Queen’s Speech - Banking Bill

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Wednesday 3 December 2008

Queen’s Speech - Banking Bill

“The strength of the financial sector is vital to the future vibrancy of the economy. Therefore, legislation will continue to be taken forward to ensure fairer and more secure protection for bank depositors and to improve the resilience of the financial sector.”

The purpose of the Bill is to:

The Banking Bill will strengthen the framework for protecting bank depositors, enhance financial stability through measures to reduce the likelihood of banks getting into difficulties, and improve the tools available to resolve the situation if they do.

The main benefits of the Bill would be:

The Banking Bill provides permanent measures to enhance the framework for preventing and resolving situations where banks get into severe difficulty.

The Bill is an important part of the wider set of general measures which the Government, the Bank of England, and the Financial Services Authority (FSA), have taken to restore stability to the financial system, including:

· Government provision of financial support to the banking system through the recapitalisation scheme and credit guarantee scheme;

· the Bank of England’s Special Liquidity Scheme;

· the FSA’s supervisory enhancement programme and other reviews, including of liquidity regulation and remuneration;

· the increase to £50,000, by the FSA, of the deposit protection limit of the Financial Services Compensation Scheme (FSCS); and

· leading ongoing international efforts to ensure effective global coordination of supervision of financial markets.

The special resolution regime (SRR) part of the Banking Bill replaces the interim powers taken in the Banking (Special Provisions) Act (”the SPA”). In preparing the permanent replacement to this legislation the Government has sought to refine and develop the powers in the SPA. The SRR includes new tools to deal with failing banks.

Other measures in the Bill, including enhancements to the Bank of England’s role in relation to financial stability and reforms to the FSCS, will enhance our framework for the future.

The main elements of the Bill are:

· The introduction of a ‘special resolution regime’ to allow the Authorities (HM Treasury, Bank of England and FSA) to intervene when a bank gets into severe difficulties. This includes the introduction of two new insolvency regimes for banks;

· Make changes to the FSCS framework set out in FSMA (Financial Services and Markets Act) to allow improvements to facilitate faster pay out;

· Formalising and strengthening the Bank of England’s role in maintaining the UK’s financial stability by giving the Bank a statutory financial stability objective, establishing a Financial Stability Committee and providing the Bank of England with additional financial stability tools, such as formal oversight of payment systems and a key role in the SRR;

· Enabling the Bank of England to lend in a more effective manner, including by allowing short-term non-disclosure of liquidity assistance by the Bank of England;

· Enabling the FSA to collect information from banks in difficulties and removing any impediments to them sharing it with the Bank of England or HM Treasury, where relevant to maintaining financial stability and with the FSCS to assist it carrying out its functions; and

· Strengthening the arrangements underpinning banknote issuance by commercial banks in Scotland and Northern Ireland.