MPs back Bill to prevent taxpayers being ‘on the hook for small bank failures’
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A Bill that will prevent taxpayers being “on the hook for small bank failures” has moved closer to becoming law. Treasury minister Emma Reynolds said the Bank Resolution (Recapitalisation) Bill “strengthens protections for public funds”, but the opposition MPs raised concerns about the measure in the Bill being used for larger banks.
Proposed legislation would enable the Bank of England to direct the Financial Services Compensation Scheme (FSCS) to make a payment to a struggling bank to recapitalise it, with the costs covered by increases to a levy paid by the industry. The Government has said the mechanism would provide more flexibility in responding to the failure of banks and protect taxpayers from shouldering the financial burden.
During the Bill’s second reading Ms Reynolds told MPs: “The Bank Resolution (Recapitalisation) Bill will enhance the UK’s resolution regime by giving the Bank of England a more flexible toolkit to respond to bank failures. “The Bill creates a recapitalisation mechanism which will ensure that certain costs of managing the failure of banking institutions do not fall to the taxpayer.
“It strengthens protections for public funds and financial stability while supporting the competitiveness and growth of the UK financial sector by avoiding placing new upfront costs on the banking sector. “It is therefore an important Bill that underpins, underpins this Government’s commitment to promote growth and economic stability.”.
