Certainly that is my understanding of how the arrangement would work in normal circumstances, and if there is any further clarification to be made, I will be happy to give it.
I would like to reassure the hon. Gentleman that the FSCS will be party to decisions over the choice of SRR tools. For example, the code of practice states that the likely speed of payout regarding eligible depositors should be a factor in determining which SRR tool should be used. This will, of course, be based on the view of the FSCS. The section in the draft code of practice on the roles of the authorities also includes text on the FSCS role within the SRR. I hope that that provides reassurance.
New clause 10 would require the Treasury to provide Parliament with a report containing details of the exercise of stabilisation powers under part 1 of the Bill. I do not believe that a general clause requiring a report to Parliament on the exercise of the powers is necessary. In each of the recent resolutions, the Chancellor has made a statement on the exercise of such powers and there has been sufficient debate on that. Of course, Parliament can call a debate on any resolution at any time it wishes. Should the Treasury exercise a stabilisation power in transferring a bank into temporary public ownership, the Bill requires that decision to be made through an order laid before Parliament. Where the Bank of England takes the lead in exercising stabilisation powers through a transfer instrument, rather than a transfer order, the Bill requires it to publicise that.
Furthermore, following any exercise of the stabilisation options, the draft code of practice, to which the authorities must have regard, states that the authorities must make public statements explaining how they have acted with regard to the special resolution regime objectives and how they have balanced the objectives against each other. There is sufficient information about, and openness in, how the Government are proceeding on these matters.
Amendment No. 74 would allow the code of practice to specify how the interests of creditors will be taken into account in the use of the stabilisation powers, the bank insolvency procedure and the bank administration procedure, but it is inappropriate. Objective 5 is declaratory of our obligations to ensure that any interference with property rights, including those of the failing bank and its creditors, must be both in the public interest and proportionate. The code of practice elaborates on the meaning of this effect of this objective. A number of specific features of the SRR spell out in primary legislation the protection that should be afforded to non-depositor creditors during the use of the stabilisation powers, such as the partial transfer safeguards, as set out in clause 48, and the compensation provisions in clauses 59 and 60—we are all familiar with those. I believe the provisions in the Bill and the sections in the code in respect of how objective 5 will be met already meet the intention behind the amendment.
Amendment No. 9 appears to be intended to require that the code include provision on how the FSA will determine whether the threshold conditions are met, and again I do not agree with the intention behind it. The threshold conditions are regulatory conditions under the Financial Services and Markets Act 2000. Further guidance on what is necessary to comply with the conditions is set out in the FSA handbook. I think it is right that the FSA handbook, rather than the code, provides further guidance on this matter, as it is ultimately a regulatory decision.
Amendment No. 8 follows on from the Committee's debate on which of the threshold conditions the FSA will consider in making its determination on whether the general conditions in clause 7 have been met. My understanding of the purpose of the amendment is that it is not only to seek further clarification, but to limit the FSA's judgment as to whether a bank is failing to being a judgment only on whether it has adequate resources. I accept that this is the most relevant of the threshold conditions that appear in the FSA handbook, but I do not believe that clause 7 should be limited in such a way. However a bank fails or becomes likely to fail, the objectives of protecting confidence in the banking system, protecting financial stability and protecting depositors will remain equally important. For example, the authorities may need to take actions under the SRR following the discovery of a fraud or a sudden crisis of confidence in the suitability of a bank's management. Although many serious problems that could lead to a bank failure will correlate with difficulties in its having adequate resources, I am not convinced that all the problems will.
The threshold conditions are the tests governing whether the FSA will allow a bank to operate as a deposit taker, and therefore it is right that these conditions are used in the Banking Bill as the gateway measure between regulation intervention and the use of the SRR tools.
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