Mr.
Bone: As the day has drawn on, I have been pondering that
point in relation to earlier clauses, when the Minister referred to an
auction, rather than a sale, to establish the market value and
therefore to make an independent valuer unnecessary. However, I am not
sure that the sale price will always be the market value,
because of the way in which the deal is done. I hope that the Minister
is saying that in those cases we would have an independent
valuer.
Ian
Pearson: I understand the hon. Gentleman’s point,
but it seems a little theoretical. If a clear market price is set
following an auction process that results in the disposal of part of a
failing bank, I cannot see why that price should not be accepted and
transacted. Government amendment No. 110 deals with a different case.
If passed, it would allow the Treasury to appoint an independent
valuer. By allowing us to do that, if we felt it necessary, we would
increase the transparency of the calculations within a bank resolution
fund and help to ensure the adequacy of the fund for human rights
convention purposes. On balance, the amendment should be added to the
Bill, so I invite hon. Members to support
it. Amendment
agreed
to.
Mr.
Gauke: I beg to move amendment No. 148, in
clause 53, page 25, line 11, at
end insert
‘or’.
The
Chairman: With this it will be convenient to discuss
amendment No. 149, in clause 53, page 25,
line 12, leave out from ‘England’ to end of
line
13.
Mr.
Gauke: Clause 53(3)
states: “A
resolution fund order may confer a discretionary function on...a
Minister of the Crown...the Treasury...the Bank of England,
or...any other specified person.”
Why should we permit a
discretionary function to be conferred on any other specified person?
What does that provision have in mind? Should not only a Minister of
the Crown, or the Treasury or the Bank of England have such a function
under a resolution fund order? Amendments Nos. 148 and 149 would remove
the reference to “any other specified person”. I should
be grateful for the Minister’s explanation why it is necessary
to be able to confer discretionary functions on somebody
when—from the point of view of the Committee—it is not
clear who that person would be, even though he or she would be in a
relatively significant
position.
Ian
Pearson: I provided an explanation of the purposes and
reasoning behind clause 53 when we were discussing Government amendment
No. 110. The hon. Gentleman’s amendments seek to remove the
power under the clause for the Treasury to confer a discretionary
function on “any other specified person”. I do not think
that is appropriate. The bank resolution fund order may include a role
for a number of persons. For example, as the hon. Gentleman indicated,
the Bank of England, as set out in subsection (3)(c), will have a
management duty placed upon it. The Treasury, under subsection (3)(b),
could be required to pay additional compensation if there were a
successful challenge that the bank resolution fund had not met ECHR
requirements for adequate compensation.
In addition,
other persons such as an independent valuer, an independent auditor of
resolution costs or a monitor of fees can also play a role in a bank
resolution fund, so instead of listing all the persons who may have a
discretionary function conferred upon them, subsection (3)(d) of clause
53 allows the Treasury to confer a discretionary function on
“any other specified person”. It is an important part of
making the clause effective, and I hope the hon. Gentleman will seek
leave to withdraw his amendment.
I shall
provide a little more detail. Specific functions are conferred on
appropriate persons under compensation orders and third party
compensation orders. For example, the independent valuer must conduct a
valuation exercise to determine what, if any, compensation is payable.
An appointing person must appoint an independent valuer and the
monitoring person must monitor the remuneration and other arrangements
of the independent valuer. The compensation scheme order may also
confer functions on appellate bodies to hear an appeal as regards any
determination of the independent valuer. As such, it is not necessary
to confer any other function on any other specified person. However, in
the case of bank resolution funds it is impossible to specify precisely
the functions a specified person may have to undertake under the bank
resolution fund. A detailed provision in the Bill would be
inappropriate. We therefore considered it prudent to take the power to
enable the Treasury to confer a function on “any other specified
person”. I hope that is helpful in explaining the intention
behind the
provision.
Mr.
Gauke: I will be helpful to the Minister. I beg to ask
leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Mr.
Gauke: I beg to move amendment No. 150, in
clause 53, page 25, line 20, leave
out ‘subserviate it to’ and insert
‘subordinate
the requirement to
the’.
The
Chairman: With this it will be convenient to discuss
amendment No. 151, in clause 53, page 25,
line 22, leave out ‘its extent’ and
insert
‘the extent of
the
requirement’.
Mr.
Gauke: Although I am sure the Committee is united in its
belief that otiose is a splendid word, subserviate is not. At least,
that is the view on this side of the Committee. I certainly could not
find it in the dictionary. My amendment identifies only one use of it
but it creeps in not only in subsection (5) but also in subsection (6).
If the Minister is inclined to accept amendment No. 150 and change the
wording from “subserviate” to “subordinate”
the requirement and so on, we will call it a score draw. He can have
one amendment and I can have the other. If he is not inclined to do so,
I do not know whether I am inclined to press for a Division, but we
shall hear what he has to
say. Amendment
No. 151 is just a drafting issue—an attempt to tidy up
subsection (5)(b). Again, I would be grateful for the Minister’s
comments, if he has an argument against it, but I am not inclined to
divide the
Committee. 6.30
pm
Ian
Pearson: I am advised by those who draft the clauses that
the hon. Gentleman’s amendments seek to make “stylistic
changes”.
Mr.
Breed: It is called English.
[Laughter.]
Ian
Pearson: I do not think that there is disagreement in
principle between myself and the hon. Member for South-West
Hertfordshire. I admit that I am not familiar with the fine distinction
between “subserviate” and “subordinate”. I
urge the hon. Gentleman not to press his amendments, but I will
certainly take away the question of whether “subordinate”
is a clearer use of the English language and should appear in the Bill,
or whether we need “subserviate” or something else that
is plainer English. I will talk to officials and, if necessary, come
back on Report with
amendments.
Mr.
Gauke: I am grateful to the Minister; that was as good a
response as I could have hoped for. We are united in this; he is
absolutely right that the amendments are stylistic—there is
nothing necessarily wrong with that. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
53, as amended, ordered to stand part of the
Bill.
Clause
54third
party compensation: discretionary
provision
Mr.
Gauke: I beg to move amendment No. 117, in
clause 54, page 25, line 35, leave
out
‘persons other
than a transferor’
and insert
‘pre-transfer
creditors and
shareholders’. Subsection
(1) of the clause refers to persons “other than a
transferor”. My understanding—the Minister may correct
me—is that such persons will be pre-transfer creditors and
shareholders. I tabled the amendment partly as an attempt to seek
clarification as to whether that is correct, or whether there is
another form of third party that might be paid compensation. If my
understanding is correct, it raises the question of whether we should
be slightly more specific in the legislation, and I should therefore be
grateful for the Minister’s
views.
Ian
Pearson: The clause allows the Treasury to make third
party compensation orders for all transfers under the SRR powers. Third
parties can be creditors or other contractors with the bank. The third
party compensation order can either be part of a compensation scheme
order or bank resolution fund, or be a separate order. The order may
also include provision for an independent valuer and valuation
principles, as discussed under the other compensation
clauses. The
aim of the clause is to ensure that all relevant third parties in both
initial and onwards transfers can be compensated for compensatable
interferences in their property rights, arising from an exercise of the
stabilisation power. The hon. Gentleman has proposed a probing
amendment to specify that third party compensation orders should apply
only to pre-transfer shareholders and creditors.
The
amendment is not appropriate, as its effect would be to make the clause
too restrictive on the question of who should be counted as a third
party for the purposes of compensation. In particular, it would exclude
third
parties that have contracted with a bank once it is a bridge bank or in
temporary public ownership, and have their rights disrupted as part of
an onward transfer. To comply with the ECHR provisions, compensation
provisions need to be made for all persons who suffer a compensatory
interference in their property rights arising from the transfer. I have
explained the background to the clause and its purpose, and I think I
have answered the hon. Gentleman’s question about its scope and
the need not to exclude third parties that have contracted with a bank
once it is a bridge bank or in temporary public ownership, so I hope he
will withdraw the
amendment. Mr.
Gauke: That was a helpful explanation. I am grateful for
that clarification. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Amendment
made: No. 111, in
clause 54, page 25, line 40, leave
out ‘and 50’ and insert ‘to
51’.—[Ian
Pearson.] Clause
54, as amended, ordered to stand part of the
Bill.
Clause
55Third
party compensation: mandatory
provision
Mr.
Gauke: I beg to move amendment No. 152, in
clause 55, page 26, line 4, leave
out from ‘shall’ to ‘that’ in line 5 and
insert
‘ensure’.
The
Chairman: With this it will be convenient to discuss
amendment No. 153, in clause 55, page 26,
line 7, leave out ‘it’ and insert ‘the
residual
bank’.
Mr.
Gauke: I have some general comments to make about the
clause, so I shall be as quick as possible on the amendments, which
relate to subsection (2). Amendment No. 152 attempts to tighten up the
wording. Currently the clause refers to the Treasury having
regard
“to the
desirability of ensuring that if a residual bank is wound up after
transfer, pre-transfer creditors do not receive less favourable
treatment than they would have
received”. I
suggest that the Treasury shall ensure that happens. Amendment No. 153
simply clarifies that the reference to “it” in the last
line of the subsection is the residual bank that has been wound up. I
think it is a stylistic point, unless I have misunderstood the
clause.
Ian
Pearson: The clause provides a safeguard to give creditors
a degree of certainty about how they will be treated should they be
left in the residual of a failing bank following the exercise of the
property transfer powers to transfer some of the failing bank’s
property, rights and liabilities. We have already discussed how that is
an important safeguard. In effect, the clause provides that the
creditors remaining in the residual bank will receive on the winding up
of the residual bank, at a minimum, what they would have received had
the whole of the bank gone into insolvency. Of course, through the
mechanism of the bank resolution fund creditors may receive more than
they would have otherwise received, but the clause provides that they
shall receive no
less. A
second purpose of the safeguard is to ensure that a partial property
transfer does not create de facto depositor preference in insolvency.
The Government remain committed to the existing insolvency priority
rankings
and do not propose to introduce a regime of depositor
preference. The clause ensures that a partial transfer of depositors
from a failing bank will not have the effect of preferring those
creditors transferred out. To provide
context to the amendments proposed by the hon. Member for South-West
Hertfordshire I shall briefly set out how the safeguard will work,
while pointing out that we are currently consulting on the draft
regulations and that matters may change as a result of the
consultation. Following a partial transfer, creditors remaining in the
residual bank will have a claim on the assets that have not been
transferred. Realisations from those assets will be distributed by the
bank administrator to the creditors in line with the standard
insolvency priority order. In certain circumstances the payment
received by those creditors may be less than they would have received
if the bank had gone into an insolvency procedure. In such situations,
the clause will provide a mechanism whereby affected creditors may
receive compensation for the amount by which they have been made worse
off as a result of the exercise of the stabilisation tools. That amount
will be calculated by an independent valuer and will involve
an estimation of what realisations would have been made had the whole
bank been wound
up. I
believe that the purpose of the hon. Gentleman’s first amendment
is to require the Treasury to ensure that pre-transfer creditors do not
receive less favourable treatment than they would have received had the
bank been wound up immediately before transfer. The clause as drafted
requires the Treasury to
“have regard to
the desirability of
ensuring” that
that is the case. It has been drafted that way on purpose. The
regulations made under the clause will put in place a procedure to
ensure that no creditor will be worse off. That procedure will include
calculating hypothetical insolvency of the failing bank. Given the
necessarily counterfactual nature of the calculation, it would not be
appropriate for the Government to commit in statute to ensuring that
creditors are no worse off under that procedure than if the bank had
been wound up, because it is not possible to know definitively what
that would mean. Therefore, the language—appropriately, I
believe—has been drafted in less concrete
terms. Having
said that, I assure the hon. Gentleman that the Government are
committed to providing adequate compensation to creditors to ensure
that the safeguard is effective and provides confidence to creditors
who invest in banks. I believe that the Government’s provision
under the clause and the draft regulations, on which we are consulting,
provides that confidence.
Ms
Sally Keeble (Northampton, North) (Lab): On a point of
order, Mr. Hood. It is quite hard to hear with the music
going on. I do not want to be a complete misery, but it is a bit
inappropriate if we are to listen to what the Minister is
saying.
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