Baroness Noakes (Con)

My Lords, this amendment would insert a new special resolution objective into Section 4 of the Banking Act 2009. That objective is to ensure that the costs of using the recapitalisation payment power, thus loading costs on to the banking sector and in due course on to its customers, are not more than if the bank insolvency procedure had been used. The special resolution objectives in Section 4 are not absolute requirements. The Bank has to have regard to them when using the resolution and related powers under the 2009 Act. There are seven existing objectives, and I am simply adding one more “have regard” for use only when the bank recapitalisation payment power is used. Section 4(10) states: “The order in which the objectives are listed in this section is not significant; they are to be balanced as appropriate in each case”. Thus, I am not trying to impose a requirement which trumps everything else in the special resolution regime. I regard this amendment as quite modest. Two strands of analysis underlie my tabling of this amendment. The first is that the code of practice is clear that the bank insolvency procedure is the default option, unless there are public interest considerations that outweigh the important market discipline of failure. I am not sure we have seen in practice the use of the default option, but it ought to remain the core option for smaller banks in particular, which the Government insist are the main target of this new power. The second concern was expressed during the consultation on this Bill—that there ought to be something akin to the “no creditor worse off” provisions of the Banking Act 2009. These provisions ensure that creditors are not disadvantaged by the use of one of the resolution tools compared with the option of insolvency. I am trying to ensure that the banking sector, which is footing the bill via the recapitalisation payment, should not be worse off than if the failed bank had been put through the insolvency process, resulting in the banking sector picking up the costs of reimbursing protected depositors. I completely accept that there are difficulties in making this an absolute rule, because the Bank of England may well prioritise other matters, such as the continuity of banking services for critical functions. That is why I have drafted this amendment as an additional objective rather than an absolute rule. However, its inclusion in the 2009 Act would ensure that the Bank was especially mindful of the costs that would fall on the banking sector when using the bank recapitalisation power. I beg to move.