Bank Resolution (Recapitalisation) Bill [Lords]

Debate between Emma Reynolds and Ashley Fox

Wednesday 22nd January 2025 Commons Chamber

[Emma Reynolds]

My hon. Friend flatters me. It is not that easy to explain in simple terms, but I will do my best. Essentially, if a small bank is in trouble, it is better for it not to go into insolvency but instead to go through resolution to protect its depositors. In the case of SVB, only 14% of deposits were covered by the financial services compensation scheme, because the scheme only covers deposits up to the £85,000 threshold. Had public funds been required to facilitate the sale of SVB to another purchaser—in this case it was HSBC, but it could have been another institution—it would have had recourse to public funds. We are seeking to avoid a situation in which taxpayers in all our constituencies are on the hook for the failures of small banks. Where a bank has high-quality assets, which was the case for SVB, we can avoid the insolvency situation and pay out to depositors who have deposits above the £85,000 threshold. That resolution would be funded by the financial services compensation scheme and ultimately the banks, which contribute to the scheme through a levy. I hope that answer helps my hon. Friend—I am sorry that it was a bit long.

Stability is at the heart of the Government’s agenda for economic growth, because when we do not have economic and financial stability, it is working people who pay the price. We have to bear in mind what we are seeking to do, which is ultimately to protect the interests of the taxpayer and to ensure that we do not have to have recourse to public funds.

[Sir Ashley Fox (Bridgwater) (Con)]

I welcome this Bill, but can the Minister assure the House that, at all times, the aim of the Government is to minimise the liability of the taxpayer? Where losses have to be sustained, they should be borne first by the shareholders, secondly by the bondholders and perhaps thirdly, and regretfully, by the deposit holders. That should be the order in which losses are sustained.

[Emma Reynolds]

I agree with the hon. Gentleman, who puts it very well. He will know that there was a different order in the case of Credit Suisse, but the then Government said at the time that that would not be their order of priority. We are seeking to protect the taxpayer in this Bill, and he is right: had there been a cost associated with the transfer of SVB, it would have fallen first to those people before falling to the taxpayer. If we pass this legislation, for which I hope there is cross-party support, we will avoid that eventuality, because if we follow the order of priority and get to the financial services compensation scheme, the cost will be paid through a levy on the banks in that scheme. I thank the hon. Gentleman for his question.

The resolution regime is a critical source of stability when banks fail, because it ensures that public funds and taxpayer money are protected. This Bill delivers a proportionate and targeted enhancement to the resolution regime to ensure that it continues to provide that important stability. As I said at the start of this debate, it is therefore an important Bill that underpins the Government’s vision for economic growth, and I commend it to the House.