Overview

This Banking (No. 2) Bill aims to improve the UK's ability to handle failing banks, protecting financial stability and depositors. It introduces new procedures for resolving failing banks, including the option of temporary public ownership, and sets out processes for bank insolvency and administration.

Description

The bill is divided into several parts. Part 1 outlines a "special resolution regime" for banks facing financial difficulties. This regime offers three main options: transferring the bank to a private sector buyer, creating a temporary "bridge bank" under Bank of England control, or temporarily placing it under public ownership. These actions involve transferring shares and assets, with compensation mechanisms for affected parties. The regime is overseen by the Bank of England, Treasury, and the Financial Services Authority (FSA). A code of practice will guide the use of these powers.

Part 2 details a new "bank insolvency" procedure, used when a bank is unable to pay its debts. A bank liquidator is appointed to transfer eligible depositors' accounts or secure compensation, before winding up the bank's affairs. This procedure incorporates aspects of existing insolvency law.

Part 3 establishes a "bank administration" procedure, primarily used when part of a bank's business is sold or transferred under Part 1. The bank administrator ensures the remaining part ("residual bank") continues to support the buyer or bridge bank. The process largely follows existing administration procedures, with modifications for this specific context.

Part 4 amends the Financial Services Compensation Scheme (FSCS), providing contingency funding and procedures for dealing with failing banks under the special resolution regime. This includes allowing for levies on financial institutions to cover potential costs.

Part 5 allows the Bank of England to oversee certain inter-bank payment systems to maintain stability and confidence in the financial system, providing for recognition, regulation, and enforcement measures.

Part 6 updates the legal framework for banknote issuance in Scotland and Northern Ireland, primarily maintaining existing rights for banks already authorized to issue banknotes.

Part 7 covers miscellaneous provisions, including Treasury support for banks (via the Consolidated Fund and National Loans Fund), changes to the Bank of England's structure and responsibilities, and modifications to existing legislation on charges and insolvency.

Government Spending

The bill allows for significant government spending to support failing banks, using funds from the Consolidated Fund and National Loans Fund. Exact figures are not specified, as spending will depend on the circumstances of each case. The FSCS may also use levies to cover expenses related to failing banks.

Groups Affected

• Banks: Potentially face new regulatory oversight, insolvency procedures, and the possibility of temporary public ownership.
• Depositors: Protected by improved resolution procedures and the FSCS, potentially experiencing disruptions to their accounts during transitions.
• Creditors: May face changes in the order and amount of payments during insolvency or administration.
• Financial Services Authority (FSA): Given a greater role in the oversight and resolution of failing banks.
• Bank of England: Takes on a more active role in bank resolution, including managing bridge banks.
• Treasury: Increased responsibility for oversight, funding, and decision-making in bank resolutions.
• Building Societies and Credit Unions: The bill extends some provisions, subject to modifications, to cover these institutions.

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