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Banking Bill

Once the Bank of England or Treasury has made an initial share transfer, they have a number of types of share transfer instrument available to them. These amendments relate to supplemental, reverse and onward share transfer instruments and orders. It may aid the debate if I briefly describe each of the transfers. The first type is supplemental transfers. Once an initial transfer has taken place, the authorities may undertake supplemental transfers, which provide for further things to be transferred; for example, a supplemental property transfer may follow an initial property transfer, providing for further property to be transferred from the failing bank. The second type is reverse transfers. Once an initial transfer has taken place, the authorities may also undertake reverse transfers. In a reverse property transfer, for example, property may be transferred back to the failing bank. The final type is onward transfers, which are designed to effect a swift onward transfer from a publicly owned bank. The Bank may make an onward transfer of property or securities from a bridge bank. The Treasury may do the same from a bank in temporary public ownership. I turn to the specific amendments in the group. Amendments 53 to 59 would remove provisions that perform two main functions. First, they exclude the general and specific conditions of the SRR from applying to supplemental, onward or reverse transfers. Secondly, they provide that all the attributes which apply to initial transfers apply to supplemental, onward or reverse transfers, including the procedural requirements governing the making of the instruments and orders to effect them. However, I note that Amendment 60, which we are due to debate shortly, and also laid by the noble Baroness, Lady Noakes, reintroduces the requirement for the exercising authority to send a copy of instruments and orders to various persons. In order for the authorities to effect a share transfer of a failing bank, the general and specific conditions set out in Clauses 7 and, as appropriate, Clauses 8 and 9 apply. The general conditions are that a bank is failing or likely to fail to meet its threshold conditions and that, having regard to timing and other relevant circumstances, it is not reasonably likely that—ignoring the stabilisation powers—action will be taken by or in respect of the bank that will enable it to satisfy the threshold conditions. Before the Bank of England can exercise the powers to transfer a bank to a private-sector purchaser or a bridge bank, it needs to be satisfied that the exercise of the powers is necessary, having regard to the public interest in the stability of the financial systems of the UK, the maintenance of public confidence in the stability of the banking systems of the UK or the protection of depositors. A higher test is used for full public ownership of a bank. The Treasury can only take a bank into temporary public ownership when it is satisfied that it is necessary to resolve or reduce a serious threat to financial stability, or to protect the public interest where the Treasury has provided financial assistance in respect of the bank for the purpose of resolving or reducing a serious threat to financial stability. These are high hurdles. The fact that the conditions will have been met for the initial intervention gives the authorities warrant to take the necessary steps to resolve the bank. It is neither necessary nor desirable, nor efficient, for each stage of the bank’s resolution to have to meet these various sets of conditions again. For example, following the transfer of a failing bank into temporary public ownership, the Treasury would act to stabilise the bank. In due course, should the Treasury consider that the time is right to transfer the shares in the bank to a private-sector purchaser by way of an onward transfer order, it would be inappropriate for the general conditions to apply, as the bank would have been stabilised. A supplemental, reverse or onward transfer is one stage of the authorities’ intervention to protect the public interest in resolving a failing bank. Given this, it is not appropriate for the making of relevant instruments and orders to be subject to repeat testing against these conditions. Of course, the authorities still must have regard to the special resolution objectives and the provisions of the code of practice. Any order which interferes with property rights will need to be proportionate to the public interest pursued, in order to ensure the compatibility of the action with the European Convention on Human Rights. The noble Baroness asked whether the powers could be used without constraint. I believe that this is not the case. The exercise of these powers does not take place in a void. There are many constraints: first, the special resolution objectives of Clause 4; secondly, the code of practice of Clause 5; thirdly, the legislative safeguards provided, for example, in Clause 48; fourthly, the European convention rights; and, fifthly and finally, the need of the authorities under the convention to act reasonably and proportionately. Under those circumstances, I suggest to the noble Baroness and Members of the Committee that, while well articulated, the reasons for this set of amendments do not sustain close examination. I encourage the noble Baroness to withdraw her amendment.