Banking Bill

This first group of new clauses and amendments covers a wide range of subjects. I propose, with your permission, Madam Deputy Speaker, to speak to the Government new clauses and amendments, and then to seek to catch your eye at a later point in the debate to respond to the amendments tabled by the hon. Member for Fareham (Mr. Hoban). Let me start with Government new clause 11 and Government amendment No. 26, which is consequential on it. As was discussed in Committee, the Bill provides a number of ways for compensation to be calculated and paid to compensatable persons. As hon. Members will know, it allows the Treasury to make regulations to provide for no creditor being worse off following a partial transfer. The purpose of new clause 11 is to make explicit provision in the Bill for the Treasury, the Financial Services Compensation Scheme or other specified persons to pay or contribute to compensation payments under clauses 49 to 61. Government amendment No. 26 is consequential on new clause 11. It removes the provisions in subsections (6)(c) and (d) from clause 60, as new clause 11 now supersedes them. In Committee, the hon. Member for South-West Hertfordshire (Mr. Gauke) tabled a probing amendment that questioned whether subsections (6)(c) and (d) were appropriately placed in clause 60. New clause 11 sets out more clearly our intention to ensure that if needed the appropriate persons can pay or contribute towards compensation. These are sensible amendments that reflect the consensual debate that we had in Committee, and I hope that the House will support them. Government amendments Nos. 23 to 25 amend clause 60, which, as hon. Members will know, puts in place a safeguard to protect creditors following a partial transfer, as it aims to ensure that they are no worse off than they would have been had the bank gone into a whole bank insolvency procedure. This is part of the package of safeguards on which the Government are consulting. The basic principle that will be implemented in the regulations to be made under the clause is that there should be a comparison of the treatment that creditors of a residual bank created by a partial property transfer receive in fact with the treatment that they would have received in the hypothetical circumstances of the whole bank entering an insolvency procedure. Should that process show that creditors have received less in fact than they would have done in the hypothetical circumstances, the difference is to be made up. As drafted, the hypothetical circumstances used in clause 60 for the purposes of comparison are those of the winding up of the bank. This is a reference to a particular form of insolvency procedure involving the appointment of a liquidator and the realisation of the bank's assets and their distribution to creditors. The purpose of amendments Nos. 24 and 25 is to make a technical change to provide greater flexibility. The references to winding up will be replaced by references to a full range of different insolvency procedures, because a bank might end up in some form of insolvency procedure other than the bank insolvency procedure—for example, administration under the Insolvency Act 1986. The amendments aim to preserve the flexibility of the Treasury to select the most appropriate hypothetical circumstances for comparison in secondary legislation. Amendment No. 23 is a technical correction to subsection (2) of clause 60, which relates to the insolvency procedure that the residual bank, rather than the hypothetical whole bank, is likely to enter. As a partial transfer is likely to render the residual bank insolvent, and as the residual bank may need to provide services and facilities to the transferee, this procedure is likely to be the bank administration procedure. Again, the amendment provides flexibility to select the most appropriate procedure. I hope that the House will agree to it. I turn to Government amendments Nos. 41 to 48 to clause 165. The effect of these amendments is to require the Financial Services Compensation Scheme to be able to contribute up front to the costs of a resolution. Let me briefly set out how such an approach would work. The amendments to clause 165 will allow a ““payments on account”” approach to be adopted. That would allow the Treasury to impose a requirement early on, possibly immediately after use of the stabilisation powers, for the FSCS to contribute an amount to the resolution. That would be based on an estimate of the eventual payment under clause 165. The FSCS would be obliged to make the payment. Thereafter, there would be an evaluation exercise and an assessment of the final costs of resolution, with a balancing payment being payable either from the Treasury to the FSCS, or from the FSCS to the Treasury. Following the experience of recent resolutions, including the Bradford & Bingley case, it is important to have the flexibility to require the industry to contribute to the costs associated with resolutions before the end of the process. That flexibility could allow the FSCS to start paying, from day one, towards interest costs on any loans from the national loans fund in relation to a resolution. Paying up front could be preferable to leaving the cumulative interest costs to the end of the process. I have mentioned the importance of having safeguards to protect the use of FSCS funds, and I should like to reassure hon. Members that current safeguards surrounding the use of such funds will still exist. The safeguarding principle that resolution costs should be capped at the level at which depositor compensation would have been payable had the bank entered insolvency proceedings will be retained, as will the safeguard that ensures independent auditing of the amount that the FSCS will have to contribute. The amendments provide useful flexibility to allow the FSCS to contribute up front, rather than only at the end of the process, while preserving important safeguards to protect the interests of levy payers. I hope that the House will support these amendments. As I have said, Madam Deputy Speaker, I should like to catch your eye later to reply to the hon. Member for Fareham's comments on his amendments.