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Banking Bill

The purpose of Amendment 128 is to apply the special resolution regime to foreign banks. As in our earlier debate on foreign banks, for the purposes of this debate, a foreign bank is one incorporated under the law of another jurisdiction but which operates in the UK through branches established here. I believe that the noble Baroness’s intention is that the amendment should be focused on European Economic Area banks that have set up branches in the UK using ““passports”” under the EC banking consolidation directive. The Bill applies the SRR to UK deposit-takers only, although I should point out that this includes UK-incorporated subsidiaries of foreign-owned or foreign-headquartered banks. That approach is entirely consistent with European law. Under Community law, prudential regulation of a bank from one EEA state operating through a branch in another EEA state is for the home state regulator. Therefore, the home state regulator is responsible for taking the lead on resolving any difficulties with such a bank, including any branches that it may have operating in another EEA state. Indeed, the powers of the host state authorities are limited by Community law, and even if we sought to take powers to apply the SRR to EEA branches, the UK authorities could act on those powers only in highly circumscribed ways. For example, the share transfer powers have been developed for use in relation to shares and securities as defined in UK law and are therefore not directly applicable to foreign banks. Also, as discussed in last week’s debate on foreign property, we are limited in the extent to which foreign courts will enforce any transfer order of foreign property within any foreign bank, even one which has a branch in the UK. As I also made clear when speaking about the amendments on asset-freezing powers, the extent to which a foreign branch has property in the UK within the reach of the UK authorities will be a matter of fact rather than law. For these reasons, both legal and practical, it is not beneficial to extend the powers of the SRR to foreign banks. However, we are of course aware that EEA banks operating in the UK through branches can have UK depositors and that this may give rise to a number of specific issues. This was clearly the case with recent events around the Icelandic banks. The UK Government have shown that we are prepared to take decisive action to protect savers, to ensure financial stability and safeguard the interests of the taxpayer. The UK authorities, of course, continue to work closely with other regulators and authorities within the EEA to resolve difficulties with EEA firms operating in the UK. Members of the Committee should also be aware that the remit of the Financial Services Compensation Scheme extends to branches of banks from other EEA states which have joined the top-up arrangements, as per the provisions of the relevant directive. Of course, UK branches of foreign banks from outside the EEA are authorised by the FSA and participate fully in the Financial Services Compensation Scheme. Nevertheless, I recognise that there are issues here which require a closer look. The Chancellor has already written to Commissioner McCreevy in Brussels, asking that the Commission work with the UK in reviewing the arrangements for branches and other cross-border banking entities. Of course, we are continuing to conduct our own analysis of supervisory changes that may be needed, not least through the review that the noble Lord, Lord Turner, in his capacity as chairman of the FSA, is undertaking to determine changes needed to UK and international banking supervision. It is important to remember, however, that any changes that the UK authorities determine to be necessary will need to be made in co-operation with our European partners, and not in a piece of purely domestic legislation such as the Bill. As far as the Bill is concerned, therefore, the approach taken towards its scope, combined with our existing powers, is the right approach to delivering the best results for financial stability and depositors. I therefore urge the noble Baroness to withdraw the amendment.