The purpose of the Bill is to: improve the resilience of the financial system and support financial stability by strengthening depositor protection and dealing with banks in difficulties. 

The main elements of the Bill are:

• Enabling the Bank of England to lend in a more effective manner, including by allowing short-term non-disclosure of liquidity assistance by the Bank of England;

• Enabling the Financial Services Authority (FSA) to collect information from banks in difficulties and removing any impediments to them sharing it with the Financial Services Compensation Scheme (FSCS) to assist it carrying out its functions and the Bank of England or HM Treasury, where relevant to maintaining financial stability;

• The introduction of a ‘special resolution regime’ to allow the authorities (HM Treasury, Bank of England and FSA) to intervene when a bank gets into severe difficulties. This includes the introduction of an insolvency regime for banks;

• Strengthening the arrangements underpinning banknote issuance by commercial banks in Scotland and Northern Ireland;

• Improvements to the FSCS to facilitate faster pay out;

• Providing the Bank of England with a financial stability objective and amending the size and composition of the Bank’s Court.

The main benefits of the Bill are:

• Ensuring that if financial stability in the UK is threatened, the authorities have a range of tools available to mitigate the risk, whilst protecting consumers, and minimising the impact on the economy overall;

• Improvements to the Bank of England’s lending powers are designed to increase chances of successful resolution when a bank requires support from the Bank of England, thus protecting financial stability and the customers of the bank;

• The improvements to the FSCS will enable it to pay out bank depositors more quickly and efficiently in the event that a bank becomes insolvent;

• The Special Resolution Regime will enable the authorities to take decisive action, to resolve a failing bank in a more orderly manner than currently possible, allowing people to have continued access to banking functions or rapid and orderly depositor payment;

• Holders of banknotes issued by Scottish and Northern Ireland banks would be better protected if the issuing bank became insolvent. 

HM Treasury with the FSA and Bank of England published a discussion document in October 2007, and followed up with a public consultation on the detailed content of this proposed Bill. The consultation closed on 23 April 2008.

Before bringing forward legislation later in the Session, the Government will issue a further consultation, including the publication of draft clauses, before the Summer Recess.

See:

Consultation document

for more details.

In addition to the proposals in the Bill, the Government is also undertaking the following activity:

• Working internationally to strengthen the global financial system’s resilience, including through ensuring strengthened risk management by banks and improving the functioning of securitisation markets;

• Revising the Memorandum of Understanding, which sets out how the Bank of England, FSA and HM Treasury will coordinate their activities, and introducing new mechanisms for coordination at times of ‘crisis’;

• The FSA will also consult on rule changes, under its responsibilities in the Financial Services and Markets Act 2000, including in relation to enhancements to the FSCS.