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Banking Bill

Amendment 10 10: Clause 4, page 3, line 21, at end insert ““which includes ensuring that that they have access to their deposits as rapidly as possible and that depositors and other customers have continuity of banking services”” The amendment expands the definition of objective 3 in Clause 4 so that the protection of depositors is a widely drawn concept and extends beyond depositors accessing their deposits to the need of depositors and other customers to have continuity of banking services. It is a point which has been pressed strongly on us by the British Banking Association. It is supported by consumer groups and bodies representing small businesses. The draft code of practice recognises that one way of delivering depositor protection is to provide continuity of banking services, but the Government have not included continuity of banking services explicitly within the Bill. Indeed, a straightforward reading of Clause 4 would not lead a reader to believe that continuity of service had any part to play in the special resolution regime. Providing continuity of service is important at two levels. For individual customers affected by a bank failure, it becomes critically important to establish how they will receive their monthly salaries and meet their various direct debit commitments—for example, for rates and utilities. Customers also need to draw cash, as we are not yet in a cashless society. The impact assessment itself gave the statistics on the pervasiveness of banks in everyday life, with 90 per cent of wages and 98 per cent of benefits being paid into a bank or post office account, as well as at least 75 per cent with at least one direct debit. Objective 3 talks about the protection of depositors, but the deposit element of the banking relationship is often the least important element. The sum in the bank in many cases is not a passive investment but a vital part of the mechanism of household finances. I have referred to individuals, but the same is true for businesses, both large and small. Without access to banking facilities, individuals and businesses simply become non-functioning. The other point is that the confidence that banks’ customers have in the banking system as a whole is linked to whether they can place their trust in the banking system working for them when they need it—which is almost all the time. When Bradford & Bingley was dismembered in the autumn, the one good thing that the Government achieved was the seamless transfer of banking services available to Bradford & Bingley customers to Abbey Santander. It may be that, when the Bill was drafted, the importance of continuity of service was not well articulated and therefore not reflected in the drafting, which led to its being drafted as if deposits alone were the important aspects. I hope that recent experience will have brought home how important this is and the fact that it needs to be reflected in the Bill. In addition to the benefits to all bank customers of seeking a solution which includes continuity of service, the Minister will be aware that there is a huge potential impact on the cost of action taken under this Bill if continuity of service is not achieved. The Financial Services Compensation Scheme is a critical component of this. We will not reach the clauses dealing with the FSCS for some time, but the banking industry backed up by an independent study by Ernst and Young estimated that the FSA’s consultation document on faster payout via the FSCS will cost around £1 billion over the first five years, whether or not faster payout was ever required. Under the FSCS, faster payout would not be important if continuity of banking services were embedded as one of the objectives of the special resolution regime. There is a serous policy issue about whether one of the tripartite authorities—namely, the FSA—should be pursuing a cost-laden approach to the FSCS, which could be largely settled by making continuity of banking services an SRR objective. I know that the Government appreciate the need for the continuity of banking services and the differences between us may not be that great. In that light, I am hopeful that the Minister will be able either to accept this amendment or agree to produce the Government’s own amendment at a later stage.