Banking Bill 2008

The Banking Bill was introduced into Parliament on 7 October 2008. The explanatory notes can be accessed here. The main provisions are as follows:

Special Resolution Regime (SRR) (Part 1) 

The Bill provides for the establishment of a permanent SRR to enable HM Treasury to deal with banks and building societies ("Banks") in financial difficulties. The Bill provides the SRR with three stablisation options and corresponding powers: transfer to the private sector, transfer to a bridge bank and temporary transfer to public ownership.

Bank insolvency (Part 2)

The Bill sets out a new bank insolvency procedure which facilitates rapid Financial Services Compensation Scheme (FSCS) payments.

Bank administration procedure (Part 3)

Part 3 of the Bill sets out an administration procedure for use in partial transfers of banks in financial difficulties.

Financial Services Compensation Scheme (Part 4)

The Bill gives the Financial Services Authority (FSA) increased powers to amend the scheme. It also allows the FSA to:

• Introduce pre-funding for the scheme;
• Use the FSCS to fund the SRR; and
• Use the National Loans Fund to make loans to the FSCS.

Inter-bank payment system (Part 5)

The Bill formalises the role of the BoE to oversee the payment system.

Issue of bank notes in Scotland and Northern Ireland (Part 6)

Under banking legislation dating back to 1845, a limited number of commercial banks in Scotland and Northern Ireland retain the right to issue bank notes. These notes are not backed by the BoE and are a liability of those commercial banks.

Part 6 of the Bill repeals the legislation of 1845 in relation to issuance of bank notes and prohibits the issue of bank notes except by those already doing so. The Bill also provides that those who discontinue issue of notes will lose the right to revive the practice. In addition, the Bill empowers HM Treasury to make banknote regulations primarily to to protect noteholders should and issuing bank face financial difficulties.

Miscellaneous provisions (Part 7)

This part includes provisions to establish a new statutory financial stability objective for the BoE. It also establishes a Financial Stability Committee (FSC) as a sub-committee of a smaller court of directors of the Bank.