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(6A) Objective 3A is to protect and safeguard the value of the enterprise..
Amendment No. 78, in clause 4, page 3, line 20, at end insert
and to ensure that the expenditure of any public or private funds is done in an economically efficient manner..
Amendment No. 76, in clause 4, page 3, line 22, at end insert
(8A) Objective 6 is to protect the interest of creditors.
(8B) Objective 7 is to avoid distorting competition amongst banks..
Amendment No. 79, in clause 4, page 3, line 24, at end add
(10) In respect of Objective 7, competition law shall apply to a bank, whether it is wholly or partly owned or controlled by the Government, including a bank to which sections 9 and 12 apply.
(11) Where a bank is wholly or partly owned or controlled by the Government and where section 214 applies, the bank is prohibited from using its favourable position or Government support to its commercial advantage and thereby to prevent, restrict or distort competition in the market for financial services as a whole, or on a product by product basis.
(13) For the purposes of subsections (10) and (11) ownership or control shall be determined by reference to sections 26 and 29 of the Enterprise Act 2002 and by reference, where Community law applies, to the Council Regulation 130/2004 (the European Merger Regulations)..
Clause stand part.
Welcome to the 10th sitting, Mr. Gale. I had just taken an intervention from the hon. Member for South-East Cornwall before we adjourned; we were discussing my proposal to include a competition objective in the Bill, so that the issue is recognised and used when determining how the toolsthe stabilisation powers, the bank insolvency procedure and the bank administration procedureare used. We must think about the powers, not only in the context of the five objectives, but also the potential further objective of avoiding the competitive impact that a bank subject to those powers could have.
The hon. Member for South-East Cornwall alluded to the possible tension between a competition objective and a banks ability to repay taxpayers funds quickly. We talked about that in the context of Northern Rock earlier. Restricting the ability of a bank that is subject to one of the powers to compete could delay the repayment of any financial assistance that that bank had received from the taxpayer, because it would not be in a position to attract new funds from retail depositors, for example. Conversely, if the restriction was on offering mortgages and lending, that might hasten its ability to repay taxpayers money, depending on the dynamic and the particular competitive effect that we want to deal with. As we discussed before lunch, there are tensions within the objectives in the Bill and within some of the proposed objectives, but it is important to understand the role that the objectives will have and how they will shape decisions that the tripartite authorities will make about the stabilisation powers.
Two points emerge from the code in relation to the objectives. Paragraph 17 of the draft code states:
Following actions taken under the SRR, the Authorities must make public statements explaining (a) how they have acted with regard to the SRR objectives; and (b) how they have balanced the objectives against each other which refers to the tension that we have been debating.
The form such an explanation will take will depend on the circumstances.
Can the Minister say how long we shall have to wait for such a statement after the powers have been used? Will it accompany the exercise of the powers or will it appear a couple of months later, after the powers have been exercised? Obviously there is an issue about timing and the nature of the information that can be disclosed by such an explanation. Paragraph 18 of the code points that out:
It should be noted that it will not be possible to divulge certain information, for example information the release of which would threaten financial stability or the confidence of the banking system.
Clearly the longer that is left, the more information could be received, but it will also mean that market participants will be in the dark about why the authorities have taken the steps that they have. The sooner the information is released the more difficult it is to give a full explanation. Does the Minister see that tension being resolved?
Does the Minister feel that the Treasury statements released in the aftermath of the FSAs triggering the threshold conditions for Kaupthing and Heritable constitute a template for what we should expect under clause 17? I hope that the answer is no, because the statements did not clearly explain why the Government were taking those actions. I shall return to that point in a little more detail on clause 7, which deals with the threshold conditions.
Secondly, I want to understand the interaction between the objectives of the FSA under clause 4 and the Financial Services and Markets Act 2000. The subject is raised in the code. Paragraph 16 states:
The sole exception to this rule relates to a decision taken by the FSA, under section 7 of the [Act] that the general conditions for use of the SRR have been met. This decision will be taken in the context of FSAs objectives under the Financial Services and Markets Act 2000.
I appreciate that we could cover the subject in more detail when debating clause 7, but there seems to be a carve-out later in the Bill saying that the objectives in clause 4 will not be applied to the exercise of the powers under clause 7. It would be helpful if the Minister were to elaborate on the interaction between the objectives of clause 4 and the 2000 Act, and specifically why they are carved out in clause 7.
One of the challenges in trying to understand the objectives and their application is the lack of transparency in the Bill, the explanatory notes and the code on how they will interact, and on how they will return the powers that could be used under parts 1, 2 and 3 of the code. The code is meant to be a safeguard on the exercise of power. I would have expected it to say rather more about the interaction of objectives.
The amendments are probing; we seek to understand the scope of the objectives, how they work together and how they relate to other aspects of the Bill, including references to the protection of creditors and compensation that are not reflected in clause 4. I want to know how those objectives will work, why they are limited to five and why they do not include competition and the protection of creditors and shareholders. We would be comfortable if the Minister were to give a fairly full explanation on those points. We look forward to his doing so.
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 tradingindeed, it is likely to be tradingand 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 failedperhaps gone into insolvency or administrationthat 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.
It may have been attended to all too little, but the FSA had it on close watch from January. The report says quite clearly that it had been brought to the attention of the directors. It had been perceived as an outlier in terms of its chart and what it had done, and it was working with the FSA. Nevertheless, it does not matter whether it happened in January or in March. It was quite some time before the events of August, when it actually failed. Northern Rock was in intensive care, which may be the sort of situation in which we find ourselves if the special resolution regime is imposed in future. Banking organisations might begin to display all the potential signals that they are heading towards the rocks, but at that moment, they might not be.
It should be necessary to ensure that the overall value of the entity, which is often in large part goodwill rather than just tangible assets, is maximised for everyone during that period. Of course, once it goes into administration or insolvency, there are clear rules about how the administrator may act, but until that happens and while it is still under the stabilisation powers, it is important that consideration be given to maximising the value of the bank in its fullness. That is consistent with directors duties to promote the success of a company under section 172 of the Companies Act 2006. During the period of intensive care that may precede the failure of the bank, it is important that that principle is maintained. That is the purpose of the amendment.
I readily accept that this is a subjective judgment on timing, and timing is all important in such matters. While things can go on for quite a few weeks, matters often come to a head quickly and something happens. We may therefore go from an attempted stabilisation to a wholesale failure. It is important, however, that when we think about protecting the depositors, which I know is the main thrust of the legislation, we do not lose sight of other aspects of the bank. We know, for instance, that large pension funds are normally significant investors in banks.
The hon. Gentleman is making a good point. I wonder whether he has a view on the following. I understand from these objectives that the Government are not talking about the normal business relationship and the normal duty of directors to look after the whole of the company, but are saying that they will look after a specific group of creditors, that is, the depositors. Does the hon. Gentleman agree that that looks as though the Government are sinking?
That certainly may be the impression. As I said, the main thrust of the legislation is to protect depositors. We should not lose sight of the fact that prior to actual failurewhen there are clear rules for the way in which administrators may undertake their duties, and the relative classes of shareholders, creditors and so on are more easily establishedif one still has a going concern, although it may be limping along, it is important to recognise that directors have other duties. There may well be an opportunity to rescue the situation before it goes into failure, and to have regard for maximisation. Once intervention happens, share prices can disappear and the value of the entity can evaporate overnight. It is important that we do not lose sight of the objective that while there is still a going concern, the creditors and shareholders should have at least some say in what is going on.
It would be helpful if the Minister gave us some basic assurances that in the period when stabilisation powers are being introduced and we do not have an actual failure, the Government have a view as to how that is to be handled. At the end of the day, it must be normally in everybodys interest to try to save the institution and ensure in one way or another that it continues. To have a further contraction, through a merger or a takeover, is not likely to be in the interests of competition. To have a failing bank is not likely to be in the public interest or the economic interest; it is not likely to be in too many peoples interest. It is therefore important that in that period these powers are used, as much to try to ensure the continuation or the maximisation of the value of the whole, as to try to get to a situation where the company is split up, sent off, recast and such, and we have shareholders taking a real bath, creditors losing out, and everything else.
I would be grateful to the Minister if he addressed that period when a company is not insolvent, but is in intensive care, when the directors are doing all sorts of things to try to maintain their business, and if he said something about how these powers will be used in those circumstances.
Mr. Gale, rising gives me the opportunity to apologise to you and to the Committee for my mobile phone going off. I thought that I understood the technology; I clearly do not.
My first point is not the most serious one I have ever made in Committee. Under clause 1(5), each of three bodies has a role in the operation of the special resolution regime, and they are listed as the Bank of England, the Treasury and the Financial Services Authority, whereas when we reach clause 4(3), the same three bodies are listed in a different order: the Treasury, the FSA and the Bank of England. The parliamentary draftsman never does anything for no purpose, and I would be curious to know the purpose of that particular difference in listing. The listing accepted in the rest of the Bill is the same as that in clause 4(3), so it must be clause 1(5) that is out of order. That is not my biggest point.
The more important points are that the Bill is predicated on supporting depositors, as the hon. Gentleman has just mentioned. Clause 2(1) talks about accepting deposits. Accepting deposits and the protection of depositors seem to be a prime purpose of the Bill, but there are other bodies and other ways that banking institutions can interface with public confidence.
Increasing confidence is not just a matter of protecting depositors. There have been some quite serious mismatches, which have caused the public and our constituents real concern. For instance, there was a mismatch between the treatment of individual depositors in the Icelandic associate banks in the Isle of Man, such as Kaupthing Singer & Friedlander, where individual depositors are not protected. Similarly there is a mismatch between the individuals who invested money by way of deposits through Icelandic banks and the institutions that invested money through Icelandic banks, such as councils and, as I mentioned earlier, a childrens hospice in my constituency.
There are other ways that banks can interface. If we wish to protect confidence, it is not just a matter of ensuring that deposits are fair. For instance, if a bank were involved in, for example, bills of lading, and the bills of lading failed, that would cause a loss of confidence. It would not just be a matter of losing deposits. A breakdown in money transmission would have a significant impact on confidence. A fault in the custodian system, whereby pension funds are held by banks, would cause a problem. If a bank failed in its capacity as either a trustee or a factor of money, that would cause a problem.
We have already noticed that investment banks are not covered by the rules on the protection of depositors. What would happen to investors in banks where there is no deposit because the interest is payable under sharia law and is a shared venture? What is the rule there? My questions come down to this. Which depositors are protected? Is it UK individuals only or is it every UK institution, as there has been a mismatch so far? Secondly, depositors in what? Is it just depositors in UK banks or depositors in UK institutions as well, or depositors in overseas institutions, including banks?
My question can be summed up as follows: if the object of the exercise is to protect confidence by ensuring that depositors are protected, then a more careful definition of exactly what institutions will carry this cover is needed. What institutions have the reputation that if a deposit through them is lost, the UK Government will stand behind them through the special scheme?
There is insufficient clarity here. Lawyers acting for banks and other financial institutions will be all over this Bill when it is an Act. They will look for the interstices in it and clever ways of getting protection, which we perhaps have not anticipated. I would be a little happierwe may come to this when we consider the draft code of practiceif the law had been cast in more general terms and enabled the Bank of England to do such things as may be necessary to protect deposit and other customers of banks. But that is perhaps for a later discussion.
Lawyers have already been over the Bill. They continue to go over it in substantial detail. The amendments seek to add to the objectives for the special resolution regime set out in clause 4. Before dealing with them in turn, I should like to set out the thinking behind the objectives we have put forward in the Bill and explain why I think they are the right ones.
The clause sets out the special resolution objectives, which are intended to present in primary legislation the broad purpose of the measures we have put in place and the aims that the authorities must have regard to when exercising their powers under parts 1, 2 and 3. I hope that the hon. Member for Gosport welcomes the fact that we are doing this at a broad level.
We have consulted widely on these objectives and they have received strong support. While the objectives are not defined in the Bill, the code of practice, which the hon. Member for Fareham referred to and which was sent to members of the Committee on Thursday, provides further information on their meaning and effect.
I will help the Committee by summarising what the draft code says as to the meaning of these objectives, as this touches on some of the points that hon. Members have already made in the debate; they are also covered in the amendments. Members will, I hope, forgive me if much of the following quotes extensively from the code, but it is important that these definitions are made clear before the Committee today, in order to inform debate.
stability of the financial systems of the United Kingdom, used in objective 1, refers to the stable functioning of the systems and institutionsincluding payment and settlement infrastructuresupporting the efficient operation of financial services and markets for purposes including capital raising, risk transfer and the facilitation of domestic and international commerce. As the Committee discussed last Thursday, there are a number of possible definitions of what stability does, or could, mean in different contexts; this definition provides a clear explanation in terms of the stability of the UK financial systems.
The intention of this initial objective is first, to recognise the wider systemic risks posed by the potential, or actual, failure of any institution or group of institutions. Secondly, it requires the authorities to have regard to the likely systemic impacts of their actions, or non-actions, when implementing an SRR tool.
The Minister referred, as I did, to last Thursdays debate about financial stability. Does he not agree with me that the definition set out on financial stability in the code is likely to be the one by which people will judge the achievement of the effectiveness of clause 216? Will this in effect become the definition of financial stability? Should that not be recognised in clause 216, as well as in the code?
For the reasons that I outlined last Thursday, it is right that we do not put a detailed definition of financial stability in the Bill. We believe that the right place to do that is in the code, which is why we provided that clarification in terms of our understanding of objective 1.
Objective 2, and the term
public confidence in the stability of the banking systems, refers to the crucial role that public confidence has in maintaining the stable and efficient operation of financial services and markets. The confidence of the general public is of particular significance in maintaining stability in a banking system whereby it is important that banks deposit liabilities exceed the liquid assets that they hold at any one time.
Public confidence has a number of dimensions. For example, it refers to the expectation that deposits will be repaid on demand; normal banking services will be continuously available; problemsor perceived problems in one bank or building society will not extend to other banks; and if a bank or building society does fail, systems exist to protect the interests of depositors.
The intention of the second objective is to ensure that the authorities have regard to the need to act so that a failing bank or building society will be resolved in a manner that enhances public confidence in the banking system as a whole.
The term protect depositors in objective 3 refers specifically to the objective of protecting depositors from the effects of the failure of an institution, as an end in itself. That objective goes beyond the need to ensure public confidence in the banking system, and recognises the important public policy objective of ensuring that depositors in a failed institution are adequately protected.
Under the Bill, such protection can be delivered in different ways, such as by facilitating fast payout, or account transfer, under the Financial Services Compensation Scheme to eligible depositors through the bank insolvency procedure, or facilitating continuity of banking services through the stabilisation options in the SRR.
Public policy concerns around effective depositor protection are particularly relevant in the case of retail depositors protected by the Financial Services Compensation Scheme. Protection of retail depositors is also likely to be conducive to realisation of a number of other objectives, such as protecting and enhancing public confidence in the banking system. However, the use of the SRR may also offer protection to other types of depositor, particularly where the SRR tool chosen may provide continuity of service to both retail and non-retail customers of a failing institution.
May I pick up the comment made by my hon. Friend the Member for Gosport? I want to check that the Minister is rightor that what I take from what he says is rightthat depositors as a term expands beyond retail depositors, to cover all depositors. Clearly, if the decision were taken to put a bank into administration, retail depositors would be covered by the FSCS but non-retail depositors would rank alongside other creditors in terms of distribution. They might argue that the choice of mechanism made by the authorities did not protect them while it did protect retail depositors. I wonder whether the use of the word depositor is not too widely drawn.
The objective to protect depositors covers all depositors, retail and wholesale, but I would point out that the focus of the SRR will often be primarily on retail depositors eligible for compensation from the FSCS, as demonstrated by the bank insolvency procedure which is designed to speed up payout to this class of creditors. It is right that the objective covers both retail and wholesale depositors.
The term protection of public funds in objective 4 refers primarily to the protection of taxpayers interests in the effect of expenditure of public money. The intention of this fourth objective is to recognise the strong fiduciary duty of the authorities, in particular the Treasury, in taking decisions with implications for public funds.
The term in objective 5,
to avoid interfering with property rights in contravention of a Convention right refers to the rights of property holders who might be affected by the use of the SRR. This can include the bank or building society itself, the shareholders, creditors or other third parties. Such persons may hold property in the failing bank or building society or have a right of control over such property, or both. The inclusion of this objective acknowledges the importance of acting proportionately in exercising these powers.
The hon. Member for Fareham asked in the early part of his contribution about the definition of proportionality in the code. This is an issue that has been considered repeatedly both in domestic and international case law. In broad terms, it means that property rights should be interfered with to the minimum extent necessary to achieve the public interest aims, albeit those aims may provide very powerful justifications for intervention.
This clause also notes that the objectives are to be balanced as appropriate in each case. Again, the hon. Member for Fareham invited me to speculate whether particular areas have priority. I want to make it clear that we need to look at these on a case-by-case basis. We have always been clear that our primary objectives are to protect depositors and financial stability, and stakeholders have supported these purposes. We have included other rights, such as protecting property rights, in acknowledgment of the potentially invasive nature of some of these tools. It is right that we judge our action on a case-by-case basis.
We have been clear that depositor protection and public confidence in the banking system are essential. When deciding to take action, it is right that the special resolution objectives should be as we have set out in clause 4. I refer hon. Members again to subsection (9), which says that
they are to be balanced as appropriate in each case.
We think that these are the right objectives. What is important is that we have the flexibility to look at the appropriate balance of such objectives on a case-by-case basis.
I am grateful for the gracious way in which the Minister gave way. Will he go away and think about the matter? Clearly, he is correct in what he says. However, that is not what the clause says. We cannot have all the objectives jumbled together; we have to have some primary ones. The Minister is right to say that the two primary objectives are financial stability and depositor protection, and that is all that needs to be said in the clause. I know that the wording will not be changed now, but perhaps the Government can go away and reflect on it.
I do not want to go away and reflect on it, actually, because we considered the measure at some length before coming to the conclusion that these are the right objectives. Together the objectives capture the public interest that should be pursued in operating the special resolution regime, and are the most important factors to which the authorities should have regard when taking action under the SRR. That is why we believe that including the objectives in the Bill provides guidance to market participants and other stakeholders as to how the SRR powers will be used.
We believe that it is impossible to define the objectives exhaustively. The concepts at issue are too complex to be reduced to hard-edged statutory definitions. The applications of the objectives may well change over time. That is why we have the code of practice, to elaborate in more detail how the objectives are to be interpreted and applied. That was the point that I made to the hon. Member for Fareham earlier.
Let me now turn to the amendments that have been proposed on the objectives. I hope to reassure the Committee that the issues that have been raised are already appropriately dealt with in the Bill as it stands. I want to make it clear why I do not believe that we should amend clause 4 in the manner that has been proposed.
In discussion of the detailed definition of the SRR objectives as set out in the code of practice, let me explain why I believe that both the second and third objectives, as set out in the Bill, implicitly include the concepts of access to deposits and ensuring continuity of banking services. If there is any doubt regarding that, the code of practice, to which the authorities must also have regard, makes it explicitly clear. I do not believe that amendment No. 77 is necessary.
Amendment No. 74, tabled by the hon. Members for South-East Cornwall and for Southport, calls for a requirement
to protect and safeguard the value of the enterprise.
I presume that means the enterprise value of the failing bank. The enterprise value of a company is usually made up of a number of elements, including the market capitalisation of the bank. That is the market value of all its shares in issue in addition to the value of its debt financing and other liabilities. I do not believe that a core objective of the SRR should be to protect this measure of the value of a firm. When a failing bank enters the SRR, the stabilisation options in the Bill are deployed because the authorities believe that they are necessary in the public interest. At this point, it is the Governments view that the wider public interests of financial stability, depositors interests and protection of public funds may well outweigh the commercial interests of the bank.
I want to reassure the hon. Member for South-East Cornwall that a number of specific features of the SRR will operate to safeguard and protect the value of the failing bank. The Bill is designed so that the stabilisation options of a transfer to a private sector purchaser, such as a transfer to a bridge bank or taking the bank into temporary public ownership, can be applied before the insolvency threshold has been reached. In turn, that helps to protect against the destruction of any residual value that the failing bank has upon entering insolvency. I think that that addresses the hon. Gentlemans point.
I should also like to draw the attention of the hon. Member for South-East Cornwall to clause 53, which introduces the bank resolution fund. The fund, which is compulsory for a bridge bank but optional when taking a bank into temporary public ownership, is designed to ensure that the proceeds of any resolution, minus deductions necessary adequately to safeguard public funds, must flow back to the failing bank. If the Bank of England or the Treasury put in place a bank resolution fund, the resolution fund order may place a duty on the authorities to maximise the proceeds available for distribution, subject to meeting the special resolution and bridge bank governance objectives. I believe that that mechanism should also help to achieve the result that the hon. Gentleman is looking for. I therefore hope that he does not press the amendment to a Division.
Amendment No. 78, tabled by the hon. Member for Fareham, proposes that we state that the expenditure of public and private funds is done in an economically efficient manner. Of course I agree with the intention of the amendment, but again, I am not convinced of the argument to make it an objective of the special resolution regime. First, there are adequate general mechanisms to monitor and provide oversight of the use of public and private funds by the Government and other public bodies. In addition to the value-for-money and propriety analysis that the Government will undertake before providing financial assistance, there are external mechanisms to ensure that assistance is provided in an appropriate manner, for example through the work of the National Audit Office.
If the hon. Gentleman is referring to funds of the FSCS when he mentions private funds, I should say that we have put in place a number of provisions to ensure that they are used in an appropriate manner, when called on to fund the SRR, as in clause 157. I refer him in particular to the requirement that any resolution costs that the FSCS must contribute should be independently verified, and the core principle that the FSCS cannot contribute more than it would have had to pay out to insure the depositors had the bank entered insolvency.
I also do not agree that the objectives that the hon. Gentleman proposes in amendment No. 76 should be included in the Bill. The amendment proposes that the protection of creditors should be a separate SRR objective. Let me set out why I do not believe that that part of the amendment is necessary. First, as I have said, objective 5 operates to ensure that any interference with the rights of creditors must be in the public interest and proportionate. Secondly, there are in addition a number of specific features of the SRR that operate to protect non-depositor creditors, such as the protection of set-off and netting arrangements in the case of a partial transfer, which we will discuss in due course when we come to clause 43. Furthermore, I draw hon. Members attention to the compensation provisions that we have provided, particularly the possibility of compensation being payable to creditors under a third party compensation order. In relation to partial transfers, there is the additional safeguard, reflected in clause 55, of ensuring that no creditor would be worse off than in a whole-bank insolvency.
We can certainly agree that the interests of creditors need to be taken into account when determining whether the SRR should be deployed and that their interests need to be respected, but we do not think that it is appropriate to provide expressly for the protection of creditors as a separate objective from the protection of depositors. Creditors, to a much greater extent than retail depositors, can take a number of steps to protect themselves in the event of counterparty failure, including taking security and adopting set-off and netting arrangements. When creditors stand unsecured, they do so in the knowledge that that is the case, and having secured a suitable rate of return on the terms of their liability with the bank. None of that is the case with depositors. The Government have made it clear that the class of creditor that the measures focus on protecting is the depositor class, both as an end in itself, and because of the important role of depositor protection in financial stability.
Finally, I should like to turn to the important topic of competition law. I believe that the intention behind amendments Nos. 76 and 79, tabled by the hon. Member for Fareham, is to ensure that a bridge bank or a bank in temporary public ownership does not take commercial advantage of its favourable position in terms of Government support in a manner that distorts the market for financial services as a whole. He made that point clearly in his contribution.
Again, I reassure the hon. Gentleman that we have put measures in place to meet that intention. The first is the code of practice, the draft of which includes measures regarding the running of a bridge bank or a bank in temporary public ownership and guidance on running the bank on a conservative basis. Furthermore, both bridge banks and banks in temporary public ownership will continue to be regulated by the FSA in the same manner as other financial services providers. The Office of Fair Trading will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy. As the amendment addresses the running of bridge banks and banks in temporary public ownership rather than the general operation of the special resolution regime, I argue that the measures that I have set out meet his aim more appropriately.
The hon. Gentleman also probed the extent to which banks in receipt of financial assistance will be permitted to take advantage of that assistance in an anti-competitive manner. That is an important point. It is crucial that banks cannot use the receipt of financial assistance to obtain an inappropriate competitive advantage. I reassure him that firms in receipt of financial assistance will still be subject to the provisions of competition law and that the competition authorities will continue to have the powers to investigate any breaches. As I have said, the Office of Fair Trading will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy. Additional restrictions may also be imposed on those in receipt of financial assistance in order to comply with the rules on the provision of state aid.
Returning to the point about priorities, the hon. Member for Fareham made the Governments argument for us when he pointed out that the weighting of the different objectives outlined in clause 4 may change in different times and contexts. He is absolutely right. It illustrates why we should not attempt to rank objectives in the Bill, despite the injunctions of some Opposition Members. To give one example, in cases where significant public financial assistance had been committed before the special resolution regime, objective 4 on the protection of public funds would be likely to increase in importance, but it is not possible or desirable to put into the Bill the sorts of trade-off that the hon. Member for Fareham discussed or to stipulate in advance what they might be.
The hon. Member for South-East Cornwall sought assurance that the aim is to preserve a viable entity. I confirm that that is exactly the case. Before the SRR operates, the objectives of the banks management and the FSA as its regulator will clearly be to run it as a going concern. Once the bank is in the SRR, subject to the objectives that we are debating, the authorities aim will be to preserve the business or part of it as a viable business entity. All along, pre-SRR, we want businesses to continue as going concerns. Once a business is in the SRR, the first point is to preserve all or some of its parts as viable business entities.
I hope that I have demonstrated that the SRR objectives in the Bill strike the right balance between being clear about our primary aims and the purpose of the SRR measures and protecting other important rights and interests. I also hope that my explanation of other measures in the Bill and the code of practice address the concerns raised in the amendments. I hope that that provides adequate reassurance that we have taken those important matters seriously, that hon. Members, who I think tabled the amendments in a probing spirit, will not press them and that we can agree that clause 4 should stand part of the Bill.
I thank the Minister for his full reply to our debate on clause 4. Given his remarks, I want to reflect on a few points. We had an exchange during his speech about what was meant by depositor. I am still concerned that the Bill deals with depositors in a rather broad way. The explanatory notes do not clarify the position, so we are reliant on a non-binding code of practice for a clearer definition.
I do not want a local authority or charity depositor to look at the objectives and say that the Government had not protected them because they had been ranked alongside the window cleaner and the person who provides the stationery when it comes to the payout on administration for insolvency. I believe that we need greater clarity about the different levels of protection given to the different types of depositors in the various sectors. A retail depositor has a very different set of protections from a non-retail depositor. That does not come across, either in the Bill or in the explanatory notes, and it is not as clear as it could be in the code of practice. It is important to make it absolutely clear to depositors what protection they are likely to receive under the scheme.
There is a gap that the Government need to consider on the question of financial stability. The working definition used in the evidence session at the start of the process by the Banks executive director for financial stability, Nigel Jenkinson, was narrower than the definition in the code of practice. We could end up with the Bank believing that it was accountable for one thing in the context of how it operates, with the code of practice expressing financial stability in a wider fashion. The two should be more closely aligned, so that all the tripartite authorities know exactly what is meant by financial stability.
It was conceded on Thursday that this business should be covered by the Bill, but the Bank and the Treasury should be singing from the same hymn sheet. I am not sure that they are. That will add to the confusion over the respective roles of the Bank and other tripartite authorities and how financial stability is to be addressed under the Bill, particularly under part 1. More work needs to be done on that aspect.
The balance of objectives is dealt with in subsection (9); my hon. Friend the Member for Wellingborough debated it with the Minister, and I touched upon it in my remarks. One part of the challenge is that people will need to know how the objectives work together in different circumstances. One objective of the codewe will talk about it in our debates on clause 5is to give some clarity and predictability. Clause 5(2)(a) is about how to achieve the special resolution objectives. We need a window in the code on how they interact at different times. I agree that they may vary; indeed, the code reflects on the fact that they may vary, depending on the time.
I drafted amendment No. 77 before I saw the draft code. Paragraph 10 of the code makes much clearer how depositors might be protected. Amendments Nos. 74 and 76 are on the value of the enterprise and the interests of the creditors respectively. I am not sure whether the safeguards identified by the Minister are sufficient to reassure creditors. The safeguards come across almost as a second-order priority, because they are to be dealt with in secondary legislation or in a different clause. The fact that they are not in clause 4 indicates that creditors rights are not as important, and the Governments thinking on ensuring that value is left in the business for creditors does not seem as important as some of the other objectives in clause 4. I am not sure whether the Minister has addressed that point fully, and we might want to return to it later.
The Minister teased apart the issue of whether we are dealing with public or private money. I want to touch on the efficient use of private money, which we will probably deal with in more detail under clause 157 about the funding of the regime. There is a provision in the Bill to verify how the money is spentlike an audit. From my accountancy training, I know that an audit does not necessarily show that money has been spent well or efficiently.
Mr. Boneindicated assent.
I expect my hon. Friend was both a client and an auditor at different stages of his career before he came to the House. An audit does not provide exactly the reassurance I seek in amendment No. 78. I accept the point about public moneythat the NAO is there to provide an external check, and that before spending taxpayers money the Treasury will go through its own processes to determine whether that is the best way to resolve the crisis; however, the provision for independent verification of the use of the funds that the banking sector will provide to the FSCS, to meet some of the costs of resolution, does not necessarily go far enough.
On competition, I think that the Minister set out to reassure us that there are sufficient checks on an institution that has been subject to one of the stabilisation tools, to ensure that it does not act anti-competitively. During the debate on the code, I might touch on the meaning of conservative in the section dealing with temporary public ownership. The Minister has acknowledged the importance of ensuring that the right arrangements are in place so that banks in receipt of public financial assistance are not unfairly advantaged. It would be wrong to advantage banks that are seen to have failed, to the detriment of those that seem to manage their businesses successfully without recourse to public funds. On that basis, and with the reservation about creditors, I beg to ask leave to withdraw the amendment. I will not seek permission later to press any of the other amendments in the group to a vote.