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Banking Act 2009

My honourable friend the Exchequer Secretary to the Treasury (Sarah McCarthy-Fry) has made the following Written Ministerial Statement. The Government are today publishing two consultation documents on implementation of aspects of the Banking Act 2009 as part of their programme to protect depositors and maintain financial stability. The Banking Act established a permanent special resolution regime (SRR) to provide the authorities with the tools to deal with banks and building societies that fail. Many of the detailed provisions are set out in statutory instruments and the Government have committed to consulting on a number of these. The consultation documents that have been published today are: Consultation on the Building Societies (Insolvency and Special Administration) Order 2009 and Related Insolvency Rules, and on Financial Assistance to Building Societies; and Consultation on the FSMA 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2009. Some of the secondary legislation included in these two documents has already been made on an urgent basis to enable the effective resolution of the Dunfermline Building Society. For these statutory instruments, the Government will consider whether to bring forward amending instruments in the light of consultation responses. The other instruments will be revised as appropriate in the light of consultation responses before being made. The first document, Consultation on the Building Societies (Insolvency and Special Administration) Order 2009 and Related Insolvency Rules, and on Financial Assistance to Building Societies, sets out detailed proposals for supporting building societies and protecting their customers in the event of failure. The first part of the consultation concerns applying the bank insolvency procedure and the bank administration procedure to building societies UK-wide. The bank insolvency procedure is designed to ensure that, in the event of a bank failure, depositors eligible for compensation under the Financial Services Compensation Scheme (FSCS) receive their payments quickly, or have their accounts transferred to another institution, and that the affairs of the failed institution are wound up in the interests of creditors as a whole. The bank administration procedure is designed to support a partial transfer, which is an important tool available to the authorities under the SRR to enable them to split up a failing bank by transferring part of its property to a commercial purchaser or a Bank of England-controlled bridge bank. Applying these procedures to building societies will ensure that building societies, their members and creditors are treated in the appropriate way corresponding to the treatment of banks, their depositors and other creditors in the event of insolvency or administration. The second aspect of the consultation deals with the provision of financial assistance to building societies. Section 9B of the Building Societies Act prohibits building societies from creating floating charges on the whole or part of their undertaking or property. This may make it difficult for societies to offer appropriate security to the Bank of England or any other provider of necessary financial assistance. An interim measure, made under the Banking (Special Provisions) Act 2008, enables societies to grant floating charges to the Bank of England in connection with the provision of financial assistance. The Government are now consulting on legislation to replace this interim measure and on a further measure that would make it easier for building societies to convert financial assistance given in the form of Treasury bills or other securities into cash. The second document is entitled Consultation on the FSMA 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2009. A principle of the SRR is that the FSCS should contribute to the costs of the operation of the SRR. This contribution is capped at the amount of compensation that the FSCS would have paid, less the recoveries that it would have made if the institution were in default and the FSCS were engaged in the normal way under FSMA. The regulations were made on 29 March 2009 in order to enable the Treasury to require the FSCS to make payments in connection with the resolution of the Dunfermline Building Society. The consultation document seeks views on the regulations.