective becomes more important as public funds are now actually committed. We will reflect, following the consultation on the draft code and the observations made both in this House and in the other place, on whether further information is needed. However, as I set out, I believe that the intention behind the amendment is already covered in the drafting of Clause 5. I therefore urge the noble Baroness not to press the amendment. The general conditions of Clause 7 demarcate the boundary between when the stabilisation powers of the SRR can and cannot be used. They are preconditions and their satisfaction does not authorise action. The provisions which authorise the use of specific tools are found in Clauses 8 and 9. I hope that that provides further satisfaction for the noble Lord, Lord Lamont of Lerwick.