Banking Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Banking Bill

Banking Bill
Part 1 — Special Resolution Regime
1

A
Bill
To
Make provision about banking.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
Part 1
Special Resolution Regime
Introduction
1
Overview
(1)
The purpose of the special resolution regime for banks is to address the
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situation where all or part of the business of a bank has encountered, or is likely
to encounter, financial difficulties.
(2)
The special resolution regime consists of—
(a)
the three stabilisation options,
(b)
the bank insolvency procedure (provided by Part 2), and
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(c)
the bank administration procedure (provided by Part 3).
(3)
The three “stabilisation options” are—
(a)
transfer to a private sector purchaser (section 10),
(b)
transfer to a bridge bank (section 11), and
(c)
transfer to temporary public ownership (section 12).
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(4)
Each of the three stabilisation options is achieved through the exercise of one
or more of the “stabilisation powers”, which are—
(a)
the share transfer powers (sections 14, 15, 25, 26, 27, 28 and 72), and
(b)
the property transfer powers (sections 30, 39, 40 and 41).
(5)
Each of the following has a role in the operation of the special resolution
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regime—
(a)
the Bank of England,

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Part 1 — Special Resolution Regime
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(b)
the Treasury, and
(c)
the Financial Services Authority.
(6)
The Table describes the provisions of this Part.

Sections
Topic

Sections 1 to 3
Introduction

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Sections 4 to 6
Objectives and code

Sections 7 to 9
Exercise of powers: general

Sections 10 to 12
The stabilisation options

Sections 13 to 29
Transfer of securities

Sections 30 to 43
Transfer of property

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Sections 44 to 56
Compensation

Sections 57 to 65
Incidental functions

Sections 66 to 70
Treasury

Sections 71 to 76
Building societies, &c.

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Interpretation: “bank”
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(1)
In this Part “bank” means a UK institution which has permission under Part 4
of the Financial Services and Markets Act 2000 to carry on the regulated
activity of accepting deposits (within the meaning of section 22 of that Act,
taken with Schedule 2 and any order under section 22).
(2)
But “bank” does not include—
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(a)
a building society (within the meaning of section 119 of the Building
Societies Act 1986),
(b)
a credit union within the meaning of section 31 of the Credit Unions Act
1979, or
(c)
any other class of institution excluded by an order made by the
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Treasury.
(3)
In subsection (1) “UK institution” means an institution which is incorporated
in, or formed under the law of any part of, the United Kingdom.
(4)
An order under subsection (2)(c)—
(a)
shall be made by statutory instrument, and
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(b)
may not be made unless a draft has been laid before and approved by
resolution of each House of Parliament.
(5)
Section 71 applies this Part to building societies with modifications.
(6)
Section 76 allows the application of this Part to credit unions.
3
Interpretation: other expressions
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In this Part—
“the FSA” means the Financial Services Authority, and

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Part 1 — Special Resolution Regime
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“financial assistance” includes giving guarantees or indemnities and any
other kind of financial assistance (actual or contingent).
Objectives and code
4
Special resolution objectives
(1)
This section sets out the special resolution objectives.
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(2)
The relevant authorities shall have regard to the special resolution objectives in
using, or considering the use of—
(a)
the stabilisation powers,
(b)
the bank insolvency procedure, or
(c)
the bank administration procedure.
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(3)
For the purpose of this section the relevant authorities are—
(a)
the Treasury,
(b)
the FSA, and
(c)
the Bank of England.
(4)
Objective 1 is to protect and enhance the stability of the financial systems of the
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United Kingdom.
(5)
Objective 2 is to protect and enhance public confidence in the stability of the
banking systems of the United Kingdom.
(6)
Objective 3 is to protect depositors.
(7)
Objective 4 is to protect public funds.
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(8)
Objective 5 is to avoid interfering with property rights in contravention of a
Convention right (within the meaning of the Human Rights Act 1998).
(9)
The order in which the objectives are listed in this section is not significant;
they are to be balanced as appropriate in each case.
5
Code of practice
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(1)
The Treasury shall issue a code of practice about the use of—
(a)
the stabilisation powers,
(b)
the bank insolvency procedure, and
(c)
the bank administration procedure.
(2)
The code may, in particular, provide guidance on—
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(a)
how to achieve the special resolution objectives,
(b)
the information to be provided in the course of a consultation under
this Part,
(c)
the giving of advice by one relevant authority to another about
whether, when and how the stabilisation powers are to be used,
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(d)
how to determine whether Condition 2 in section 7 is met,
(e)
how to determine whether the test for the use of stabilisation powers in
section 8 is satisfied,
(f)
the content of reports about bridge banks under section 70(1), and
(g)
the giving of notices under section 57.
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(3)
Sections 11 and 12 require the inclusion in the code of certain matters about
bridge banks and temporary public ownership.
(4)
The relevant authorities shall have regard to the code.
(5)
For the purpose of this section the relevant authorities are—
(a)
the Treasury,
5
(b)
the FSA, and
(c)
the Bank of England.
6
Code of practice: procedure
(1)
Before issuing the code of practice the Treasury must consult—
(a)
the FSA,
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(b)
the Bank of England, and
(c)
the scheme manager of the Financial Services Compensation Scheme
(established under Part 15 of the Financial Services and Markets Act
2000).
(2)
As soon as is reasonably practicable after issuing the code of practice the
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Treasury shall lay a copy before Parliament.
(3)
The Treasury may revise and re-issue the code of practice.
(4)
Subsections (1) and (2) apply to re-issue as to the first issue.
Exercise of powers: general
7
General conditions
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(1)
A stabilisation power may be exercised in respect of a bank only if the FSA is
satisfied that the following conditions are met.
(2)
Condition 1 is that the bank is failing, or is likely to fail, to satisfy the threshold
conditions (within the meaning of section 41(1) of the Financial Services and
Markets Act 2000 (permission to carry on regulated activities)).
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(3)
Condition 2 is that having regard to timing and other relevant circumstances it
is not reasonably likely that (ignoring the stabilisation powers) action will be
taken by or in respect of the bank that will enable the bank to satisfy the
threshold conditions.
(4)
The FSA shall treat Conditions 1 and 2 as met if satisfied that they would be
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met but for financial assistance provided by—
(a)
the Treasury, or
(b)
the Bank of England (disregarding ordinary market assistance offered
by the Bank on its usual terms).
(5)
Before determining whether or not Condition 2 is met the FSA must consult—
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(a)
the Bank of England, and
(b)
the Treasury.
(6)
The special resolution objectives are not relevant to Conditions 1 and 2.
(7)
The conditions for applying for and making a bank insolvency order are set out
in sections 83 and 84.
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(8)
The conditions for applying for and making a bank administration order are
set out in sections 130 and 131.
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Specific conditions: private sector purchaser and bridge bank
(1)
The Bank of England may exercise a stabilisation power in respect of a bank in
accordance with section 10(2) or 11(2) only if satisfied that Condition A is met.
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(2)
Condition A is that the exercise of the power is necessary, having regard to the
public interest in—
(a)
the stability of the financial systems of the United Kingdom,
(b)
the maintenance of public confidence in the stability of the banking
systems of the United Kingdom, or
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(c)
the protection of depositors.
(3)
Before determining whether Condition A is met, and if so how to react, the
Bank of England must consult—
(a)
the FSA, and
(b)
the Treasury.
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(4)
Where the Treasury notify the Bank of England that they have provided
financial assistance in respect of a bank for the purpose of resolving or
reducing a serious threat to the stability of the financial systems of the United
Kingdom, the Bank may exercise a stabilisation power in respect of the bank in
accordance with section 10(2) or 11(2) only if satisfied that Condition B is met
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(instead of Condition A).
(5)
Condition B is that—
(a)
the Treasury have recommended the Bank of England to exercise the
stabilisation power on the grounds that it is necessary to protect the
public interest, and
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(b)
in the Bank’s opinion, exercise of the stabilisation power is an
appropriate way to provide that protection.
(6)
The conditions in this section are in addition to the conditions in section 7.
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Specific conditions: temporary public ownership
(1)
The Treasury may exercise a stabilisation power in respect of a bank in
30
accordance with section 12(2) only if satisfied that one of the following
conditions is met.
(2)
Condition A is that the exercise of the power is necessary to resolve or reduce
a serious threat to the stability of the financial systems of the United Kingdom.
(3)
Condition B is that exercise of the power is necessary to protect the public
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interest, where the Treasury have provided financial assistance in respect of
the bank for the purpose of resolving or reducing a serious threat to the
stability of the financial systems of the United Kingdom.
(4)
Before determining whether a condition is met the Treasury must consult—
(a)
the FSA, and
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(b)
the Bank of England.
(5)
The conditions in this section are in addition to the conditions in section 7.