Conventions Joint Committee - First Report

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Here you can browse the report together with the Proceedings of the Committee. The published report was ordered by the House of Lords and the House of Commons to be printed 19 December 2012.

Contents

Terms of Reference

Summary

1  Introduction

Background

The Government's proposals

Overall approach

The five exceptions

The next steps

Scope of this Report and conduct of our work

2  The context

The banking crisis of 2007 and 2008 and its costs

Why bank failure is so difficult

The implicit guarantee and its effects

Reforms already underway

3  Possible approaches to structural separation

Introduction

The case for structural separation

The case against structural separation

The overall case for separation

Ring-fence proposals

Introduction

The ICB ring-fence

The Liikanen proposals

Full structural separation

Introduction

The Volcker rule

Other models of full structural separation

Summary of separation options

4  How the draft Bill proposes to give effect to structural separation

Introduction

Setting the location of the ring-fence

Setting the height of the ring-fence

5  Challenges to the durability of structural separation

Introduction

Complexity and financial innovation

The influence of banks on politicians and regulators

The next banking crisis

6  Structural separation in the first instance

The starting point

Contagion, diversification and cost

Culture and standards

Permeability

Market-driven separation

European law

International context

Conclusions

7  The components of a workable framework

Introduction

Reducing the risk of failure

Making banks more resolvable

8  The timetable for ring-fencing

Alignment with European initiatives

The Government's proposed timetable

The legislative context

The balance between primary and secondary legislation

Conclusions

9  Reinforcing the ring-fence

Introduction

Objectives in primary legislation

Regulatory judgement

Conditions on the exercise of certain delegated powers

Determining the height of the ring-fence

Scrutiny

Electrifying the ring-fence

Evidence received

Relevant existing and prospective powers

Conclusions

Reserve powers in respect of individual banking groups

Review mechanism

10  Specific issues on ring-fence implementation

Introduction

Derivatives

The issue

Risks arising from derivatives

The customer benefit

Conduct issues

Defining "simple" derivatives

Conclusions

The de minimis exemption  85

The large deposit exemption

Geographical restrictions

Retail and SME lending

Independence and governance of the ring-fenced bank

Relationship between the ring-fenced bank and the holding company

Liabilities

11  Capital and loss absorbency

Introduction

Bail-in

PLAC

The main PLAC requirements

Proposed exemption from PLAC requirements

Exemption from PLAC requirements: burden of proof

Conclusions on the PLAC exemption

Accountability for use of powers relating to loss absorbency

Depositor preference

The concept of depositor preference

Arguments for insured depositor preference

Extending depositor preference beyond insured deposits

Potential problems with depositor preference  

Conclusions

Leverage ratios

12  Fees to meet Treasury expenditure

Conclusions and recommendations

Formal Minutes

Witnesses

List of published written evidence

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Prepared 21 December 2012