Bank Resolution (Recapitalisation) Bill [Lords]

Torsten Bell Excerpts

Wednesday 22nd January 2025 Commons Chamber

[The Parliamentary Secretary to the Treasury (Torsten Bell)]

I thank all hon. Members for their contributions to this debate, which were small in number but high in quality. I also thank those who contributed in the other place, or by responding to the consultation that brought the Bill forward. As today’s short debate has demonstrated, there is broad support, both political and industrial, for the Bill. I thank hon. Members on the Conservative Front Bench for their kind words and constructive approach, particularly, to echo the shadow Economic Secretary, previous Treasury Ministers, not least the right hon. Member for Godalming and Ash (Jeremy Hunt), who brought us to where we are today.

The enhancements to the UK’s resolution regime are relatively modest, targeted and proportionate. That regime was established in the wake of the global financial crisis, and its powers were put to the test when Silicon Valley Bank UK failed in March 2023. That episode demonstrated that the regime was broadly working as intended, but it is right to learn the lessons from that experience. The first of those lessons is that the implications of a firm’s failure cannot always be anticipated before the event, and sometimes it can be in the public interest to use resolution powers even on small firms that were not deemed systemic prior to their failure. That was the case with Silicon Valley Bank UK, and insolvency would have had implications for public confidence in the stability of the UK financial system.

The second lesson is that there is a potential gap in the resolution framework when it comes to managing the failure of such firms. They do not hold the additional resources to absorb losses and facilitate recapitalisation in the event of their failure. Silicon Valley Bank was well capitalised, and it was possible to find a willing buyer in HSBC. However, such an outcome may not be possible for a small bank with a shortfall in capital. At present, such a shortfall would have to be met through the use of public funds, and there is cross-party support for reducing that risk.

We also wish to increase the options available to the Bank of England for managing the failure of a small bank. The Bill does so without imposing any new up-front costs on the banking sector, or fundamentally altering the broader resolution framework, which has been shown to work well. It rightly does not alter the public interest test that underpins the Bank of England’s decision on whether to use its resolutions powers or place a firm into insolvency. I will return to that point shortly.

The shadow Economic Secretary raised a number of points. I broadly agree with his description of the events around Silicon Valley Bank UK. It was a helpful summary of developments. I can confirm that the Government welcome the amendments made in the other place, with the one exception raised by the Economic Secretary to the Treasury, which I know we will discuss further in Committee.

We have been clear that the powers are to be used for smaller banks, but that does not mean that use of the powers will become the default. Insolvency for small banks remains the default approach. The shadow Economic Secretary also raised the wider question of banking taxation. I am sure we will discuss that in the months and probably even years to come. Our view is that banking taxation remains competitive, but his comments have been noted, and we will always keep that matter under review.

The hon. Member for St Albans (Daisy Cooper) focused on the proposed size limits for banks. As I have mentioned, we do not think that what she suggested is the correct way forward, but we will continue to discuss it. The intention is that the powers will be used in the case of small banks, but the lesson of the last 20 years—not just in the UK, but around the world—is that flexibility is important when it comes to resolving bank failures. She asked whether a wider growth objective should be inserted for the Bank of England. This is a narrow Bill, and we do not think it is the right place to discuss wider issues about the Bank’s approach. The public interest test, which the Bank is already required to apply when it comes to resolution and questions of bank failure, provides much of the protection that she seeks.

My hon. Friend the Member for Newcastle-under-Lyme (Adam Jogee) asked about the impact on ordinary workers. That is a good question, and we always need to come back to it. Another lesson of the last two decades is that a stable and strong banking sector is an important underpinning for a strong economy, and for rising wages right across the country.

I started my career in the Treasury in the years when the UK and other advanced economies were having to swiftly relearn that banks can, and do, fail, and that the consequences of them doing so in an unmanaged way are very big and very bad indeed. The lesson from that crisis was clear: a comprehensive resolution regime is important for protecting financial and economic stability and public finances in bad times, but also for underpinning confidence in the financial system at all times. This lesson is especially significant for the UK, as the financial services sector plays such a vital role in our economy—a point that was powerfully made during the debate. We have also learned that it is important for the Bank of England to have a range of tools available for managing firm failures, because those failures can be unpredictable. The best tool for managing the situation is not always apparent prior to the point of failure, as evidenced by the failure of Silicon Valley Bank UK. That is why, despite the UK’s resolution regime having worked well in practice, the Government believe that it is important to learn the lessons of the banking sector volatility of 2023.

The targeted enhancements in the Bill provide the Bank of England with a more flexible toolkit for responding to the failure of smaller banks, while also protecting public funds. The Bill also supports the Government’s growth agenda. Although it is common to focus on the trade-offs between regulation and growth, confidence in and the stability of the banking sector are key to supporting long-term growth.

I am glad to have heard this afternoon that there is broad support for this Bill in the House. Assuming that support continues for at least the next few minutes, the Government look forward to engaging further with hon. Members in Committee. I commend this Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Bank Resolution (Recapitalisation) Bill [Lords] (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Bank Resolution (Recapitalisation) Bill [Lords]:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 13 February 2025.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Gen Kitchen.)

Question agreed to.

Bank Resolution (Recapitalisation) Bill [Lords] (Money)

King’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Bank Resolution (Recapitalisation) Bill [Lords], it is expedient to authorise the payment out of the National Loans Fund of any sums payable out of the Fund by virtue of the Act.—(Emma Reynolds.)

Question agreed to.

Bank Resolution (Recapitalisation) Bill [Lords] (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Bank Resolution (Recapitalisation) Bill [Lords], it is expedient to authorise the imposition of charges for the purpose of meeting expenses incurred by the scheme manager of the Financial Services Compensation Scheme in connection with the recapitalisation of a financial institution.—(Emma Reynolds.)

Question agreed to.