The Banking Bill
The Banking Bill had its second reading in the House of Commons, on October 14 2008. The Bill was outlined in the draft legislative programme of 2008. It gives the Bank of England a statutory duty to promote financial stability and improves protection for depositors.It also provides new powers to deal with failing banks by transferring them more speedily to another private sector purchaser or by bringing them into temporary public ownership.
The new powers need to become law by next February when special powers taken by the government after last year's run on Northern Rock expire.
Opening the debate, chancellor Alistair Darling, told MPs that legislation to strengthen the regulation of the financial markets, was not in the Bill. He did acknowledge that changes to the banks' supervisory and regulatory regime would also be needed following these “extremely turbulent” times but said these would be dealt with in a separate Bill after recommendations from the Financial Services Authority.
Darling told the House, the Bill will build on the current regulatory framework, he said it will provide a permanent special resolution regime and giving the Bank of England a role in overseeing the inter-bank payment system. The Bill would also improve protection for depositors through the Financial Services Compensation Scheme and enable the Bank of England to provide “liquidity assistance” to building societies.
Concluding, Darling reiterated that the Bill would ensure “the stability of the financial system”, he told the House, the Bil would “provide us with the options that we need on a permanent basis to deal with the situation that we have seen over the past year or so.”
Responding for the Conservatives, shadow chancellor, George Osborne, told the House the Conservatives would back the Bill, however, he stated that his party would have preferred the Bill to have “gone further”. Osborne called for “far-reaching changes to the management of overall debt levels in the economy, and a strengthening of the Bank of England’s role in that process”.
He told the House the Conservatives would make the Bank of England to “maintain an active role in macro-prudential supervision” and would force the FSA to consider “an institution’s risk not just in isolation or at a certain point in time, but in terms of the market context and through the economic cycle.”
Despite these objections, Osborne stated the Bill would receive his party's full support.
Chairman of the Treasury committee, John McFall (Lab/Co-Op, West Dunbartonshire) called for financial stability to be one of the “key aims” of the tripartite authority, he warned the House that the tripartite authorities should “not become a sleepy backwater in normal circumstances; it must be constantly alert”.
McFall criticised proposals relating to the financial stability committee. He said the “committee is to have a non-executive majority and a largely advisory and monitoring role”.
Liberal Democrat shadow chancellor, Vince Cable, said it was “surreal” that the Bill was being debated while the “enormous” economic storm was ongoing.
“We're still in the shock of a major tsunami wave and bodies are still being fished from the waters and people are still being rescued.
“Yet here we are having a debate on how we set up a tsunami detection scheme and rebuild developments,” he said.
Former chancellor, Kenneth Clarke (Con, Rushcliffe) said the Bill was necessary but “not perfect” and it was likely that any new government would have to return to the subject. He warned the Bill was a “potential shambles” and accused the government of being “complacent” and the regulatory system of having “completely failed”, he warned:
“I think there are serious problems with this Bill. We are supporting it on a cross-party basis, because there is a pistol pointing at the nation's head and these powers are required.
“But the government will have to answer more questions, including questions about their record, before we are happy with it.”
The Bill was read a second time without a vote. The Bill now proceeds into committee, where it will stay until no later than Tuesday November 18 2008.
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