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Banking Bill (Money)

The amendments provide for the extension of the provisions on temporary public ownership to bank holding companies. Hon. Members who served in Committee will remember that I first raised that matter then; I now return to the matter as the Government have laid the amendments in the other place. I hope that hon. Members will forgive me if I set out the issues in a little detail, as we did not have the opportunity to discuss them first in this House. During the course of developing and consulting on this Bill, the authorities have continued to consider the question of how best to resolve different types of failing banks. The events of autumn last year made it apparent that, in some cases, exercising a power conferred by the special resolution regime in relation only to the bank in a financial group may be problematic. Specifically, acting on the bank alone may not be sufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the UK's financial system. The starting point for this issue is that banks often form part of complex corporate groups. The company within the group with the deposit-taking permission—the bank—may not be the ultimate parent company within the group. In such circumstances, therefore, as originally drafted the SRR powers could not have been exercised against the parent company, but only in respect of the bank within the group. 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 within the rest of the group, which is likely to include other financial companies that may be relevant for stability purposes. 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 in the group. Wherever such entities in the group are financial institutions, their failure may impede the achievements of the SRR 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 on a bank-only basis. I should like to note up front that the Bill already contains provisions that seek to address aspects of these potential difficulties. In particular, we have an obligation on group companies to continue to provide necessary services or facilities—““continuity obligations””—to the bank following an exercise of the transfer powers. However, the Treasury concluded that the imposition of continuity obligations, while remaining a vital tool in certain cases, may be insufficient to address the full range of difficulties outlined above. Therefore, as I signalled in Committee and on Report, amendments to extend the Treasury's power to take a failing bank into temporary public ownership to include bank holding companies were tabled in another place. Let me set out how these amendments work. Lords amendments 59 and 60 provide new clauses that allow the Treasury to take a holding company into temporary public ownership. As with any stabilisation option, there are significant conditions that must be met before the power may be exercised. A bank holding company may be taken into temporary public ownership only if the Financial Services Authority is satisfied that a bank in the group satisfies the general conditions set out in clause 7. In addition, the Treasury must be satisfied that it is necessary to take action for the purposes specified in the conditions for temporary public ownership set out in clause 9. In determining whether it is necessary to take such action in relation to the 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. I should also point out that, as with any stabilisation power, the exercise of the holding company temporary public ownership tool would be governed by the SRR objectives provided in clause 4 and subject to the code of practice provided for in clause 5, to which the authorities must have regard. I should also note that the power is limited to the Treasury. This approach ensures that Parliament can hold the Minister exercising powers in relation to a holding company directly to account. The Government consider that ministerial accountability is important given the breadth of interested parties that the holding company power may affect.