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:

• 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 two new insolvency regimes for banks;
• Make changes to the FSCS framework set out in FSMA (Financial Services and Markets Act) to allow improvements to facilitate faster pay out;
• Formalising and strengthening the Bank of England’s role in maintaining the UK’s financial stability by giving the Bank a statutory financial stability objective, establishing a Financial Stability Committee and providing the Bank of England with additional financial stability tools, such as formal oversight of payment systems and a key role in the SRR;
• 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 Bank of England or HM Treasury, where relevant to maintaining financial stability and with the Financial Services Compensation Scheme (FSCS) to assist it carrying out its functions and;
• Strengthening the arrangements underpinning banknote issuance by commercial banks in Scotland and Northern Ireland.

The main benefits of the Bill are:

• Ensuring that if financial stability in the UK is threatened by a failing bank, the authorities have a range of tools available to resolve the bank in an effective and timely manner, whilst protecting consumers, and minimising the impact on the economy overall;
• 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;
• Improvements to the Bank of England’s lending framework are designed to increase the effectiveness of support from the Bank of England, thus protecting financial stability and consumers;
• New powers to gather information and share it across the Tripartite lead to more effective oversight of the financial system; and
• 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 paper in October 2007, and followed up with public consultations on the detailed content of this proposed Bill in January 2008 and July 2008.  A further consultation was launched in November 2008 regarding legislative safeguards to the exercise of powers in the Bill.

The consultations can be found at the HM Treasury website.

The Banking Reform team at HM Treasury can be contacted by email: banking.reform@hm-treasury.gov.uk

The Bill is an important part of the wider set of general measures which the Government, the Bank of England, and the FSA, have taken to restore stability to the financial system, including:

• Government provision of financial support to the banking system through the recapitalisation scheme and credit guarantee scheme;
• the Bank of England’s Special Liquidity Scheme;
• the FSA’s supervisory enhancement programme and other reviews, including of liquidity regulation and remuneration;
• the FSA’s increase to £50,000 of the FSCS’ deposit protection limit; and
• leading ongoing international efforts to ensure effective global coordination of supervision of financial markets.