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Banking Bill

I have gone as far as I can in explaining the onward bridge bank. It is where the Bank of England has a potentially disposable asset that it wants to transform into one that in fact does meet the requirements of the market. We must give the Bank greater flexibility to effect this. The onward bridge bank is only an addition to the provision of the bridge bank, preparatory to the Bank making arrangements for the return to the private sector of some of the assets—if it cannot effect what would be most desirable, which is the return of the totality. That is what the concept is. I hope that the noble Lord will interpret that answer as broad agreement with what he is asking. On the more general issue, the clause embraces the second of the stabilisation options—the bridge bank. The option gives the Bank of England the ability to take control of part or all of a failing bank’s business. Once the Bank of England has control of this bank’s business, it may stabilise it, restructure it as necessary, and sell the bridge bank. If it is successful in doing so, the concept of the onward bridge bank does not come into play. The bridge bank option will give the Bank of England the opportunity to stabilise the bank, preserve franchise value and ensure that customers have continued access to banking services. It will provide the Bank with time to pursue a private-sector solution where this could not have been immediately arranged, for example by allowing potential acquirers the time needed to carry out essential due diligence on the business. The bridge bank option is very important, which is why the noble Viscount, Lord Eccles, has focused on it. It enhances the possibility that the authorities will be able to facilitate onward sale of the bank to a private sector purchaser, which, I repeat, is the Government’s favoured option for the resolution of banking difficulties. Bridge banks are intended as short-term operations, and the aim is for a swift onward sale to a private sector purchaser. Under Clause 80, the Bank of England must report to Parliament about the activities of a bridge bank after one year. As with the previous clause and the private sector purchaser tool, Clause 12 establishes that where the general special resolution regime conditions and the specific conditions for the bridge bank stabilisation option are met, the Bank of England may transfer all or part of the business of a bank to a bridge bank. Transfer to a bridge bank may be effected through a transfer of the bank’s property, rights and liabilities, and is executed by one or more property instruments made by the Bank of England. The Bank of England has the power to choose which parts of a failing bank’s business to transfer. Hence, as with the private sector purchaser option, partial transfers are possible. I shall provide a detailed treatment of partial transfers when we debate the property transfer clauses. Unlike the private sector purchaser tool, the bridge bank can be effected only through the use of the property transfer power, and not by share transfer. This is because a bridge bank is a new entity, especially established to carry on the banking business transferred to it. Property transfer powers offer a number of advantages, in particular the fact that they permit a partial transfer, which may be the best solution in some circumstances. It is important that bridge banks are managed in the right way; the noble Viscount made that quite clear when he introduced the debate. The Government consider it appropriate to set out how this will work in practice in greater detail. To this end, the code of practice, to which the noble Viscount made copious references, which is provided for under Clause 5, will cover matters relating to the governance and management of bridge banks. The published draft code makes draft illustrative provision on these matters. The Bank of England will not profit from operating a bridge bank. The Bill’s provisions for compensation provide that a ““bank resolution fund”” must be established when a bridge bank is created. The fund provides the failing bank with a contingent economic interest in the resolution. The bank resolution fund is a scheme under which the failing bank becomes entitled to the proceeds from the sale of some or all of a bridge bank’s business, less any deductions necessary to reflect the use of any public funds in the resolution, including the placing of public funds at contingent risk, or any other costs of the resolution. On the winding-up of the failing bank, the net proceeds of the resolution will flow to the creditors—and shareholders, should creditor claims be satisfied in full—of the failing bank. The bridge bank stabilisation option will help the authorities to resolve the issues surrounding a failing bank, enhancing the chance of a successful sale of the bank to a private-sector purchaser. That is the concept behind the bridge bank. I hope that I have explained the additional dimension of the points on which the noble Lord, Lord Higgins, in particular challenged me. I hope that the noble Viscount, Lord Eccles, will think that the combination of the proposals in the clause and the code to which he has made reference is explicit about how the Bank of England will manage this part of the resolution procedures, which are very important.