Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Clause 10

Banking Bill – in a Public Bill Committee at 1:00 pm on 6th November 2008.

Alert me about debates like this

Private Sector Purchaser

Question proposed, That the clause stand part of the Bill.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I am not sure whether there is a mistake in the clause, but I should like clarification. The heading of the clause is “Private Sector Purchaser”, yet subsection (1) refers to “a commercial purchaser”. I would like to know the difference. A private sector purchaser is clearly one who is not in the public sector. That is the only definition. The word “commercial” must refer to a body involved in commerce, which could include a state. State enterprises could thus be involved if there was a commercial solution and that, of course, would include sovereign funds. Is there meant to be a distinction between private sector and commercial? My understanding of law is that the text in a Bill takes precedence over the clause heading, so are we talking about a commercial solution that could involve sovereign funds and enterprises owned by other states?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

Clause 10 establishes that where the general special resolution regime conditions—as set out in clause 7—and the specific conditions for the private sector purchaser stabilisation option of clause 8 are met, the Bank of England may effect a sale of all or part of the business of a bank to a commercial purchaser. The Bank is already responsible for important aspects of financial stability and the Bill provides for the responsibilities to be formalised, including through the addition of a statutory financial stability objective, as previously discussed in our debate on clause 216.

Given those responsibilities, the Bank should have the tools available to resolve a bank in the interests of financial stability, so the Government are making the Bank of England the UK’s lead resolution authority, conferring on it powers to effect the key stabilisation options—the private purchaser tool we are talking about and the bridge bank tool. Stakeholders and the Treasury Committee have supported the proposal.

The means to transfer the ownership and business of deposit takers already exists but commercial transfer mechanisms are not appropriate for dealing with failing banks. They are often too slow and do not provide sufficient certainty for parties involved in the transaction. The same is true of the part 7 procedure in the Financial Services and Markets Act 2000. The private sector purchaser tool in the clause provides for swift and certain transfer of some or all of the banking business from a failing bank to a private sector purchaser. The resolution of a failing bank by way of a transfer to a private sector purchaser is a highly desirable outcome and would generally be the Government’s favoured option, as I hope I have made clear.

A private sector solution is likely in many circumstances to be the resolution option that best meets the special resolution objectives. The transfer may be effected either through the transfer of a bank’s shares or other securities, or its property, rights and liabilities. Having both options provides enhanced flexibility. Property transfer powers also enable the Bank of England to choose which parts of a failing bank’s business to transfer. The facility for partial property transfers provides further flexibility to the Bank of England, increasing the chance of a private sector sale—an important point.

The hon. Member for Gosport is correct to note that the clause text has primacy. The heading is intended to give an indication of the intention. The phrasing in the clause is drawn widely to ensure that a range of transfers is possible, subject to meeting the public interest.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.