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Banking Bill

The noble Viscount, Lord Eccles, raises a question which I shall deal with in a moment. Amendments 26 and 27 make changes to the subsection of Clause 7 that refers to the requirement for the FSA to disregard financial assistance provided to the bank by the Treasury or the Bank of England in determining whether the bank meets the general conditions. I believe that this requirement is essential to protect taxpayers. As members of the Committee will know, one of the objectives of the SRR is to protect public funds. This subsection is important in a situation in which public funds have been invested in a failing bank. In such cases, the bank could be technically meeting its threshold conditions, purely and entirely due to financial support that has been provided to the firm by the Treasury on an exceptional basis. To protect such funds invested in the bank in such circumstances in line with the objectives of the SRR, it is right that the Bank of England and the Treasury have the ability to take action in relation to the failing bank through the SRR measures, subject, of course, to the specific conditions also being met. However, in the circumstances that I have just described, this could not happen without the provisions contained in this subsection. The bank would technically be meeting its threshold conditions and, therefore, the general condition in Clause 7 could not be met. I reassure noble Lords that it is not out intention to treat all such assistance in this way, which I hope answers the point raised by the noble Viscount, Lord Eccles. We recognise that it may not be appropriate in some cases to require the FSA to disregard the provision of financial assistance. Clause 7(4) does not therefore apply to ordinary market assistance provided by the Bank of England. The Government consider that such assistance should not necessarily be disregarded by the FSA. Clause 247 allows the Treasury by order to specify which activities or transactions are to be treated as financial assistance in the Bill, including in this subsection of Clause 7. This will allow the Treasury to provide that other forms of financial assistance should not necessarily be disregarded by the FSA. The power gives us the flexibility to ensure that the FSA is required only to disregard financial assistance in appropriate cases. I hope that this reassures noble Lords if their concern was that all forms of financial assistance would have to be disregarded by the FSA in making its determination on the general conditions. I can quite see how that could create a disincentive for banks to participate in financial assistance schemes available to the general market, which is why the Bill provides flexibility on this point. I address the second of the amendments on this matter, which would have the effect that, even if subsection (4) were not omitted completely, the FSA would have discretion as to whether financial assistance should be disregarded for the purposes of meeting the general conditions in Clause 7. Again, if the amendment is aimed at the concern that I outlined earlier, the approach that I have set out better meets it. In particular, I believe that it is for Ministers to determine what forms of transactions are treated as financial assistance for the purpose of the Bill and, in this case, what form should be disregarded so as to make best use of taxpayers’ funds. This approach also gives greater certainty to the market. Market participants will know whether a particular form of assistance is to be disregarded by the FSA in considering whether the general conditions are met. I hope that my explanation has been helpful and has reassured noble Lords. I therefore beg the noble Baroness, Lady Noakes, not to press her amendments.