Banking Bill

The prime minister has confirmed to MPs that the government is to put the banking code on a statutory footing.

The announcement came shortly after the Queen’s speech, and the Financial Services Authority is currently consulting on proposals for a new framework to regulate the way that banks treat their customers.

Gordon Brown also announced that mortgage holders would be able to defer a proportion of their mortgage payments. He said the government would underwrite mortgage payments for up to two years for people facing repossession, with the eight leading UK lenders having committed to this proposal. There would also be free debt advice in every court.

In an unusual parliamentary timetabling move, the new measures will apparently be introduced to the House of Commons as amendments to the carried-over Banking Bill whilst a Banking (No.2) Bill will be introduced in the House of Lords.

This route is being used due to the impending expiry of the Banking (Special Provisions) Act.  A cross-party decision has been made to introduce the Banking (No.2) Bill in the Lords in order to give peers time to fully scrutinise it. This Bill will be a replica of the Bill currently before the Commons.

Once the current Banking Bill has been passed by the Commons, the Banking (No.2) Bill will be dropped in the Lords. It is expected that by this stage the Banking (No.2) Bill will have only completed the first and second reading in the Lords and therefore no amendments would have been made to the Bill.

The legislation will strengthen the framework for protecting bank depositors and enhance financial stability through measures to reduce the likelihood of banks getting into difficulties.

The reforms of the banking system originate from the Treasury’s consultations on financial stability and depositor protection and recommendations made by the House of Commons Treasury Committee’s report on banking reform.

The Bill forms part of the wider measures the government had previously announced. Chancellor Alistair Darling said:

“A healthy banking system is the cornerstone of the economy – strong banks underpin a strong economy.”

The special resolution regime (SRR) replaces the interim powers taken in the Banking (Special Provisions) Act. The SRR will refine and develop the powers in the Act and will include new tools to deal with failing banks. This includes the introduction of two new insolvency regimes for the banks.

The Financial Services Compensation Scheme will also be reformed to facilitate faster pay out.

The Bank of England’s role in maintaining financial stability will be formalised and strengthened by giving the bank a statutory financial stability objective, established in financial stability committee and providing the Bank of England with additional tools, including formal oversight of the payment system and a key role in the SRR. As suggested by governor Mervyn King in his evidence session with the House of Commons Treasury Committee.

The Bill will enable the short-term non-disclosure of liquidity assistance by the Bank of England.

The Bill will enable the Financial Services Authority to collect information from banks in difficulties and remove any impediments to them sharing it with the Bank of England and HM Treasury to maintain financial stability and with the Financial Services Compensation Scheme to assist it carrying out its functions.

The move follows concerns that institutions were flouting their own guidelines amid the fallout from the credit crunch. Small businesses have raised concerns about terms and conditions for loans and overdrafts being unilaterally changed at short notice, leaving them at risk of running out of cash.

House of Commons

First reading: October 7 2008 [HC Bill 147]

Second reading: October 14 2008

Banking Bill Committee:

• 1^st sitting: October 21 2008 (am)
• 2nd sitting: October 21 2008 (pm)
• 3rd sitting: October 23 2008 (am)
• 4th sitting: October 23 2008 (pm)
• 5th sitting: October 28 2008 (am)
• 6th sitting: October 28 2008 (pm)
• 7th sitting: October 30 2008 (am)
• 8th sitting: October 30 2008 (pm)
• 9th sitting: November 4 2008 (am)
• 10th sitting: November 4 2008 (pm)
• 11th sitting: November 6 2008 (am)
• 12th sitting: November 6 2008 (pm)
• 13th sitting: November 11 2008 (am)
• 14th sitting: November 11 2008 (pm)
• 15th sitting: November 13 2008 (am)
• 16th sitting: November 13 2008 (pm)
• 17th sitting: November 18 2008 (am)

Report stage: November 26 2008

Third reading: December 17 2008

Committee stage:

• 1^st sitting: January 13 2008
• 2nd sitting: January 14 2008
• 3rd sitting: January 19 2008
• 4th sitting: January 20 2008