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

Clive Jones Excerpts

Committee stage
Tuesday 11th February 2025 Public Bill Committees

Division 1

Question accordingly agreed to.

Ayes: 10

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Labour: 10

Noes: 6

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Conservative: 4
Liberal Democrat: 2

[Clive Jones (Wokingham) (LD)]

I beg to move amendment 4, in clause 1, page 2, line 3, at end insert—

“(5A) As a further objective to the special resolution objectives in section 4 of the Banking Act 2009, when discharging its functions in respect of the exercise of recapitalisation payments under this section, the Bank of England must observe the competitiveness and growth objective.

(5B) The competitiveness and growth objective is facilitating, subject to aligning with relevant international standards—

(a) the international competitiveness of the economy of the United Kingdom, and

(b) its growth in the medium to long term.”

This amendment would place a further objective on the Bank of England to consider the competitiveness and growth of the market before directing the recapitalisation of failing small banks through a levy on the banking sector.

It is a pleasure to serve under your chairship, Ms Jardine, in my first Public Bill Committee, which is a moment I suspect no MP forgets—or perhaps not. Amendment 4 would introduce a secondary objective for the Bank of England, which would require the Bank to consider market competitiveness and growth before directing the recapitalisation of failing small banks via a levy on the banking sector.

Amendment 4 seeks to address a few of the existing concerns with the Bill. For example, there are no clear limitations on how the Financial Services Compensation Scheme can be used as a source of funds for resolution, which means that there is no time limit on the extra levy imposed by the banking sector to repay the scheme. The amendment seeks to ensure that the Bank of England takes a holistic view of market competition and growth before making a resolution decision. It would therefore provide a strategy to reduce risk and to protect the sector. If the Bank of England determines that not issuing the mechanism could threaten market stability, the amendment would direct it towards resolution.

The amendment seeks to support market growth while ensuring that the financial burden on the banking sector remains fair and proportionate. It encourages a measured approach to financial resolution that protects both small banks and broader financial stability. I urge the Government to take the amendment on board when progressing the Bill.

[Emma Reynolds]

Growth and competitiveness—

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[Emma Reynolds]

Growth and competitiveness are fundamental priorities for this Government. Financial and economic stability are essential for growth and lie at the heart of the Bill. Risks to financial stability arising from bank failures, and the disruption they cause to continuity of critical services, can be seriously detrimental to growth and competitiveness. It is an obvious point, but one of the principal ways in which the authorities can impact economic growth is by maintaining financial stability.

Amendment 4, tabled by the hon. Member for Wokingham, seeks to ensure that the Bank of England considers competitiveness and growth when using the new mechanism in the Bill. It does so by introducing a new objective that the Bank of England would need to consider alongside the special resolution objectives. This objective would be to facilitate the international competitiveness and growth of the UK economy, subject to aligning with relevant international standards.

The Government resist the amendment because we believe that, while well-intentioned, it may have profound consequences. I should start by noting that the aim of the Bill is to enhance the resolution regime, but in a way that avoids making more fundamental changes to the regime and the way in which the Bank of England exercises its resolution powers. As I said to the hon. Member for Dorking and Horley previously, this is more of a significant tweak than an overhaul, which it certainly is not. That is because the Government consider that, broadly, the regime works well, as demonstrated by the successful resolution of Silicon Valley Bank UK. The Government believe that attaching a new objective such as this to the use of the mechanism in the Bill could complicate matters for the Bank of England in using the mechanism alongside its stabilisation powers.

This is the key argument: we know that, when managing a firm failure, the Bank of England may need to take a decision at pace in a highly complex and uncertain environment. That is distinct from the regular policymaking of the Prudential Regulation Authority and the Financial Conduct Authority, which of course have a secondary growth and competitiveness objective—for which there is cross-party support—but one that is applicable in the context of their general rule-making and policymaking roles. It would be quite different to say that this objective should apply to the Bank of England when taking urgent crisis management action in relation to an individual distressed or failing firm.

That reflects the different nature of the decisions that regulators take compared with the resolution authority, which has to act quickly and decisively in a crisis. It is therefore important that the Bank of England, as the resolution authority, has a clear and unambiguous basis on which to make such decisions. The Government believe that the special resolution objectives already provide that. As Members will appreciate, it is important to strike the right balance between ensuring that the Bank of England can respond quickly and flexibly to a firm failure, and that any impacts on growth and competitiveness are properly considered. The Government believe that the existing framework strikes the right balance.

I would add that the question around how the Bank of England and others support growth and competitiveness is a complex matter, and it is not one that the Government believe should be, or can be, addressed in the Bill. I hope that I have provided a helpful explanation of the Government’s view on this issue, and I respectfully ask that the hon. Member for Wokingham withdraws his amendment.

[Clive Jones]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause, as amended, stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 4.