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Banking Bill

I am grateful to both noble Lords who have contributed to this short debate. I will do my best to answer the specific questions involved. The noble Viscount, Lord Eccles, raises some fundamental points with regard to the Government’s intentions for these provisions and explains why he wants his amendment considered sympathetically. Clause 47 provides the authorities with the means to place restrictions on the nature of partial transfers that they may effect through the use of the property transfer powers provided by this part of the Bill. The making of the restrictions has the potential to provide bank stakeholders with greater certainty about how the property transfer powers will be used to effect partial transfers. As was clear from the previous debate, we are all concerned about certainty and clarity in what all who have considered them recognise are complex and difficult issues. To this end, the Government have recently consulted on what secondary legislation should be made under Clause 47. At this stage we are proposing that the power should be used to place restrictions on reverse property transfers. This restriction is designed to provide certainty to creditors transferred to a bridge bank that they will not be moved back to the residual bank. Consultation on this, and indeed a wide range of matters relating to partial transfer safeguards, is of course ongoing. As my noble friend indicated in the previous debate, we have consultations which are still to be concluded. We will keep the House fully informed of such developments, certainly in the context of our further consideration of the Bill on Report. The problem that we have with the amendment in the name of the noble Viscount, Lord Eccles, is that it would remove the power for the Treasury to make orders on restrictions which apply to all partial transfers. In essence, the amendment would not allow the Government to make general restrictions on all partial transfers. It would allow us to make restrictions only to individual types of partial transfer. We believe that the power to make a wider range of different types of restriction is useful and ultimately beneficial to the market. Given the nature of the powers, stakeholder interest and technical complexity of the issue, the Government consider it appropriate to take a power in the Bill to provide for restrictions to be made as the authorities deem appropriate. In particular, it should be noted that these powers can be used only to restrict—not, I hasten to add, broaden—the nature of the partial transfers which can be made. I remind the Committee that the special resolution regime is a new legislative proposal. Experience may show that partial transfers should be more or less restricted than initially thought, to respond to continuing market reaction to these powers, or to the authorities’ developing practical expertise in resolving banks in difficulty. At the very least, the nature of the restrictions will need to be updated in line with innovation in the financial markets. Given this position, which I am sure commands the understanding of the Committee, we believe that the clause as drafted is ultimately helpful to stakeholders in allowing different forms of restrictions on the use of partial transfers. However, the noble Viscount raised one or two issues. He is absolutely right, of course, that the resolution of the Bradford & Bingley problem was different from the situations provided for in the Bill. That resolution was conducted under a different Act which is due to expire in the very near future. That Act does not contain the powers for a bridge bank tool, which is provided for in the Bill and which I am sure commands considerable support. The reference to Bradford & Bingley was included to demonstrate the benefit of a partial transfer approach in general terms. The industry supported the way in which the Bradford & Bingley issue was resolved. I was asked whether the Bank of England agrees with partial transfers. The answer is yes. All the authorities, especially the Bank of England, support the need for partial transfers. All agree that we need the flexibility best to meet the special resolution regime objectives. The benefits include increasing the chance of private sector purchase, which is the objective of this part of the special resolution regime, particularly if it wanted to purchase only part of any such property. I was also asked by the noble Viscount whether partial transfers did not mean that costs were necessarily lower. Partial transfers offer the opportunity to leave bad assets behind—I think that he conceded that point—to enable them to be wound up in an orderly manner. This may well be fully in line with the SRR objectives, including, not least, the protection of public funds. The noble Lord, Lord Higgins, pointed out a difficulty with statutory instruments, which I recognise; namely, that they are not amendable. However, we need the ability to update these safeguards as market practice develops. The Committee will recognise that we have provided for expert advice to be offered to the Government. Inevitably, we are faced—no one can foresee a future different from the past in one respect—with the increased rapidity of change and fluctuations in market activity and market practice. We need a flexibility that primary legislation can never convey. That is why we feel the need in this area to indicate that we will be using secondary legislation. It is also the case, as my noble friend indicated earlier, that we still have refinements and developments to make on the nature of secondary legislation, on which we are in active consultation. We will make the position as clear as we can as the Bill progresses through the House. I hope that the noble Viscount will feel that I have given him a reply that explains why his amendment would be restrictive; more restrictive than we want the legislation to be. Therefore, I hope that he will feel able to withdraw the amendment.