Overview

The Banking (No. 2) Bill outlines procedures for dealing with failing banks in the UK, aiming to protect financial stability, public confidence, depositors, and public funds while respecting property rights. It establishes a special resolution regime with three stabilisation options (sale to a private sector purchaser, transfer to a bridge bank, and temporary public ownership), alongside bank insolvency and bank administration procedures.

Description

The bill is divided into several parts. Part 1 (Special Resolution Regime) details how the government can intervene in failing banks, including the power to transfer shares and assets to a private buyer, a new “bridge bank,” or temporary public ownership. This part also establishes a code of practice for these interventions and addresses compensation and continuity of business.

Part 2 (Bank Insolvency) describes a specific insolvency procedure for banks. This involves a court order appointing a liquidator who prioritizes transferring customer accounts or paying compensation before winding up the bank. A liquidation committee oversees the liquidator's actions.

Part 3 (Bank Administration) provides a procedure for when part of a bank's business is sold or transferred, ensuring the remaining part of the bank continues to support the sale or transfer. It mirrors existing administration procedures but adds specific objectives to support these transfers.

Part 4 (Financial Services Compensation Scheme) amends the existing compensation scheme to include contingency funding and provisions for dealing with banks undergoing special resolution. This includes procedures for claims and payments, and clarifying the scheme's rights in the event of insolvency.

Part 5 (Inter-bank Payment Systems) gives the Bank of England oversight of key inter-bank payment systems. The Bank can designate systems as "recognised," publish principles and codes of practice, and take enforcement actions including penalties and closure if necessary.

Part 6 (Banknotes: Scotland and Northern Ireland) updates regulations surrounding the issuance of banknotes in Scotland and Northern Ireland, modernizing the existing framework.

Part 7 (Miscellaneous) includes provisions on Treasury support for banks (including the use of the Consolidated Fund and National Loans Fund), changes to the Bank of England's governance, and amendments to the Financial Services Authority's powers. It also addresses the registration of charges and financial collateral arrangements.

Part 8 (General) provides definitions, repeals the Banking (Special Provisions) Act 2008, and sets out commencement arrangements.

Government Spending

The bill allows for significant government spending to support failing banks through various mechanisms. The Consolidated Fund will cover expenses related to the special resolution regime, financial assistance, and support for the Bank of England. The National Loans Fund may be used to provide emergency loans to banks. Specific figures are not provided in the bill text.

Groups Affected

• Banks: The bill directly affects banks, potentially impacting their operations, ownership, and solvency.
• Depositors: The bill aims to protect depositors through account transfers or compensation payments.
• Creditors: Creditors' interests are considered, particularly in insolvency and administration procedures.
• The Bank of England: The Bank of England plays a central role in implementing the special resolution regime and overseeing payment systems.
• The Treasury: The Treasury is involved in decision-making, financial support, and issuing regulations.
• Financial Services Authority (FSA): The FSA has a role in assessing bank stability and overseeing the implementation of the bill's provisions.
• Financial Services Compensation Scheme (FSCS): The FSCS will administer compensation payments to eligible depositors.
• Building Societies and Credit Unions: The bill allows for the application of the special resolution regime to these institutions, with appropriate modifications.

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