Consultation Paper on financial stability and depositor protection: strengthening the framework

At the end of January, HM Treasury, the FSA and the Bank of England published a joint consultation paper, Financial Stability and Depositor Protection: strengthening the framework.

The Authorities seek responses by 23 April 2008 and the Association will respond.  Following the recent period of turbulence and instability in global financial markets, the paper sets out the Authorities' proposed action, both in the UK and internationally, to achieve five key objectives;

• strengthening the stability of the financial system, both domestically and globally
• reducing the likelihood of banks facing difficulties
• reducing the impact if, nevertheless, a bank gets into difficulties
• providing effective compensation arrangements in which consumers have confidence
• strengthening the Bank of England, and ensuring effective coordinated actions by authorities, both in the UK and internationally.

The Conservative Party responded by publishing a paper on banking reform.  The package includes:

• New pre-emptive powers for the Bank of England to deal with failing banks, including a system of “Prompt Corrective Action” and a special resolution regime to ensure that insured deposits are ring-fenced when a bank is taken into administration.
• A new system of deposit insurance for retail deposits up to £50,000, post-funded by the banking system.
• A single eight-year non-renewable term for the Governor of the Bank of England.
• The requirement that the Deputy Governor of the Bank of England with responsibility for financial stability must have extensive practical financial markets experience.
• Reforms to the system of appointments to the Monetary Policy Committee in order to make them more transparent and prevent appointments being made in secret by the Chancellor and without any consultation.

All the elements of the package that relate to the Bank of England would be included in a new Bank of England Bill that would be introduced in the first Parliamentary session of a new Conservative Government.