🤝 Bank Resolution (Recapitalisation) Bill [Lords]

• The Bank Resolution (Recapitalisation) Bill aims to enhance the UK’s bank failure management by giving the Bank of England more flexibility in handling small bank failures.
• It introduces a new mechanism to ensure that costs associated with failing banks are covered by the banking sector, not the taxpayer, thus protecting public funds.
• The bill was developed in response to lessons learned from the 2023 failure of Silicon Valley Bank UK, which was successfully resolved without taxpayer costs.
• Key changes in the bill include empowering the Financial Services Compensation Scheme (FSCS) to provide funds to the Bank of England for bank resolution, which can later be recovered through levies on the banking sector.
• The bill requires the Bank of England to report its use of the recapitalisation mechanism to the Chancellor and relevant parliamentary committees, ensuring transparency and accountability.
• Amendments were made in the House of Lords to limit the use of the mechanism to smaller banks not meeting certain capital requirements, but the government plans to amend this to retain flexibility in crisis scenarios.
• There is broad cross-party support for the bill, which is seen as promoting stability and protecting taxpayers, though concerns were raised about the scope of the mechanism and its impact on larger banks.
• The bill also sparked discussions on the competitiveness of the UK banking sector, with some suggesting a review of banking taxes and regulations to support the government’s growth agenda.
• Overall, the bill is seen as a prudent measure to manage bank failures effectively while supporting financial stability and economic growth.

The session on the Bank Resolution (Recapitalisation) Bill [Lords] displayed a moderate level of disagreement among the members. While there was broad support for the Bill across the political spectrum, as evidenced by multiple positive comments and reassurances of support from both the opposition and other members, the primary disagreement centered on the scope of the Bill’s application, particularly concerning the involvement of larger banks and the potential impact on competition in the banking sector.

1. Disagreement on Scope of Application: A notable disagreement highlighted in the session was around an amendment introduced in the House of Lords that sought to restrict the scope of the recapitalisation mechanism to smaller banks, excluding larger banks that have achieved the end-state MREL status. The Economic Secretary to the Treasury, Emma Reynolds, proposed reversing this amendment in Committee to maintain flexibility for the Bank of England during crises. This stance was challenged by Daisy Cooper from the Liberal Democrats, who expressed concern over the uncertainty this might create. She argued that not having the restriction on the face of the Bill could lead to potential instability and confusion in a crisis scenario, suggesting that the government should reconsider.
   • Example: Daisy Cooper said, “The Economic Secretary suggested that the purpose of keeping it in the code of practice, rather than on the face of the Bill, is to ensure flexibility in a time of crisis. I invite the Parliamentary Secretary to the Treasury… to say a word or two about that in summing up, because it strikes me that if this is not on the face of the Bill, it could create uncertainty rather than provide flexibility in a time of crisis.”
2. Concerns About Bank Competition: Another point of contention was raised by Kit Malthouse, who expressed concerns about the impact of the resolution mechanism on competition within the banking sector, particularly the potential for smaller challenger banks to be absorbed by larger institutions during a crisis. He questioned the decision-making process of the Bank of England during the Silicon Valley Bank UK situation and requested more clarity and predictability in their actions.
   • Example: Kit Malthouse mentioned, “At the heart of this is my worry about competition,” and questioned the Bank of England’s decisions leading to Silicon Valley Bank being transferred to HSBC, raising concerns about smaller banks being potentially disadvantaged.
3. General Support with Specific Critiques: Despite these disagreements, the session had a general tone of support for the Bill. The opposition, represented by Mark Garnier, acknowledged the need for the Bill and its improvements made in the other place but voiced reservations about certain aspects, particularly the amendment regarding the scope of the Bill. This indicates a nuanced disagreement where members broadly support the Bill’s intent but have specific concerns about its execution.
   • Example: Mark Garnier, the shadow Minister, said, “Broadly speaking, we will not disagree on this Bill,” but later questioned, “Will the Minister confirm that the Government intend to support those amendments in this House?”

In conclusion, while the session did not show overt hostility or extensive disagreement, there were targeted critiques and reservations concerning the Bill’s scope and potential impact on competition, which justifies a rating of 2 for disagreement displayed. The disagreements were confined to specific aspects of the Bill, while overall, there was broad support for its advancement.