Banking Act 2009 Explanatory Notes

Section 238: UK Financial Stability

524.This section amends Part 1 of the Bank of England Act 1998, which relates to constitution of the Bank and the functions of the Court of Directors, to include provision relating to a financial stability objective. Subsection (1) inserts three new sections as 2A to 2C and subsection (2) amends the current section 2.

525.New section 2A(1) provides that the Bank has an objective of contributing to the protection and enhancement of financial stability in the United Kingdom.

526.New section 2A(2) confirms that the Bank must aim to work with other relevant bodies, such as the Treasury and the FSA, in pursuing this objective.

527.New section 2A(3) provides that the Bank’s strategy in relation to financial stability shall be determined and reviewed by the Court of Directors of the Bank of England. The Court must consult the Treasury before it sets the strategy. (See also new section 2B(2) in relation to recommendations from the Financial Stability Committee.)

528.New section 2B(1) requires there to be a new sub-committee of the Court – the Financial Stability Committee. This Committee is to be chaired by the Governor of the Bank of England (when present), with other membership consisting of the two deputy Governors and four directors of the Bank’s Court, who are to be appointed by the Chair of the Court of Directors.

529.New section 2B(2) sets out the functions of the Committee. One function is to make recommendations to the Court regarding the Bank’s financial stability strategy, which the Court must consider. Other functions include advising the Bank whether and how it should use the stabilisation powers conferred on it as part of the special resolution regime in Part 1 of this Act and advise on the actions the Bank should take in respect of a particular institution. This is most likely to be necessary in the case of a bank or building society that has entered, or is about to enter, the SRR. Another function of the committee is to monitor the Bank’s oversight of inter-bank payment systems. It also provides for the Court of Directors to delegate other functions to the Committee, as it considers appropriate for pursuing the Financial Stability Objective.

530.New section 2B (3) and (4) allow the Treasury to appoint a non-voting member to the Committee and the Committee to co-opt other non-voting members.

531.New subsection 2B (5) allows the Chair of Court to replace the ‘non-executive’ members of the Committee, drawn from the membership of the Court of Directors.

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