Overview

The Banking Act 2009 established new procedures for dealing with failing banks in the UK, aiming to protect financial stability and depositors while minimizing disruption. It introduced a special resolution regime, bank insolvency, and bank administration procedures, alongside provisions for compensation and the Financial Services Compensation Scheme (FSCS).

Description

The Act's core is a three-pronged "special resolution regime" for dealing with failing banks: transferring the bank to a private sector purchaser, transferring it to a temporarily government-owned "bridge bank," or temporarily taking it into public ownership. Each option involves transferring shares and/or assets. The Act details the powers of the Bank of England and the Treasury in these processes, emphasizing the need to protect financial stability and depositors, alongside a code of practice to guide decision-making. A Banking Liaison Panel was established to advise the Treasury on the regime's impact. The Act also includes procedures for bank insolvency and bank administration, largely based on existing insolvency law but with significant modifications to address the unique challenges of banking.

Bank Insolvency

This procedure involves a court order appointing a bank liquidator to prioritize transferring eligible depositors' accounts or providing compensation from the FSCS, followed by winding up the bank's affairs.

Bank Administration

This procedure applies when part of a bank's business is sold or transferred, requiring the administrator to ensure continued service provision to the purchaser or bridge bank, while otherwise adhering to typical administration procedures.

Financial Services Compensation Scheme

Amendments enhanced the FSCS, enabling it to cooperate with the special resolution regime, including levy provisions for contingency funds and contributions to the costs of stabilizing banks.

Inter-Bank Payment Systems

The Act allows the Bank of England to oversee certain inter-bank payment systems, publishing principles and codes of practice, and imposing sanctions for non-compliance.

Banknotes (Scotland & Northern Ireland)

Existing legislation on banknote issuance was repealed and replaced to ensure continued issuance by existing authorized banks, subject to new regulations and rules, including requirements on backing assets.

Government Spending

The Act allows for significant government spending via the Consolidated Fund and National Loans Fund to support banks through financial assistance and the special resolution regime. Specific figures aren't provided in the Act text itself.

Groups Affected

• Banks: Potentially face significant restructuring or even liquidation under the new procedures.
• Depositors: Their accounts may be transferred or they could receive FSCS compensation.
• Creditors: Their claims will be addressed through liquidation or administration processes, possibly with alterations in priority.
• Financial Institutions: Could receive government financial assistance or face oversight of interbank payment systems.
• The Bank of England & The Treasury: Assume expanded roles in overseeing and managing failing banks.
• Financial Services Authority (FSA): Plays a key role in assessing bank viability and authorizing actions.
• FSCS: Its scope is broadened to cover the new resolution procedures.

Powered by nyModel