Banking Bill

Part of Orders of the Day – in the House of Commons at 4:34 pm on 14 October 2008.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 4:34, 14 October 2008

The Americans have decided on an approach that is suited to the present position of American institutions. The special liquidity scheme does something similar, with the difference that, instead of the taxpayer taking on what might be called the toxic assets, in our system the risk stays with the banks. The scheme has worked quite well, and I announced last week that I had authorised support worth £200 billion.

I think that the scheme is working, but I refer the hon. Gentleman to the point raised by the shadow Chancellor. In practice—and unfortunately we have had some practice over the past few months—there was no dispute among the three people who had to make the decisions in relation to Bradford & Bingley. It was quite obvious what we had to do, but the model that we have is based on the regulator—the FSA—finally saying that a bank has failed its threshold conditions. Only it can decide that, and that is right, although the Bill makes it clear that there has to be consultation.

There are three options for dealing with a failed bank. We can transfer it to a private sector purchaser or, so that we can decide how best to proceed, to a publicly controlled bridge bank. Also, if necessary, there is temporary ownership as a backstop. There are also powers in part 1—clauses 42 and 11—to allow for partial transfers, as in the case of Bradford and Bingley. That gives the necessary flexibility.