Banking Act 2009

Changes over time for: Section 48B

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Banking Act 2009, Section 48B is up to date with all changes known to be in force on or before 26 April 2024. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations.

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s. 4(8A) (8B) inserted by 2012 c. 21 s. 96(3)
s. 8(2)(d) and word inserted by 2012 c. 21 s. 96(4)(b)

[F148BSpecial bail-in provisionU.K.

This section has no associated Explanatory Notes

(1)“Special bail-in provision”, in relation to a bank, means any of the following (or any combination of the following)—

(a)provision cancelling a liability owed by the bank;

(b)provision modifying, or changing the form of, a liability owed by the bank;

(c)provision that a contract under which the bank has a liability is to have effect as if a specified right had been exercised under it.

(2)“Special bail-in provision”, in relation to a bank, also includes any associated provision (see subsection (3)) that the Bank of England may think it appropriate to make in consequence of any provision under subsection (1) that—

(a)is made in the same resolution instrument, or

(b)has been made in another resolution instrument in respect of the bank.

(3)“Associated provision” means provision cancelling or modifying a contract under which a banking group company has a liability.

(4)A power to make special bail-in provision—

(a)may be exercised only for the purpose of, or in connection with, reducing, deferring or cancelling a liability of the bank;

(b)may not be exercised so as to affect any excluded liability.

(5)The following rules apply to the interpretation of subsection (1).

1The reference to cancelling a liability owed by the bank includes a reference to cancelling a contract under which the bank has a liability.

2The reference to modifying a liability owed by the bank includes a reference to modifying the terms (or the effect of the terms) of a contract under which the bank has a liability.

3The reference to changing the form of a liability owed by the bank, includes, for example—

(a)converting an instrument under which the bank owes a liability from one form or class to another,

(b)replacing such an instrument with another instrument of a different form or class, F2...

(c)creating a new security (of any form or class) in connection with the modification of such an instrument[F3, or

(d) converting those liabilities into securities issued by a bridge bank or a UK parent undertaking (within the meaning of section 6C(7)).]

(6)Examples of special bail-in provision include—

(a)provision that transactions or events of any specified kind have or do not have (directly or indirectly) specified consequences or are to be treated in a specified manner for specified purposes;

(b)provision discharging persons from further performance of obligations under a contract and dealing with the consequences of persons being so discharged.

(7)The form and class of the instrument (“the resulting instrument”) into which an instrument is converted, or with which it is replaced, do not matter for the purposes of paragraphs (a) and (b) of rule 3 in subsection (5); for instance, the resulting instrument may (if it is a security) fall within Class 1 or any other Class in section 14.

[F4(7A)Liabilities of the bank are “excluded liabilities” if they are—

(a)liabilities listed in subsection (8), or

(b)liabilities which the Bank of England has excluded under subsection (10) from the application of special bail-in provision.]

(8)The following liabilities of the bank [F5are the excluded liabilities referred to in subsection (7A)(a)] —

(a)liabilities representing protected deposits;

(b)any liability, so far as it is secured;

(c)liabilities that the bank has by virtue of holding client assets;

(d)liabilities with an original maturity of less than 7 days owed by the bank to a credit institution or investment firm;

(e)liabilities [F6with a remaining maturity of less than 7 days] arising from participation in designated settlement systems and owed to such systems or to operators of, or participants in, such systems;

[F7(ea)liabilities with a remaining maturity of less than 7 days owed by the bank to a recognised central counterparty F8... or a third country central counterparty;]

F9(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(g)liabilities owed to an employee or former employee in relation to salary or other remuneration, except [F10—

(i)variable remuneration that is not regulated by a collective bargaining agreement, and

(ii)variable remuneration of material risk takers [F11within the meaning of rule 3 of Part 152 (remuneration) of the PRA rulebook (other than persons deemed by virtue of rule 3.2 not to be material risk takers and notified to the PRA in accordance with rule 3.2)];]

[F12(h)liabilities owed to a pension scheme, except for liabilities owed in connection with variable remuneration of the kind mentioned in paragraph (g)(i) or (ii),]

(i)liabilities owed to creditors arising from the provision to the bank of goods or services (other than financial services) that are critical to the daily functioning of the bank's operations.

[F13(j)liabilities owed by the bank to the scheme manager of the [F14FSCS in relation to levies imposed by the scheme manager under section 213(3)(b) of the Financial Services and Markets Act 2000];]

[F15(k)liabilities owed by the bank to another bank or a banking group company which (in either case)—

(i)is part of the same resolution group as the bank, and

(ii)is not itself a resolution entity,

where the liabilities do not rank below ordinary non-preferential debts under the hierarchy of claims in normal insolvency proceedings.]

(9)The following special rules apply in cases involving banking group companies—

(a)a liability [F16is not within subsection (8)(d)] if the credit institution or investment firm to which the liability is owed is a banking group company in relation to the bank (see section 81D);

(b)in subsection (8)(i) the reference to creditors does not include companies which are banking group companies in relation to the bank.

[F17(10)The Bank of England may, in a resolution instrument, exclude any [F18bail-in] liability or class of [F18bail-in] liabilities from the application of any special bail-in provision in relation to the bank if, and only if, the Bank of England—

(a)thinks the exclusion is justified on one or more of the grounds set out in subsection (12), F19...

F19(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11)The power conferred by subsection (10) may be exercised to exclude only part of [F20a bail-in liability], or part of each of [F21the bail-in liabilities] of a particular class; and where it is so exercised that part is treated as [F20a bail-in liability] excluded under that subsection and the remainder is treated as an [F20a bail-in liability] which has not been so excluded.

(12)The grounds are—

(a)that it is not reasonably possible to give effect to special bail-in provision in relation to the liability or class within a reasonable time;

(b)that the exclusion is necessary and proportionate to achieve the continuity of critical functions and core business lines in a manner that maintains the ability of the bank to continue key operations, services and transactions;

(c)that the exclusion is necessary and proportionate to avoid giving rise to widespread contagion, in particular as regards protected deposits held by natural persons or [F22micro, small and medium-sized enterprises], which would severely disrupt the functioning of financial markets, including financial market infrastructures, in a manner that could cause a serious disturbance to the economy of [F23the United Kingdom];

(d)that the making of special bail-in provision in relation to the liability would cause a reduction in value such that the losses borne by other creditors would be higher than if the liability were excluded.

(13)When deciding whether to exclude liabilities under subsection (10) or (11), the Bank of England must give due consideration to—

(a)the principle that all the liabilities of the bank ought to be treated in accordance with the priority they would enjoy on a liquidation,

(b)the principle that any creditors who would have equal priority on a liquidation ought to bear losses on an equal footing with each other,

(c)the level of loss absorbing capacity that would remain in the bank if the liability or liabilities of a class were wholly or partly excluded, and

(d)the need to maintain adequate resources to deal with the implications for public funds of anything done, in future, in connection with the exercise of one or more of the stabilisation powers.

[F24(13A)The Treasury may by regulations made by statutory instrument make further provision in connection with the exercise of functions under subsection (10) (including provision about further circumstances in which functions under that subsection may or must be exercised).

(13B)Regulations under subsection (13A) may—

(a)amend subsections (12) and (13) by adding any provision;

(b)amend or revoke Commission Delegated Regulation (EU) 2016/860;

(c)amend that Regulation by adding, omitting or varying any provision (pending the revocation of the whole Regulation under paragraph (b).

(13C)A statutory instrument containing regulations under subsection (13A) may not be made unless a draft of the instrument has been laid before and approved by resolution of each House of Parliament.]

(14)For the purposes of subsection (12)—

[F25“core business lines” means business lines and associated services which represent material sources of revenue, profit or franchise value for the bank or a group which includes the bank (or in the case of an instrument made in relation to a resolution company, of the resolution company);]
“protected deposit” has the meaning given by section 48C, and
[F26“micro, small and medium-sized enterprises” means micro, small and medium-sized enterprises as defined with regard to the annual turnover criterion referred to in Article 2(1) of the Annex to Commission Recommendation 2003/361/EC.]]

[F27(15)For the purposes of the definition of “core business lines”—

(a)Article 7 of Commission Delegated Regulation (EU) 2016/778 (criteria relating to the determination of core business lines) applies, and

(b)“group” has the meaning given by section 3(2)(b).

(16)The Treasury may by regulations made by statutory instrument specify criteria for the determination of the business lines and associated services referred to in the definition of “core business lines”.

(17)The power conferred by subsection (16) includes—

(a)power to amend or revoke Article 7 of Commission Delegated Regulation (EU) 2016/778; and

(b)power to amend or repeal subsection (15)(a).

(18)A statutory instrument containing regulations under subsection (16) is subject to annulment in pursuance of a resolution of either House of Parliament.]]

Textual Amendments

F1Ss. 48B-48W and cross-heading inserted (1.3.2014 for the insertion of s. 48P for specified purposes, 31.12.2014 in so far as not already in force) by Financial Services (Banking Reform) Act 2013 (c. 33), s. 148(5), Sch. 2 para. 4; S.I. 2014/377, art. 2(1)(b), Sch. Pt. 2; S.I. 2014/3160, art. 2(1)(b)

F2Word in s. 48B(5) omitted (1.1.2015) by virtue of The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(3)

F3Words in s. 48B(5) inserted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(3)

F4S. 48B(7A) inserted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(2)

F5Words in s. 48B(8) substituted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(4)(a)

F6Words in s. 48B(8)(e) inserted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(4)(b)

F7S. 48B(8)(ea) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 10(a)

F8Words in s. 48B(8)(ea) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(3), 63

F9S. 48B(8)(f) omitted (1.1.2015) by virtue of The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(4)(c)

F10Words in s. 48B(8)(g) substituted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 48(4)(d)

F11Words in s. 48B(8)(g) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 1 para. 19(2); 2020 c. 1, Sch. 5 para. 1(1)