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Banking Bill

In moving Amendment 116 standing in the name of my noble friend Lord Myners, I shall speak also to the other government amendments in this group. These amendments relate to extending to bank holding companies the provisions of the Bill that relate to temporary public ownership. As the Bill is drafted, the stabilisation options exercisable by the share and property transfer powers, which form part of the special resolution regime, are exercisable only in relation to banks. The authorities have, during the course of developing and consulting on the Bill, continued to consider the question of how best to resolve different types of failing banks. The events of autumn 2008 made it apparent that in some cases exercising a power conferred by the special resolution regime in relation simply to the bank may be insufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the financial system of the United Kingdom. The starting point for this issue is that banks often form part of complex corporate groups, and the ultimate ““parent”” company may not be the company which has the deposit-taking permission and is, therefore, the ““bank”” for the purposes of the special resolution regime. There are a number of reasons why a power limited to banks may be insufficient. First, the activities of the bank and the rest of the group may be so inter-related that the exercise of the transfer powers only in relation to the bank may be insufficient to resolve the bank successfully. Secondly, taking action only in relation to the bank may give rise to serious difficulties with the rest of the group, which is very likely to include other financial companies that are part of, or participants in, the financial system. In certain cases, the exercise of the transfer powers in relation to the bank may so disturb the operation of, and confidence in, the group as a whole that it leads to the insolvency of some or all of the other entities of the group. Where other group companies are dependent on the bank for its financing, the exercise of the transfer powers in relation to the bank may interfere with that funding stream and undermine market confidence in the viability of those companies to such an extent that they can no longer continue to operate. Where other such entities in the group are financial institutions, their failure may impede the achievement of the special resolution objectives. In addition, the failure of other entities in the group may give rise to difficulties in the continued operation of the bank, given the interconnectedness of the group. Finally, a private sector solution may be more likely on a group-wide than a bank-only basis. This is particularly the case if other non-bank parts of the group are attractive to buyers. I note that the Bill already contains provisions that seek to address aspects of the potential difficulties related to a bank’s corporate structures, while Clauses 63 to 70, which we have just considered, impose among other things an obligation on group companies to continue to provide necessary services or facilities under the continuity obligations. However, the Treasury has concluded that the imposition of continuity obligations, while remaining a vital tool in certain cases, will be insufficient to address the full range of difficulties in all cases. Therefore, as we announced in the 2008 Pre-Budget Report, we have tabled amendments to extend the Treasury’s power to take a failing bank into temporary public ownership to include bank holding companies. As noble Lords will appreciate, the Bill already provides for the Treasury to take a failing bank into temporary public ownership. The powers provided by this group of amendments would be used in cases where the resolution of the bank in isolation would not by itself be sufficient to protect financial stability, public funds, or both. The Committee will appreciate that this is a significant step, although of course it is the product of extensive consultation, and I hope that I have been able to demonstrate that the powers are being introduced in a proportionate manner. We have had considerable discussions on these matters. In determining whether it is necessary to take such action in relation to a holding company, the Treasury will have to consider whether action in relation to the bank alone would suffice for the purposes specified in Clause 9. The power is also limited to the Treasury. This approach ensures that Parliament can hold the Minister exercising powers in relation to a holding company directly to account. We consider that ministerial accountability is important, given the breadth of interested parties in these circumstances. The powers provide the flexibility for the Treasury to transfer either the topmost holding company of the deposit-taker or an intermediate holding company. This is useful in circumstances where it is not necessary to transfer the whole group. Once a holding company is in temporary public ownership, the Treasury will have a range of powers available to it in the ways we discussed when considering earlier clauses; in particular, the powers to impose limitations on partial property transfers provided for in Clauses 47, 48 and 60 will apply. In addition, the Treasury considers that, having taken a holding company into temporary public ownership, it is appropriate that it should have the flexibility to effect the full range of transfers in relation to the bank and not just the holding company. The key aims of the exercise of the power to take a holding company into temporary public ownership will be to resolve the position of the bank in the group, to protect and enhance public confidence in the stability of our banking systems, and to take appropriate action. In pursuance of these objectives, it may be appropriate to transfer the shares or property of banks in the group. The Treasury may effect an onward partial property transfer from a bank that is part of a group that has been taken into temporary public ownership. This approach has been adopted to provide the Treasury with appropriate flexibility to complete the resolution of each bank affected by the transfer to temporary public ownership of the holding company. However, the Government consider it appropriate to restrict the powers of the Treasury with respect to non-bank entities within the group. Therefore, the full range of onward transfer powers only applies to deposit-takers in the group and the holding company itself. This is where Amendments 116 and 117 cut in. Clause 71 provides a transfer instrument or order to make provision about pensions. The modification to a pension scheme may be necessary to facilitate a fully effective transfer. The clause currently applies to pension schemes in which the failing bank is or was an employer. However, we have considered the matter further and the Government are of the view that it does not provide sufficient flexibility for the authorities to deal with all possible resolution scenarios involving group companies in the ways I have outlined. For example, if the Treasury takes into public ownership a failing deposit-taker which is a part of a group, the holding company may be the entity that technically employs the workers of the deposit taker and may also hold their pension scheme. It therefore may be necessary to exercise the pension power at group level instead of at the level of the deposit-taker, and Amendments 143 and 144 make consequential provisions in Part 3 in relation to the bank administration procedure as part of the expansion of the temporary public ownership tool to holding companies. In summary, this group of amendments is an important addition to the Bill which will allow the special resolution regime to be effected for banks that are part of complex corporate groups. I hope that I have established the rationale for why the Government have tabled amendments which seek to extend these powers in the context of the debate that we have just had about the powers in Clause 71 and the intentions of the Government with regard to pension provision, particularly in relation to the important point that the Government have no intention whatever of interfering with the accrued rights of anyone in these pension schemes. I beg to move.