Bank Resolution (Recapitalisation) Bill [HL]

Lord Eatwell Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I concur with what other noble Lords have said about this amendment: that is why I have added my name. It cannot be left as a possibility for any size of bank; if it needs to apply to a larger bank, perhaps the MREL level should have been set higher. We have this rather unusual situation in the UK where we set MREL at a much lower level; it is set at about a quarter of the level of other countries. If there is a nervousness about needing to use it for a bank that is a little bit larger, perhaps some other fundamentals about where MREL is being set are wrong.

The premise of this Bill is based on it being an alternative to insolvency, where that would have been the normal end result. Maybe the compensation scheme would have had to pay out on deposit guarantees and so there is the happy thought that the money could be perhaps put to different use this way round. But the assumption should still be insolvency and we need a public interest test before we go looking at the Financial Services Compensation Scheme. It is already an extraordinary event—so how extraordinary are extraordinary events? I do not think one can layer extra extraordinariness on top of it: there has to be a line somewhere.

We do not know how many dips into the Financial Services Compensation Scheme there are going to be. In insolvency, there is one dip for the deposits that are guaranteed. It does not say that there cannot be multiple dips. There is already the notion that there is this enormous pot of money. Maybe it looks like a bank tax—and everybody hates banks and it is a pot to raid—but it is a very good way to cause more issues within the wider banking sector. Frankly, it is unfair if there are not some bounds somewhere. So I think this is the right one and, if the Minister is not going to incorporate the amendment, which I think would be a jolly good idea, we on these Benches will be supporting the noble Baroness, Lady Vere.

[Lord Eatwell (Lab)]

My Lords, my colleagues from the Financial Services Regulation Committee are rather confused on two issues; that is very unusual, but they do seem to be. First, there is the idea that somehow, if MREL were exceeded in a financial crisis, that would be a regulatory failure. The only way to prevent such a regulatory failure is to have MREL at 100%; that is to avoid the total failure of the financial system. That would be a disaster for lending in this country. At the moment, MREL is set at levels that are deemed to be a reasonable buffer under circumstances that might reasonably, even in extremis, be expected to occur. As we saw in 2008-09, even events that are deemed to be events that would occur only once in a millennium can occur several times in a week in a severe financial crisis. An MREL which can never be exceeded is 100% and if my colleagues are seeking to impose that on the British financial system, I would be very surprised.

The other point that seems to be neglected—it is why I deem this amendment to be irrelevant—is that my colleagues should recall that, in one of the letters from the Financial Secretary, he pointed out there was a cap on the amount that would be raised from the financial compensation scheme for these purposes. That cap, as I recall, was £2.5 billion. In those circumstances, £2.5 billion would never be sufficient to deal with the collapse of one of the big banks. So the cap itself defines these regulations as fitting only relatively small banks.

[Baroness Kramer (LD)]

My Lords, perhaps I could be helpful at this point. That £2.5 billion is certainly not in the Bill. If that is the argument being made by the noble Lord, Lord Eatwell, is it an interesting one but not one that the Government have grasped.

Perhaps I should clarify the issue of the threshold at which MREL kicks in, because that was the point to which my noble friend Lady Bowles referred. The UK demands MREL or bail-in bonds as the mechanism for resolution in the case of the failure of a much smaller bank than in any other country across the globe. The differential between us and everybody else is very large. That, we assume, is why the Government want to keep this mechanism available for banks that have been required to have MREL: they are trying to deal with that small to medium-sized group that, quite frankly, should probably never be in the MREL group in the first place.