Banking Bill

I shall deal first with the new clauses and amendments proposed by the Economic Secretary. He is right to identify the importance of the continuity of services and facilities in the Bill, which goes back to comments made on the last group of amendments that one of the ways in which we can best achieve financial stability is through that continuity of service. If we can make sure that that happens, it will give consumers far greater protection than almost anything else we can do. The fact that they are aware that their bank is open for business the next day, even if it is rebranded, renamed or whatever, will provide more reassurance than payments made through a deposit guarantee scheme. We will return to that point later in this group of amendments. It is important for the Economic Secretary to deal with the following point. I do not know whether it should be covered in the code of practice or in a debate on this matter in the other place, but I assumed that the services that the Economic Secretary referred to when talking about continuity included things such as IT contracts, provision of equipment, payroll, facilities management for branches of banks and so on. The sort of things that make a branch of a bank function do not concern the transfer of the building but the services that go on there. It is important that those who supply such services to banks understand that they could be required to do so, and if they do not understand that, they need to, because it will make the regime work in practice. The Economic Secretary also talked about the amendments that will be introduced in the other place dealing with holding companies, and I understand that discussions have started with stakeholders on those. We would want to look carefully at how the detail works, because in some cases the holding companies are not just of banks, but of other financial institutions. We need to understand how that process works. The Bill is primarily about banks rather than the broader financial services sector. Turning to the new clauses and amendments in my name, I shall speak to new clause 8 and amendments Nos. 10 and 11 together. Three stabilisation options are set out in clauses 11, 12 and 13. They are private sector purchase, a bridge bank and public ownership. The challenge for people in considering those options is that the first and the third, as set out in clauses 11 and 13, are familiar concepts. As a consequence of what has happened in the past 18 months, we know what temporary public ownership is, and we know what happens when there is a private sector sale. The new facility or provision is the bridge bank. I felt that it was important, through amendment No. 11, to include in the Bill what the objective of the bridge bank was, moving it up from the code of practice. It should be clear what we seek to achieve by invoking that stabilisation option. It is important that the Bill makes it clear that there is an order of precedence or priority. When the authorities look at how to rescue a failing institution, their first reaction, as it was with Northern Rock last year, is to find a private sector solution. A private sector solution is much cleaner than the second and third options and will largely keep creditor rights in place, with fewer issues arising to do with competition, arm's length management and so on. Although a private sector solution is a much cleaner outcome, it may not always be the best outcome, which is why it is right that other options should be in place. However, we know from the debate in Committee on partial transfers that bridge banks can disrupt the usual rights of creditors, which is not the case for the private sector solution. Furthermore, competition and management issues arise when banks are subject to either a bridge bank or temporary public ownership. We debated in Committee, on the one hand, how a bridge bank could be managed to maintain the value of its franchise and improve its value to a private sector purchaser—that is one of the objectives of a bridge bank—and, on the other hand, ensuring that constraints are in place to prevent its form of ownership at that point from being a competitive advantage against other banks. The Minister said in Committee that he would expect a bridge bank to be able to take on new business, but that it would not be intended to"““compete aggressively in the marketplace.””––[Official Report, Banking Public Bill Committee, 6 November 2008; c. 368.]" A private sector solution makes it much easier to avoid that conflict. That is why we would prefer, as it were, an order of precedence in the Bill.