Clause 4
Banking Bill
4:30 pm
Colin Breed (Shadow Minister, Treasury; South East Cornwall, Liberal Democrat)
I wish to speak to amendment No. 74, which is in my name and that of my hon. Friend the Member for Southport. As I said this morning, it is complementary to the other amendments to this important clause. However, it is particular in adding to the third objective, that of protecting depositors. As the hon. Member for Fareham said, it should cover depositors in the widest sense; I assume that it means retail depositors, but it may include others.
The amendment would add the words
“to protect and safeguard the value of the enterprise.”
That is important when we come to the use of the special resolution and the stabilisation powers, which are set out in clause 4(2)(a) rather than in banking insolvency or administration procedures. At that stage, the bank may well be trading—indeed, it is likely to be trading—and will not necessarily be a failed bank. It might become a failed bank, but at that moment it will not be failed in the legal sense. Paragraph 9 of the draft code of practice reads:
“The term ‘protection of depositors’ refers specifically to the objective of protecting depositors from the effects of the failure of an institution”.
The actual moment of failure is an important aspect. When a bank has failed—perhaps gone into insolvency or administration—that is one thing, but before that, it is considered whether the bank is going to be a failure. Paragraph 9, about which I have some other comments to make, mentions
“the effects of the failure of an institution, as an end in itself”.
What concerns me is that it is likely, as we found out in Treasury Committee meetings on Northern Rock, that the FSA was aware of some of the problems with Northern Rock some months before it failed. Although the bank was considered in many respects to be an outlier in how it secured wholesale funds and so on, it was given time to try to put it right. The fact that it did not do so, or that the FSA did not insist that it do so, is another matter, but during that period the bank was not failed. It was trading, receiving deposits and entering into mortgage arrangements, and although it was perhaps on the list for close attention, at that moment in time it had not failed.