Banking Bill

My hon. Friend is exactly right that the FSA is consulting on many the relevant issues, but it is not currently possible to say what the outcome will be. There is a clear policy issue and a clear public interest in ensuring that the basis on which people put their money into banks, and the guarantees that underpin them, are clearly understood and communicated, and we want to ensure that that is sorted out. The hon. Member for Fareham raised in Committee the matter relating to amendments Nos. 13 and 14, and I have set out before the reasons why it is important that the FSCS contributes to the costs of the special resolution regime, therefore I shall not repeat them in detail here. From what the hon. Gentleman said, I understand that his concern is to ensure that other persons, particularly a private sector purchaser or the insolvent estate, contribute to the costs of a resolution before the FSCS is called upon, and his amendments seek to achieve that. Let me set out why I have sympathy with the general principle but do not agree with his amendment. As I said in Committee, I agree that in some circumstances, a private sector purchaser should be called upon to contribute towards resolution costs. However, there are also certain circumstances in which it would not be appropriate for them to be required to do so. For example, there may be administrative costs or additional compensation costs that a private sector purchaser would not be willing to pay, and any requirement that they do so might reduce the likelihood of a successful private sector solution, therefore I do not believe that, in all cases, the private sector purchaser should pay resolution costs before the FSCS or the authorities. I have significant concerns about imposing the proposal that the insolvent estate fund resolution costs before any call upon the FSCS is made. Taking money out of the estate to fund resolution actions would lead to a smaller pot of money from which creditors and others would benefit. We wish to avoid that situation, as demonstrated by the ““no creditor worse off”” safeguard, and by objective 5 of the special resolution regime which emphasises the importance of minimising interference with property rights. In the case of one of the more likely resolution actions, a deposit book transfer, funding the resolution out of the insolvent estate might result in a de facto depositor preference regime, which the Government have sought to avoid, with the support of banks and investors in banks. Of course, the cap will ensure that any recoveries that the FSCS could have secured from the insolvent estate had it paid out in the normal way will be taken into account. The FSCS will not be required to pay more than it would have paid under a normal payout. Although the private sector purchaser may be called upon to contribute in some circumstances, I hope that I have explained why I do not think that they should be the first port of call in all circumstances, and why there are also risks with requiring the insolvent estate always to be called upon before the FSCS.