Crown Estate Bill [HL]

Lord Geddes Excerpts

Committee stage
Monday 14th October 2024 Lords Chamber

[Lord Howard of Rising (Con)]

My Lords, I thank the Minister for accepting the principle that there should be a limit on lending; 25% is probably more than I would have liked to go for, but nevertheless I am grateful that the principle has been accepted. That would probably be better in statute than in a memorandum of understanding, but perhaps I could reflect on that. Really, the Minister has taken the wind out of the sails of my Amendment 9, so I beg leave to withdraw it.

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

As the noble Lord has spoken to the amendment, the Government may reply if they so wish.

[Lord Livermore (Lab)]

No.

Financial Services and Markets Bill

Lord Geddes Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Kramer (LD)]

My Lords, the last group of amendments and this one are not identical and cover different aspects of abuse by financial institutions. Were the Government to accept them, together, or to draft their own versions, that would completely change the playing field. Small businesses would be in a position whereby they could breathe easily and make business decisions, and not worry that, embedded in whatever product they were purchasing—

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

I hate to interrupt the noble Baroness, but a Division has been called in the Chamber. The Grand Committee stands adjourned until 5.20 pm.

Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014

Lord Geddes Excerpts

Monday 15th December 2014 Grand Committee

[Lord Newby (LD)]

My Lords, these four draft statutory instruments are intended to transpose the requirements of the European bank recovery and resolution directive, which I will refer to as the BRRD. As a package, they will significantly strengthen and enhance the UK’s special resolution regime, which puts in place arrangements to deal with the failure of banking institutions.

I will first set out the background to these provisions. In general, when a company fails, it will enter insolvency, and the company’s creditors will be paid out in accordance with the priority of their claim. However, the financial crisis demonstrated that it is sometimes not possible to allow banks which fail simply to enter insolvency. This is due to the need to protect the banks’ customers by ensuring they can continue to access essential services. It is also because of how interconnected the banking system is, with the failure of one bank having the potential to spread problems throughout the financial system.

Responding to the financial crisis, the Government of the day introduced the special resolution regime in the Banking Act 2009. This gave the Bank of England and the Treasury a set of tools that could be used to manage the failure of a bank and limit the negative consequences for the economy and the rest of the financial system. Many other Governments found themselves in similar situations and introduced their own resolution regimes.

As a result of that common experience, there has, since the crisis, been a concerted international effort to address the problems that led to the crisis, building on the first steps taken during the crisis and making sure that we have the tools available to address bank failures in the future. The UK has been at the forefront of these efforts. We have been an active participant in the Financial Stability Board, which, under the chairmanship of Mark Carney, has established a common resolution framework endorsed by G20 leaders. This framework is designed to ensure that banks are no longer considered “too big to fail”. It includes enhanced supervision, planning for the recovery and resolution of firms and co-operation between different jurisdictions.

The BRRD is part of this global push to make banks resolvable. It is designed to ensure that European member states have a harmonised set of resolution tools that can be used to manage the failure of a bank.

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

My Lords, a Division has been called in the Chamber. The Grand Committee stands adjourned, to resume if possible after 10 minutes. However, I understand that both participants are tellers and therefore it might take slightly longer than 10 minutes—as soon as possible.

--- Later in debate ---

[The Deputy Chairman of Committees]

My Lords, the participants having returned, the Grand Committee is resumed. The noble Lord, Lord Newby, was cut off in his prime, for which I apologise.

[Lord Newby]

My Lords, as I was saying, the BRRD is part of this global push to make banks resolvable. It is designed to ensure that European member states have a harmonised set of resolution tools that can be used to manage the failure of a bank. It also puts in place mechanisms to facilitate co-operation between member states in planning for and managing failure. It covers banks, building societies, investment firms and banking group companies. The BRRD builds on the existing UK resolution regime in the Banking Act 2009, ensuring that many of the powers introduced in the UK will be replicated across the EU.

I now turn to each of the instruments in turn. First, the Bank Recovery and Resolution Order makes substantial amendments to the Banking Act 2009 to ensure that the UK special resolution regime is fully consistent with the BRRD. It inserts a new section into the Banking Act 2009 which gives the Bank of England a set of pre-resolution powers. They are designed to be used where, in the course of resolution planning, barriers to the effective resolution of the firm are identified.

These powers enable the Bank to require a firm to take action to ensure that the Bank could use its resolution powers effectively in the event that an institution fails. Where barriers have been identified, the Bank may, for example, direct a firm to dispose of certain assets or cease lines of business or change its legal or operational structure. To support these new powers for the Bank of England and its exercise of the stabilisation powers, the order gives the Bank new powers to gather information from firms. This includes a power to appoint an investigator to investigate a possible failure to comply with a direction. It also includes a power to apply for a warrant to enter premises in order to obtain documents that are required for the exercise of its functions.

Failure to comply with a requirement of the Bank of is an offence. This section replicates existing offences in the Financial Services and Markets Act 2000, which relate to requirements imposed by the PRA or the FCA in their role as regulator. Here, however, it relates to requirements imposed by the Bank of England. The Bank of England may delegate its enforcement of these powers to the PRA or FCA.

The order makes some amendments to the special resolution objectives, set out in Section 7 of the Banking Act. These amendments are designed to ensure full compliance with the BRRD, providing clarity and certainty for firms. There is nothing which fundamentally changes the objectives, which include ensuring the continuity of banking services, protecting financial stability and public funds and protecting depositors covered by the Financial Services Compensation Scheme.

The order adds a new section to the Banking Act 2009, which requires that relevant capital instruments of the firm—that is common equity, additional tier 1 capital and tier 2 capital—are either cancelled, reduced or converted into common equity at the point where a firm fails. This ensures that capital instruments do the job they are intended to do, which is to fully absorb losses at the point of failure. This write-down must occur before or at the same time as a stabilisation power is used. It may also happen in the absence of any resolution, either because the write-down is enough to restore the viability of the firm or because the firm is entering insolvency instead of being resolved.

The BRRD also introduces a new stabilisation option, the asset management vehicle. The Bank of England may transfer certain assets of the failing firm into an asset management vehicle, where they are then sold or wound down over time. This prevents destabilisation of the market through the immediate sale of the assets. It also prevents the assets being sold at an artificially low price.

The directive introduces a harmonised bail-in power across the EU. Bail-in is a tool which enables the Bank of England to cancel or modify contracts which create a liability for a failing bank. This allows the Bank of England to recapitalise the firm, stabilising it while the fundamental issues that have lead to its failure are addressed. The Government have had a policy to introduce bail-in powers for some time. Following significant progress on bail-in at an international level, and as part of the negotiations on the BRRD, the Government introduced bail-in powers via the Financial Services (Banking Reform) Act 2013. This order amends those provisions to ensure full consistency with the BRRD. In order to ensure that the bail-in is effective, it is necessary to prevent counterparties of the firm in resolution from closing out their contracts in order to avoid being subject to bail-in. The order therefore specifies that a range of contractual termination rights do not arise solely by virtue of the fact that a stabilisation power has been exercised.

The Bank of England is also given a power to impose a temporary stay on contractual obligations and security interests to which the firm in resolution is a party. This allows a short period while the firm is being stabilised, during which those obligations need not be met. This stay is very strictly limited in time to avoid having a disproportionate effect on affected parties.

This order also gives the Bank of England powers enabling it to support a resolution carried out in a foreign country. Where the Bank is notified by a foreign jurisdiction’s resolution authority that it has taken action to resolve a firm, the Bank must make an instrument that either recognises that action or refuses to recognise it. Recognition of a foreign resolution action will confirm that it has effect in the UK. This provides legal certainty about the effectiveness of resolution actions in other jurisdictions, reducing the risk of challenge and making cross-border resolution more effective. The Bank of England may refuse to recognise a third country’s resolution action, or any part of it, where certain conditions are met. These include a determination that the recognition would have an adverse effect on financial stability in the UK or the rest of the EEA, or that UK or other EEA creditors would be treated less favourably than non-EEA creditors with similar legal rights. The Treasury must approve any refusal by the Bank of England to recognise a third-country resolution action.

I move on to the second order, which puts in place safeguards for certain liabilities that may be subject to the bail-in tool in the event of failure. It protects certain types of set-off and netting arrangements that are respected in the event of insolvency. The provisions here ensure that they are also respected in bail-in. The order requires that liabilities relating to derivatives or financial contracts or covered by certain master agreements must be converted into a net debt, claim or liability prior to bail-in. Other types of liability covered by the safeguard must be treated as if they had been converted into a net liability. The order also puts in place arrangements for dealing with any breach of the safeguard. Where there has been a breach, the affected party is entitled to have that breach remedied. The remedy aims to ensure that the affected party is returned to the position that they would have been in had the safeguard not been breached.

The third order requires compensation arrangements to be put in place following the use of the bail-in powers. They are designed to ensure that the shareholders and creditors of the firm do not receive less favourable treatment than they would have done had the institution simply failed, without the exercise of the stabilisation powers. This is commonly known as the “no shareholder or creditor worse off” safeguard.

The fourth order implements the requirements of the BRRD on depositor preference. The majority of deposits in the UK, including all deposits of individuals, are protected by the Financial Services Compensation Scheme up to a value of £85,000 per depositor per institution. The Financial Services (Banking Reform) Act 2013 enhanced this protection by amending the Insolvency Act 1986 to add deposits covered by the Financial Services Compensation Scheme to the list of preferential debts. These debts are paid out first in insolvency, and are entitled to be paid out in full before other creditors receive any payments. This means that the majority of depositors in UK banks already have their deposits preferred.

The depositor preference order creates a new category of preferential debts, called secondary preferential debts. These are paid out after ordinary preferential debts but before other debts. All existing preferential debts, including covered deposits, will be ordinary preferential debts. The order designates amounts in deposits eligible for protection from the FSCS but above the £85,000 compensation limit as secondary preferential debts. Only deposits of individuals, micro-businesses and SMEs are given this preference. This change further reduces any chance that these depositors will be exposed to loss if the firm fails and either enters insolvency or is resolved using the powers in the Banking Act. This furthers the objective of protecting depositors.

I apologise for speaking at such length, but as the orders make extensive revisions to existing legislation I felt that they merited a thorough run-through. Taken together, they significantly enhance the UK’s resolution regime. Along with the other reforms that have been implemented to date, they will equip us well to deal with future bank failures in a way that protects taxpayers and the financial stability of the UK.

Financial Services Bill

Lord Geddes Excerpts

Monday 12th November 2012 Lords Chamber

[Lord Phillips of Sudbury]

My Lords, it is now three and a half hours since we had the debate on this amendment and scarcely anyone who was present then is present now and vice versa. Therefore, it would be rather fruitless to do as I had intended originally and put the amendment to the vote. However, I shall bring back the principle involved—which is the primacy of integrity over the other two objectives—at Third Reading. On that basis, I withdraw the amendment.

[The Deputy Speaker (Lord Geddes)]

My Lords, as the noble Lord has spoken to the amendment, I must give the opportunity for other noble Lords to speak if they so wish.

Amendment 26D withdrawn.

Scotland Bill

Lord Geddes Excerpts

Thursday 15th March 2012 Lords Chamber

Amendment 54ZA withdrawn.

[The Deputy Chairman of Committees (Lord Geddes)]

Given the remarks of the noble Duke, it may be of assistance to the Committee if I explain where we are regarding grouping and degrouping. To the best of my knowledge, the following amendments will be addressed separately: Amendments 54A, 54B, 54C and 54D. Amendment 54E will be grouped with Amendment 54A, and Amendments 54F, 54G, 54H and 54J will be dealt with separately. I trust that that is correct.

Amendment 54A

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