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I will certainly think about it and talk to officials about the different mays and shalls. We may consider that changes need to be made to the Bill but, on the other hand, we may not; we may think that our original thinking was correct in this matter.
To conclude on security interests, the Government are proposing that all forms of security arrangement where a creditor takes an interest in the property of the debtor should be protected, including both fixed and floating charges, which was a point raised by the hon. Member for South-West Hertfordshire.
A number of hon. Members requested further information on lessons learned from Bradford & Bingley, as an example of a partial transfer. As I said before we adjourned for lunch, it is inappropriate to discuss the details of current resolutions, not least because of litigation issues. However, in order to help the Committee, let me provide some general reflections on this case and how recent resolutions have informed our thinking on partial transfers.
Using the powers in the Banking (Special Provisions) Act 2008, put in place in February, Bradford & Bingley plc was taken into temporary public ownership by way of a transfer of its securities. Then, as part of the same order, its deposit business and its branches were transferred by way of a property transfer to Abbey Santander, backed by a contribution from the Financial Services Compensation Scheme and the Treasury. The parts of the bank that were not transferred to Abbeyin broad terms, mortgages and other assetsremain in public ownership. That was a relatively simple example of a partial transfer. Under the transfer order, the FSCS paid out approximately £14 billion to enable retail deposits held in Bradford & Bingley and covered by the FSCS to be transferred to Abbey, with the Treasury making a payment to Abbey for retail deposit amounts not covered by the FSCS, amounting to approximately £4 billion.
It may also help the hon. Member for Wellingborough to set out how a partial transfer might work, but I want to stress that this is just one example. The Bank of England could use the bridge bank stabilisation options to transfer a deposit book of a failing bank to a bridge bank. The residual companythat is the banking business not transferredwould enter the bank administration procedure, as provided for by part 3. The residual company would be wound up by a bank administrator, while providing necessary services to the bridge bank. The Bank of England would work to stabilise the bridge bank and sell on to a private sector purchaser as quickly as possible. That is an example of one way that the powers could be exercised in the future.
The hon. Member for South-West Hertfordshire also asked a number of questions about clause 42(3) and our treatment of it in the consultation document on partial transfer safeguards. First, to answer his question on the why subsection (3) refers to classes of deposits: the provision gives an example of the class of property to which restrictions could relate. Subsection (3) does not state that restrictions must necessarily relate to deposits. It is designed to give a flavour of the type of provision the underlying secondary legislation could make.
The hon. Gentleman also asked why the Government are consulting on making provisions for general restrictions in the code of practice rather than in legislation. As he noted, the Government agree that key safeguards to partial transfers should be put in secondary legislation. That is why we are consulting on putting in secondary legislation the safeguards to protect set-off and netting, to protect security interests and to aim to ensure that no creditor be worse off through a partial transfer. Feedback from stakeholders, as the hon. Gentleman noted earlier, is that those three safeguards, and in particular the protection of set-off and netting, are the most important, and we intend them to be covered through secondary legislation. However, as he is aware, we are consulting on providing additional guidance in the code of practice on what property, rights and liabilities could be transferred in a partial transfer and in what circumstances such partial transfers would occur.
As I have said, recent events in the financial markets have clearly demonstrated that preserving the flexibility of the authorities is crucial. Therefore, we do not believe that at this stage there should be, in addition to the safeguards that I have just mentioned, a general legislative restriction on the scope of partial transfers. However, the guidelines in the code of practice will give the market more clarity about the nature of the partial transfers that the authorities may effect. However, we are consulting on it and I look forward to receiving stakeholder views on it.
Another issue raised by the hon. Member for South-West Hertfordshire was about paragraph 2.16 of the consultation document. Paragraph 2.16 sets out the Governments broad policy intention towards set-off and netting arrangements, which is to protect contracts relevant for regulatory capital purposes from the threat of disruption. However, it would not be appropriate for the draft order to adopt a specific definition to that effect, in part due to the circularity point raised by the hon. Gentleman. Instead, the draft order specifies that set-off and netting arrangements will be protected subject to delineated exceptions, which is important so that counterparties can attain the necessary legal certainty. The Government will be working with stakeholders, including through the expert liaison group, to ascertain whether the provisions of the draft order address the policy objective of protective set-off and netting arrangements with rate contracts that are relevant for regulatory capital calculations.
I want to make it clear at this stage that the safeguard is likely to cover many more set-off and netting arrangements than simply those that relate to contracts relevant for regulatory capital. The broad safeguard proposed would cover most set-off and netting arrangements, subject to some exceptions, and that approach has been welcomed already.
The hon. Gentleman asked what protection is provided for security. I can confirm that the Government are consulting on the position that the security interest safeguard should be comprehensive and include all floating charges. He also asked why we should refer to the financial collateral directive, rather than to regulations, which are wider. It is correct that the draft order only refers to protecting interests under the financial collateral directive, rather than regulations, but we are specifically consulting on that point. I refer the hon. Gentleman to question 10 on page 18 of the consultation document. We are open to representations on that point.
I want to return to the question of whether we are rushing this too much. I of course agree that partial transfers are critical and that it is therefore essential to get them right. That is why we have published the consultation document and why we have set up the expert liaison group to consider the safeguards. The consultation document, as I have made clear, included draft orders on the safeguards that stakeholders have informed us are the most important. Annex A of the consultation document provides draft secondary legislation for the set-off and netting arrangements and security interest safeguards in addition to draft regulations for the No Creditor Worse Off safeguard. I would also like to point out that the adopted approach for the netting and safeguards follows a direct recommendation from the expert liaison group.
We are making good progress on the detail of those important safeguards, and we want to get them right. We currently believe that, with the good co-operation we have had so far with stakeholders, we will be able to get them right in a timely manner so that we can pass the secondary legislation at a similar time to the passing of the primary legislation we are discussion today.