Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009

I do not have those facts to hand; part of the answer to that is that that is the responsibility of the Bank of England, but I will take steps to translate the noble Lord’s questions to the appropriate authority and seek to get an answer for him. On Dunfermline, I have said that the Bank of England selected Nationwide building society as a preferred bidder for the social house loan. We cannot comment on the outcome of the sales process at this stage, as the commercial transaction is not complete as yet. The Bank of England will provide an update in due course: it is under an obligation to do so and will do so. The proceeds of the sale will of course be paid into the resolution fund by the Bank of England. It will be known as the Dunfermline resolution account. Any consideration received from the sale of the shares in the bridge bank, or any distributions made by the bridge bank, for example, following the sale of the business of the bridge bank or by a liquidator appointed to wind up the bridge bank, will be there. The ultimate beneficiary of the account is Dunfermline. The Bank of England and the Treasury are entitled to be reimbursed—a point I made to the noble Baroness about their direct interest in the issue. The Treasury will need to decide whether any of those costs should in fact be recovered from the monies in the accounts. Before any costs may be recovered from the account, the cost will have to be certified by the independent valuer appointed by the Treasury to have been reasonably and properly incurred. That is the next stage. On the question of the valuation of the commercial loan book, that will be a matter for the administrator who will be in receipt of the property should the order be passed here and in the other place. I will relay those questions to the administrator; it will be his task to respond to them. Following our exchanges, I will ensure that in due course he is made aware of them. I was asked by the noble Baroness whether third-party compensation will be worked out on the "no creditor worse off" arrangements, how that will work and how the valuer will treat the business of Dunfermline. The valuer is required to apply the valuation principle in accordance with the Banking Act. Dunfermline entered into the insolvency procedure immediately before the time that the transfer instrument was made. This is a mandatory valuation principle that must be included in a third-party compensation order in accordance with the regulations. The Government believe that that is the correct position as, in order to enter the special resolution regime, Dunfermline had to be failing to meet its threshold conditions. As such, a bank entering into the special resolution regime will have failed to be a going concern. As it would no longer be able to perform its regulated activities, the threshold conditions are no longer met. In this case, we have decided that it is appropriate that the independent valuer should determine which insolvency procedure Dunfermline would enter into, rather than specify the procedure in the order. The valuer will be able to assess for himself the treatment of any property of Dunfermline. All in all, we believe that the "no creditor worse off" arrangements provide an entirely effective safeguard of creditor interests where the partial property transfer powers have been effected, as in this case. We believe that the provisions set out in Schedule 2 to the order will provide comfort—I know that my noble friend will appreciate this—to the creditors of Dunfermline and, more broadly, will provide an example of how the Government have met our promises about protecting the interests of creditors where the stabilisation tools are exercised. Accordingly, we reassure creditors, banks and building societies. I cannot emphasise that point strongly enough; we discussed it at considerable length when we considered the Banking Act. We all know that the special resolution procedures and stabilisation tools exercised are difficult, are operated under intense pressure and are of the greatest importance in terms of fairness to creditors while, at the same time, preserving as far as possible the positions of the assets concerned. I hope that the noble Baroness will feel that we have responded to that position effectively in the context of the legislation. I apologise if it looks a little as if I have gone over some old ground today, but the perspicacity of the noble Baroness and the noble Lord leading for the opposition parties during the Banking Bill meant that we looked at some of these issues with great intensity at that time, and although I thought there was a possibility of the special resolution procedures being applied, I did not for one moment imagine that we would be in this situation quite so soon. I hope that the noble Baroness will accept that with regard to both the position that the Government adopted on to the passage of the legislation and the way that we have taken these decisions subsequently, allowing for our obvious embarrassment about the drafting mistake in one of the instruments, most of her anxieties have been allayed.