Banking Bill

House of Commons

Session 2007 - 08
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Other Bills before Parliament

Banking Bill

Banking Bill
Part 1 — Special Resolution Regime
1

A
Bill
[AS AMENDED IN PUBLIC BILL COMMITTEE]
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
5
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
10
(c)
the bank administration procedure (provided by Part 3).
(3)
The three “stabilisation options” are—
(a)
transfer to a private sector purchaser (section 11),
(b)
transfer to a bridge bank (section 12), and
(c)
transfer to temporary public ownership (section 13).
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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 15, 16, 26, 27, 28, 30 and 79), and
(b)
the property transfer powers (sections 33, 42, 43 and 45).

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Banking Bill
Part 1 — Special Resolution Regime
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(5)
Each of the following has a role in the operation of the special resolution
regime—
(a)
the Bank of England,
(b)
the Treasury, and
(c)
the Financial Services Authority.
5
(6)
The Table describes the provisions of this Part.

Sections
Topic

Sections 1 to 3
Introduction

Sections 4 to 6
Objectives and code

Sections 7 to 10
Exercise of powers: general

10

Sections 11 to 13
The stabilisation options

Sections 14 to 32
Transfer of securities

Sections 33 to 48
Transfer of property

Sections 49 to 61
Compensation

Sections 62 to 72
Incidental functions

15

Sections 73 to 77
Treasury

Sections 78 to 83
Building societies, &c.

2
Interpretation: “bank”
(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
20
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—
(a)
a building society (within the meaning of section 119 of the Building
Societies Act 1986),
25
(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
Treasury.
(3)
In subsection (1) “UK institution” means an institution which is incorporated
30
in, or formed under the law of any part of, the United Kingdom.
(4)
Where a stabilisation power is exercised in respect of a bank, it does not cease
to be a bank for the purposes of this Part if it later loses the permission referred
to in subsection (1).
(5)
An order under subsection (2)(c)—
35
(a)
shall be made by statutory instrument, and
(b)
may not be made unless a draft has been laid before and approved by
resolution of each House of Parliament.
(6)
Section 78 applies this Part to building societies with modifications.

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(7)
Section 83 allows the application of this Part to credit unions.
3
Interpretation: other expressions
In this Part—
“the FSA” means the Financial Services Authority, and
“financial assistance” has the meaning given by section 244.
5
Objectives and code
4
Special resolution objectives
(1)
This section sets out the special resolution objectives.
(2)
The relevant authorities shall have regard to the special resolution objectives in
using, or considering the use of—
10
(a)
the stabilisation powers,
(b)
the bank insolvency procedure, or
(c)
the bank administration procedure.
(3)
For the purpose of this section the relevant authorities are—
(a)
the Treasury,
15
(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
United Kingdom.
(5)
Objective 2 is to protect and enhance public confidence in the stability of the
20
banking systems of the United Kingdom.
(6)
Objective 3 is to protect depositors.
(7)
Objective 4 is to protect public funds.
(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).
25
(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
(1)
The Treasury shall issue a code of practice about the use of—
(a)
the stabilisation powers,
30
(b)
the bank insolvency procedure, and
(c)
the bank administration procedure.
(2)
The code may, in particular, provide guidance on—
(a)
how to achieve the special resolution objectives,
(b)
the information to be provided in the course of a consultation under
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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,
(d)
how to determine whether Condition 2 in section 7 is met,

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(e)
how to determine whether the test for the use of stabilisation powers in
section 8 is satisfied, and
(f)
the giving of notices under section 62.
(3)
Sections 12 and 13 require the inclusion in the code of certain matters about
bridge banks and temporary public ownership.
5
(4)
The relevant authorities shall have regard to the code.
(5)
For the purpose of this section the relevant authorities are—
(a)
the Treasury,
(b)
the FSA, and
(c)
the Bank of England.
10
6
Code of practice: procedure
(1)
Before issuing the code of practice the Treasury must consult—
(a)
the FSA,
(b)
the Bank of England, and
(c)
the scheme manager of the Financial Services Compensation Scheme
15
(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
Treasury shall lay a copy before Parliament.
(3)
The Treasury may revise and re-issue the code of practice.
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(4)
Subsections (1) and (2) apply to re-issue as to the first issue.
Exercise of powers: general
7
General conditions
(1)
A stabilisation power may be exercised in respect of a bank only if the FSA is
satisfied that the following conditions are met.
25
(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)).
(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
30
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
met but for financial assistance provided by—
(a)
the Treasury, or
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(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—
(a)
the Bank of England, and
(b)
the Treasury.
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(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 90 and 91.
(8)
The conditions for applying for and making a bank administration order are
set out in sections 137 and 138.
5
8
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 11(2) or 12(2) only if satisfied that Condition A is met.
(2)
Condition A is that the exercise of the power is necessary, having regard to the
public interest in—
10
(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
(c)
the protection of depositors.
(3)
Before determining whether Condition A is met, and if so how to react, the
15
Bank of England must consult—
(a)
the FSA, and
(b)
the Treasury.
(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
20
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 11(2) or 12(2) only if satisfied that Condition B is met
(instead of Condition A).
(5)
Condition B is that—
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(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
(b)
in the Bank’s opinion, exercise of the stabilisation power is an
appropriate way to provide that protection.
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(6)
The conditions in this section are in addition to the conditions in section 7.
9
Specific conditions: temporary public ownership
(1)
The Treasury may exercise a stabilisation power in respect of a bank in
accordance with section 13(2) only if satisfied that one of the following
conditions is met.
35
(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
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
40
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.
10
Banking Liaison Panel
(1)
The Treasury shall make arrangements for a panel to advise the Treasury about
the exercise of powers to make statutory instruments under or by virtue of this
5
Part, Part 2 or Part 3 (excluding the stabilisation powers, compensation scheme
orders, resolution fund orders and third party compensation orders).
(2)
The Treasury shall ensure that the panel includes—
(a)
a member appointed by the Treasury,
(b)
a member appointed by the Bank of England,
10
(c)
a member appointed by the FSA,
(d)
a member appointed by the scheme manager of the Financial Services
Compensation Scheme,
(e)
one or more persons who in the Treasury’s opinion represent the
interests of banks,
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(f)
one or more persons who in the Treasury’s opinion have expertise in
law relating to the financial systems of the United Kingdom, and
(g)
one or more persons who in the Treasury’s opinion have expertise in
insolvency law and practice.
The stabilisation options
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11
Private sector purchaser
(1)
The first stabilisation option is to sell all or part of the business of the bank to a
commercial purchaser.
(2)
For that purpose the Bank of England may make—
(a)
one or more share transfer instruments;
25
(b)
one or more property transfer instruments.
12
Bridge bank
(1)
The second stabilisation option is to transfer all or part of the business of the
bank to a company which is wholly owned by the Bank of England (a “bridge
bank”).
30
(2)
For that purpose the Bank of England may make one or more property transfer
instruments.
(3)
The code of practice under section 5 must include provision about the
management and control of bridge banks including, in particular, provision
about—
35
(a)
setting objectives,
(b)
the content of the articles of association,
(c)
the content of reports under section 77(1),
(d)
different arrangements for management and control at different stages,
and
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(e)
eventual disposal.

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(4)
Where property, rights or liabilities are first transferred by property transfer
instrument to a bridge bank and later transferred (whether or not by the
exercise of a power under this Part) to another company which is wholly
owned by the Bank of England, that other company is an “onward bridge
bank”.
5
(5)
An onward bridge bank—
(a)
is a bridge bank for the purposes of—
(i)
subsection (3),
(ii)
section 74,
(iii)
section 76, and
10
(iv)
section 77(5), but
(b)
is not a bridge bank for the purposes of—
(i)
section 30(1),
(ii)
section 43(1), or
(iii)
section 77(1).
15
13
Temporary public ownership
(1)
The third stabilisation option is to take the bank into temporary public
ownership.
(2)
For that purpose the Treasury may make one or more share transfer orders in
which the transferee is—
20
(a)
a nominee of the Treasury, or
(b)
a company wholly owned by the Treasury.
(3)
The code of practice under section 5 must include provision about the
management of banks taken into temporary public ownership under this
section.
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Transfer of securities
14
Interpretation: “securities”
(1)
In this Part “securities” includes anything falling within any of the following
classes.
(2)
Class 1: shares and stock.
30
(3)
Class 2: debentures, including—
(a)
debenture stock,
(b)
loan stock,
(c)
bonds,
(d)
certificates of deposit, and
35
(e)
any other instrument creating or acknowledging a debt.
(4)
Class 3: warrants or other instruments that entitle the holder to acquire
anything in Class 1 or 2.
(5)
Class 4: rights which—
(a)
are granted by a deposit-taker, and
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