Bank Resolution (Recapitalisation) Bill [Lords]

Matt Rodda Excerpts

Report stage
Thursday 24th April 2025 Commons Chamber

[Emma Reynolds]

The hon. Gentleman draws me on something that is not pertinent to the amendments, but I understand why he has asked the question. When a bank fails, there is a hierarchy of creditors. I can write to him with that hierarchy, as I do not have it in my head at the moment. The hierarchy ensures that if, for example, the bank is bailed in, those who have already invested in the bank become stakeholders, although it depends on the resolution scenario and where they are in that process. The people who have deposits in the bank—in more simple language, people who have bank accounts—are protected up to £85,000. Soon that will increase in the way that the shadow Minister suggested.

Amendments 1 and 3 in the names of shadow Minister, the hon. Member for Wyre Forest, and the hon. Member for Wokingham respectively both relate to the scope of the Bill, which has been discussed at length during the Bill’s passage through this House and in the other place. The Government’s position remains that the mechanism in the Bill is not intended to support the resolution of the largest banks. The hon. Member for Wyre Forest set that out in his speech, as did the hon. Member for Wokingham. The largest banks will continue to be required to hold MREL to self-insure against their own failure. For banks that are required to hold MREL, the Bank of England should in the first instance use those resources to recapitalise such a firm in resolution rather than resorting to the new mechanism in the Bill. It is right that shareholders and investors in the firm should bear losses before anyone else, which goes to the point made by the hon. Member for Strangford (Jim Shannon).

I return to the primary purpose of the Bill, which is to protect the taxpayer. Bank failures are by their nature highly unpredictable, as my hon. Friend the Member for Hendon said. In the unlikely circumstances where a top-up is needed to resolve a bank once all its MREL resources have been used, hon. Members must consider whether they want those costs to be borne by the taxpayer. It is the Government’s belief that the taxpayer should not be on the hook for those costs.

I made the point in Committee, and do so again today, that safeguards are in place to prevent inappropriate use of the mechanism. The Treasury, for example, is involved in the exercise of any resolution powers through being consulted about whether conditions for resolution have been met. It would also need to approve any resolution action with implications for public funds. If the Bank of England requested a large sum from the Financial Services Compensation Scheme that the scheme could not provide through its own resources, additional amounts would need to be borrowed from the Treasury and would therefore require the Treasury’s approval. Therefore, in practice, Treasury consent would be required if the Bank of England had requested a large sum.

The shadow Minister attempted to draw me into many different subjects related to MREL. You rightly reminded him, Madam Deputy Speaker, of the scope of the Bill and the amendments under discussion. I will always be happy to have those discussions with him—as he knows, the Bank of England recently consulted on the thresholds—and I note what he said before he was called to order. He also tried to draw me into questions about the Financial Services Compensation Scheme, which are also for a different day; as he said, there will soon be increases.

[Matt Rodda (Reading Central) (Lab)]

I appreciate that the Bill’s scope is limited, and the Minister is making an excellent case for the Government. I realise that bank collapses are unusual and that the Government take a range of steps to try to protect the interests of consumers, but could she write to reassure me on the related point of bank branches there were a bank collapse?

[Emma Reynolds]

Perhaps my hon. Friend and I could have a discussion outside the Chamber so that I can better understand his question. The mechanism in the Bill is about what happens when the resolution regime is triggered. Four different conditions have to be met for that to happen. The Bill seeks to continue the work that the Opposition started to take forward when they were in government before the election about what we do in cases like that of Silicon Valley Bank. In that case, there was not any recourse to public funds, but this is about how we protect the taxpayer in a scenario where there is. Perhaps we can have a discussion about bank branch closures, which is obviously of great concern to Members across the House.

I appreciate that amendment 3, tabled by the hon. Member for Wokingham, aims to introduce an additional safeguard by permitting the Bank of England to use its new power on the largest banks only if the Treasury permits that through regulations. He talked about that in his speech. However, there may be risks associated with that approach, particularly if the Bank of England needed to take a decision at pace in a crisis. Indeed, my hon. Friend the Member for Hendon was in the Treasury when many such situations arose. [Interruption.] Well, let us not rake over the history. We discussed some of these issues in Committee.

As the shadow Minister suggested, we are trying to avoid a window of uncertainty during which a statutory instrument would be laid. The Bank of England, working in close partnership and consultation with the Treasury and the other financial services regulators, needs to be able to act swiftly and decisively—often over the weekend. I ask hon. Members, and the hon. Member for Wokingham in particular, to cast our minds back to the weekend when Silicon Valley Bank UK was failing. The Bill derives from the lessons learned from that event.

What we saw from that incident is how quickly the authorities—the Bank of England in consultation with the Treasury, the PRA and the FCA—must move to find a solution before markets open and resolve a failing firm in a way that protects financial stability, depositors and the taxpayer. That has to be at the forefront of our minds when we are thinking about the amendments.

Amendment 3 could add a further stage to that process, whereby the Treasury must lay regulations to enable the Bank of England to act. That may well—it is most likely that it would—hamper those efforts to implement a solution swiftly to achieve those objectives. Had Silicon Valley Bank UK been caught by such requirements, that certainly would have made achieving the solution by Monday morning, before the markets opened, much more challenging. Again, the priority is to protect the depositors and to protect financial stability.

Overall, the Government firmly believe that it is better to leave flexibility for the Bank, noting the safeguards in place that I have already mentioned. On the basis of those points, I hope that hon. Members will be persuaded to support the Government’s position on this matter; I know that it is an issue of some contention.

Amendment 4, also in the name of the hon. Member for Wokingham, is on whether the Bank of England should have a growth and competitiveness objective when exercising its new power—another topic that we have discussed previously during the Bill’s passage. Growth and competitiveness are fundamental priorities for the Government, and as I stated in Committee, a disorderly bank failure could pose a serious risk to the growth and competitiveness of the sector and to the UK economy. The Bill seeks to mitigate that risk.

Bearing that in mind, the Government do not believe that they should impose a requirement on the Bank of England to consider growth and competitiveness when it is taking urgent crisis management action in relation to an individual distressed or failing firm. At such a time, the situation that it would have to manage would be challenging enough without an additional broad objective of that kind. The resolution objectives set out in the Banking Act 2009 already provide a solid basis on which it must make its decisions, including protecting financial stability, protecting covered depositors and protecting the taxpayer. As my hon. Friend the Member for Hendon reminded us, the Bank of England, in close partnership with the Treasury and the other financial services regulators, needs to act with speed and flexibility to maintain financial stability. Those considerations are very different from those that the PRA and the FCA make in their policymaking roles. The Government strongly support the existence of their secondary objective on facilitating growth and competitiveness.

I note and accept that there is a broader question about how the Bank of England can support growth and competitiveness, but this is a complex matter, and one that is well beyond the scope of the Bill. We will be resisting the amendment for those reasons.

Finally—[Interruption.] I see that our debate has attracted quite a lot of discussion around the edges; if I could hear myself think, it would be nice. I turn briefly to amendment 2, tabled by the shadow Minister. First, I reiterate that the Government have made clear their strong commitment to support the mutual sector, and I reassure him that we take our commitment in the manifesto to double the size of the mutual and co-operative sector very seriously. Many hon. Members on the Government Benches who serve as Labour and Co-operative MPs have a great interest in this matter, as has been demonstrated.

I also direct the shadow Minister—to be fair, he referred to a couple of them—to the package of measures that the Chancellor set out at Mansion House, which included the consultation on the potential to reform common bonds for credit unions in Great Britain. The Chancellor asked the Financial Conduct Authority and the Prudential Regulation Authority to produce a report on the mutuals landscape by the end of the year. She also welcomed the establishment of an industry-led mutual and co-operative business council, the first meeting of which I attended earlier this year.