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Clause 130

Banking Bill – in a Public Bill Committee at 10:45 am on 18th November 2008.

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Grounds for applying

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

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The Minister was complaining about all the technical talk, but I have a technical question for him. The clause relates to the grounds for applying for a  bank administration order and states the conditions that must apply before the Bank of England may apply for a bank administration order. It states:

“Condition 1 is that the Bank of England has made or intends to make a property transfer instrument in respect of the bank in accordance with section 10(2) or 11(2).”

Clause 7 sets out the conditions under which the powers contained in clauses 10 and 11 may apply. One of those conditions is whether the Financial Services Authority is satisfied that certain conditions have been met. Clause 130 says that the Bank of England may apply for a bank administration order if

“it intends to make a property transfer instrument”.

It can make a property transfer instrument only once the FSA is satisfied that certain conditions apply. That is what we have in clauses 7 and 8. Clause 130 seems to allow an application to be made and clause 131 allows a bank administration order to be made by the court before clauses 7 and 8 are satisfied, because of the words that the Bank

“intends to make a property transfer instrument”.

Is it necessary that all the conditions in clauses 7 and 8 have been satisfied—relating to clauses 10 and 11—before clause 130 becomes operative? It seems that the Bank can apply before the FSA says it is appropriate and then the FSA can subsequently determine whether the conditions set out in clauses 7 and 8 have been met. I am sure that is all entirely clear to the Minister but if he wants any clarification I will try to help him.

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

I think it is clear and I shall try to be clear in how I explain it. The legislation is framed so that the FSA has responsibility for deciding whether the threshold conditions have been met. Clause 7 relates to this in subsection (1) where it says:

“A stabilisation power may be exercised in respect of a bank only if the FSA is satisfied that the following conditions are met.”

We have talked about this before. First, the FSA—having consulted the Bank and the Treasury—decides whether the threshold conditions are met and pulls the trigger. Then, the Bank is responsible for deciding which stabilisation option should be taken. If the Bank decides that one stabilisation option is a bridge bank and wants to make a property transfer instrument, then clause 130—subsections (1) and (2) in particular—would apply. The FSA’s decision to trigger the special resolution regime comes first. As I understand it, the Bank could not decide to make a property transfer instrument before the decision had been taken that a bank was failing.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The Minister’s answer has been clear. He has addressed the degree of ambiguity in the Bill and I am grateful.

Question put and agreed to.

Clause130 ordered to stand part of the Bill.

Clause131 ordered to stand part of the Bill.