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Banking Bill

I am not sure that I can use that horse’s name to lever into my next point so I shall stick with Present Orientated; I do not have the smoothness and skill of my noble friend Lord Mandelson, of Foy and Hartlepool. The noble Baroness asked a question in the light of my noble friend’s Statement earlier in which he mentioned the Bill and its amendments. I believe that he was referring to a group of amendments that I tabled on Monday starting with that numbered 174A in the Marshalled List, which will modify Clause 225 to enable the scheme that he announced. I shall return to the matter in hand. Clauses 17 and 34 make provision in relation to the effect of a share or property transfer instrument or order. The purpose of the clauses is to ensure that a transfer of property is effective in law and takes place in spite of any restrictions that might otherwise exist. The subsections of each of these clauses which the amendments would remove are drafted in deliberately broad terms. As the noble Baroness said, that drew some discussion when the clauses were reviewed in another place. Once the authorities have decided to intervene in the public interest to resolve a failing bank and the necessary general and specific conditions have been met, the Government consider it appropriate that a transfer should take effect despite any restriction. That is to maximise the chances of a successful resolution, in so far as is appropriate and feasible. For example, a counterparty’s contract with a bank may stipulate that the counterparty needs to provide consent for the contract to be transferred from the failing bank to any other person. In normal commercial conditions this is a sound provision. However, bearing in mind the conditions in which the authorities may need to exercise the transfer powers, it would be impossible for all the necessary consents to be gained before the transfer. As such, it may not be possible to transfer the contract on which the transferee may need to rely, which would undermine the authorities’ ability to resolve a failing bank in the public interest. Similarly, without the provisions, private sector transferees may be deterred from seeking to acquire a failing deposit taker, as they may perceive there to be a significant execution risk attached to the transfer. Indeed, a transfer to a private sector purchaser will not be possible unless commercial counterparties are certain that they will obtain complete control over the property, rights and liabilities transferred to it. Thus it is vital that provision can be made to make clear that a transfer takes effect notwithstanding any restrictions in contract or legislation, or in any other way, and that the transfer may, if specified in the instrument or order, take effect free from any trust, liability or other encumbrance. I believe that that answers the questions posed by the noble Baroness. I remind the Committee that the Government are putting in place a suite of safeguards to protect counterparties, and these of course still stand. In particular, Clause 48, which we will debate in detail in due course, provides for protections for set-off, netting and security interests. For those reasons I hope that I have demonstrated the importance of the provisions, and that the noble Baroness will feel able to withdraw the amendment.