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Banking (Special Provisions) Act 2008

Background

3.Recent instability in financial markets across the world, and in particular the events concerning Northern Rock plc, have highlighted the need to have robust systems for providing protection and confidence for depositors, and for intervening when problems at particular institutions pose threats to the wider financial system.

4.The Government, the Financial Services Authority and the Bank of England are currently consulting on long-term reforms to enhance financial stability and depositor protection(1). The consultation includes a suite of measures to strengthen the financial system, to reduce the likelihood of individual banks failing and to reduce the impact of failing banks, especially where they risk damaging financial stability. The tools proposed include powers for the authorities to direct and accelerate a transfer of banking business to a third party; and powers to allow them to take control of all or part of a failing bank (or of its assets and liabilities) through a ‘bridge bank’ (as is possible in the United States and Canada). The authorities are also consulting on whether this longer-term legislation should allow them to take temporary public ownership of all or part of a bank.

5.However, the Banking (Special Provisions) Act is considered necessary at this stage, as an interim measure, to give the Government temporary powers for securing the continued stability of the UK financial system and protecting the public interest where financial assistance has been provided to an authorised UK deposit-taker.

1

Financial stability and depositor protection: strengthening the framework. Cm. 7308, January 2008.

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