Clause 3
Banking Bill
12:00 pm
Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
The purpose of the amendments is to provide the Government with the power to specify assistance that should or should not be included in the definition of financial assistance for the various purposes for which it is defined in the Bill, particularly as it is used in part 1. The term “financial assistance” appears throughout part 1. For example, it appears in relation to the trigger conditions for the special resolution regime and in relation to the valuation principles for the calculation of compensation.
Committee members will recall that the term also appears in part 7, as we have already discussed, to provide the necessary parliamentary authority for the Treasury to use public funds to provide financial assistance to financial institutions and
“in connection with, the provision of financial assistance to building societies.”
In all circumstances, the term includes giving guarantees, indemnities or any other kind of financial assistance, actual or contingent. The reason for moving the amendment is to recognise the fact that the Government can provide financial assistance to failing banks in a number of ways, and they may not wish some form of assistance to be treated as financial assistance for the purposes of all of the Banking Bill’s provisions.
Financial assistance is mentioned throughout this part of the Bill, but perhaps I might explain the purpose of the amendment by referring to two examples. First, in Clause 9(3), the provision of financial assistance for the purpose of resolving a threat to financial stability is defined as one of the conditions for taking a bank into temporary public sector ownership. However, it is not the Government’s intention that all forms of financial assistance to banks should mean that such a condition would be met, as that would provide a serious disincentive for banks to take advantage of other forms of financial assistance. In particular, the Government are thinking of the recent financial assistance that has been offered to the banking market as a whole, including the recapitalisation scheme and the credit guarantee scheme for banks to take up on commercial terms.
Another example can be found in clause 7, which requires the FSA to determine whether a failing bank remains in compliance with its threshold conditions. When assessing whether the threshold conditions continue to be met, it is likely that it will be appropriate for the FSA to consider the position of the firm without taking into account financial assistance provided to that firm on an exceptional basis. However, it may be appropriate for the FSA to take into account any financial assistance provided under a system-wide scheme—such as that provided under the recapitalisation scheme—when considering whether the firm still meets its threshold conditions. It is difficult to say now what forms of assistance will be excluded from the definition. To future-proof the Bill by providing for current and future schemes of financial assistance to be included or excluded as appropriate, the Government believe that it is prudent, therefore, to take a power to specify types of assistance that should and should not be counted as financial assistance. I hope that hon. Members will agree that the amendment is a sensible and prudent measure and I commend it to the Committee.