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Banking Bill

My Lords, the noble Baroness pointed out in Committee that the British Bankers’ Association feels strongly about the amendment. I am not surprised to hear it; the Treasury has also had communications from the BBA. For example, I have read the BBA’s briefing paper for Second Reading in another place, which referred to the need for, "““the balance between delivering compensation payments through the FSCS and seeking to maintain access to funds through alternative solutions””." The question that we must ask ourselves in relation to this subject, or any amendment, is whether the amendment is necessary to the Bill, rather then whether the British Bankers’ Association wants it. As I pointed out in Committee, the concepts of continuity of access to banking services and rapid access to deposits are already present and correct within the special resolution regime objectives. I am not sure that I would be drawn as far as the noble Baroness in suggesting that this was almost as important, or as important, as protection of depositors. However, I have no doubt that it is important, for the reasons that the noble Baroness and the noble Lord, Lord Newby, explained with such eloquence. Continuity of access to banking services is implicit within the objective to protect and enhance public confidence in the stability of the banking systems of the United Kingdom and within the objective to protect depositors. As I said, this is clearly explained in the code of practice, a draft of which was made available in November. Let me go a step further. Avoiding a failure in which a bank closes its doors and the Financial Services Compensation Scheme pays out depositors is the fundamental raison d’être of the SRR and the guiding principle behind the whole of Part 1. The stability of the financial system, the interests of depositors, and the public finances will be better served if effective intervention can ensure the resolution of a troubled bank before, rather than after, it fails. By its very definition, therefore, the SRR is about ensuring continuity of service to customers. The examples of bank resolution that we have seen in the past year have consistently demonstrated that point. Wherever possible, the powers in the Banking (Special Provisions) Act have been used to ensure that depositors had continuous access to their accounts, to their funds and to banking services. In the case of Northern Rock, this was achieved by public ownership; in the case of Bradford & Bingley, it was achieved via a deposit transfer to Abbey Santander; and, in the case of Kaupthing Singer & Friedlander and Heritable, it was achieved by the transfer of depositors to ING Direct. That will clearly continue to be the case under the Banking Bill. After all, what is the point in inventing a special resolution regime if you do not intend to use it to the benefit of bank depositors, the financial system as a whole and the taxpayer? The British Bankers’ Association appears to be concerned that, without the amendment, the authorities would be minded to close down failing banks and leave it the FSCS to pick up the pieces. I am very happy to assure your Lordships that this is not the case and I hope that I have made it clear why. I must point out one area where I differ from the BBA and where I hope that the noble Baroness agrees with me. I do not agree that the existence of the SRR means that we should not be doing all that we can to ensure that the Financial Services Compensation Scheme could, if required, pay out quickly in the event of bank failure. I agree that this will not, in most cases, be the best outcome, but we must prepare for it nevertheless. That is why, for example, Part 2 provides for the creation of a new bank insolvency procedure and Part 4 makes some minor improvements to the legal framework in the Financial Services and Markets Act to facilitate fast payout. It is also why the FSA is consulting on the systems changes that the banking industry will need to implement if fast payout under the FSCS is to be practically possible in those cases where it is necessary. I can appreciate that this ““single customer view”” is causing the BBA some concern. If adopted, the FSA’s proposals will certainly require some of the BBA’s members to invest in new systems, but it seems to me entirely appropriate that banks should be able to tell the authorities, at short notice if necessary, who their customers are and how much money they have deposited with, or been lent by, the bank. I would also have thought that a single customer view was something that a bank’s marketing and development departments would find useful. We live in an age where banks are expected and, indeed, required to know their customers. To suggest that banks need not invest in technology that would enable them to do this better—technology that would surely improve the service that the banks can provide for their customers—because the authorities will always be around to step in and prevent any bank from failing in any circumstances seems to me to be moving in the direction of irresponsibility. Of course, the authorities will do all that they can to prevent the operational failure of a bank by using the tools in the SRR, but they will be hampered in their ability to do so if consumers do not have absolute confidence that they would be repaid rapidly in such circumstances, including those cases when the only realistic option is to close down the bank. Depositors will have more confidence in the authorities’ efforts to resolve a failing bank if they know that they will be protected come what may. In other words, not preparing for the contingency of the FSCS payout would have the paradoxical effect of making it more likely that it would have to be used. The noble Lord, Lord Newby, queried whether the code was an obscure document which did not provide reassurance concerning continuity. The authorities are legally obliged to have regard to the code. It has been subject to scrutiny in Parliament and, with today’s amendments, will have the input of the Banking Liaison Panel. Assurances given in the code should, therefore, provide comfort to noble Lords. I am, however, mindful of the comments made by the noble Baroness and others and I will, in the spirit of generosity that I have been urged to show, go away and reflect further on this matter and on whether we could introduce an amendment at a later stage. I shall not give an assurance that we will introduce an amendment, but I certainly give an assurance that we will give that very careful consideration.