Bank Resolution (Recapitalisation) Bill [ Lords ] (First sitting)

Chris Coghlan Excerpts

Committee stage
Tuesday 11th February 2025 Public Bill Committees

That said, however, we cannot support the Government on getting rid of these MREL limits. We cannot support the Liberal Democrats on one of their measures, because of the uncertainty in that 40-day negative resolution SI, but crackerjack on the growth agenda, which we wholeheartedly support; I hope the Government will as well.

[Chris Coghlan (Dorking and Horley) (LD)]

I thank the hon. Gentleman for his remarks and for supporting our amendment 3. We tabled that amendment because, when the Bill was first debated, the Minister spoke about it enhancing the resolution regime in response to the failure of small banks. We believe that that is appropriate. I guess it is an assessment of risk between mission creep—whether we allow this mechanism to apply to larger banks, with the risk of unnecessary costs falling on banks—and, as the Minister says, having an additional mechanism available in the event of a bank failure. I have a few things to say on that.

First, if the MREL capital of a bank is exhausted, frankly, we are probably looking at a public bailout in any case. I am sceptical whether the additional mechanisms in the Bill would absolve the taxpayer from needing to bail out the bank, so the risk of the Bank of England going beyond the intention of the Bill by imposing additional costs on banks seems to be higher than that.

The hon. Member for Wyre Forest is right about the need for speed. I should declare that I was a hedge fund manager during the Lehman collapse in 2008—I did not cause it—and I saw, first, how fast it happened, and secondly, that the consequences of not bailing out Lehman were far worse than they would have been had the US Government bailed them out. For me, that prompts the question why, 16 years later, we are looking at this mechanism being an effective device to prevent banking collapses, when a whole raft of reforms made from 2009 through to 2012—so the evidence would suggest, at least—have been effective, in that we have not had any bank failures in the UK since that date, as far as I am aware.

For those reasons we tabled amendment 3, but to the point made by the hon. Gentleman, I think the Government might be better served by doing a full review of banking regulation in the UK overall and assessing whether it is indeed effective in preventing the risk of a banking collapse, rather than tacking on small mechanisms beyond the intention of an existing Bill. We will therefore press our amendment to a vote.

[Emma Reynolds]

I thank the hon. Members for Wyre Forest and for Dorking and Horley for their contributions. Let me turn to the last point made by the hon. Member for Dorking and Horley and the first made by the hon. Member for Wyre Forest, the shadow Minister: the Government continue to have confidence in the regime for managing the failure of larger, more complex banks. The bail-in regime remains the right strategy for such firms to ensure that a firm’s shareholders and investors, rather than taxpayers, are on the hook if it fails.

The hon. Member for Dorking and Horley asked why we are doing this now, The reason we are doing this now is, first, the lot opposite started it—and we agree with them. [Laughter.] No, to put it more formally: the previous Government started down this track of reviewing what happened with Silicon Valley Bank. Rightly, in our view, they looked at what happened over that weekend; the shadow Minister has mentioned this.

The case of Silicon Valley Bank shows us a couple of things, and we were keen to learn lessons from it. First, the resolution regime works pretty well. However, we were fortunate that Silicon Valley Bank was an attractive proposition to HSBC. In the end, therefore, although these things are never easy, there were officials in the Treasury and the Bank who worked all weekend, and Ministers were involved; one of them is now a shadow Minister and one of them is a Back Bencher. However, if SVB had not been an attractive proposition, things might have been different. And this measure is to protect the taxpayer in that scenario.

We do not wish to throw all the pieces up in the air and see where they land; we are not doing a wholesale reform of the resolution regime. This is an important tweak but, in the scheme of things, a relatively minor tweak to what is a much broader regime to deal with these circumstances. I hope that reassures the hon. Member for Dorking and Horley. And we note that he had nothing to do with the global financial crash. [Laughter.]

[Chris Coghlan]

indicated assent.

[Emma Reynolds]

Coming on to the amendment, I am a little bit confused by the shadow Minister, because he rightly says—I agree with him about this—that it would not have been possible to use a negative SI, for example, during the weekend when everything was happening with Silicon Valley Bank. The Government at the time and the Bank of England rightly moved during that weekend to reassure the markets and everything was sorted, really—well, I say everything was sorted, but there was still more to do. However, the big decisions were made over that weekend.

If the Government had to lay an SI in order to give the Bank the permission to do that, it would not have been a good scenario. I think the shadow Minister is saying that he will back the other amendment, but not this one. I am a bit confused by his position.