Clause 156
Banking Bill
1:30 pm
Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
The amendments would make a number of significant changes to clauses 156 and 159. Before turning to them in detail, I will set out the Government’s understanding of the intention of the clauses. The function of the FSCS is to pay compensation to eligible claimants if financial services firms are in default and are unable to meet the claims. Funds are needed to pay compensation. The FSCS normally obtains the funds by making levies on the financial services industry. If very large firms such as banks or building societies default, the FSCS will need much more money in a short time than it could realistically raise from the industry or borrow in the ordinary way from commercial sources.
Two solutions have been put forward for that problem: building up funds in advance or borrowing money from the Government that can be paid back using future levy payments. Clause 156 allows for the first of those and will set up contingency funds in advance of need through a process commonly called pre-funding. Just to set the record straight, the Government are clear that now is not the right time to introduce pre-funding. Clause 159 allows for the second solution with borrowing from the national loans fund. That is a technical change that allows the public sector to lend to the FSCS in the most efficient way. As the Committee knows, the public sector has already made loans to the FSCS to enable it to play its part in the transfer of deposits from Bradford & Bingley, Heritable and Kaupthing Singer & Friedlander.