Building Societies (Insolvency and Special Administration) Order 2009

My Lords, in moving that the House approves the first of these statutory instruments, I will also speak to the second. The purpose of these statutory instruments is to implement provisions in the Banking Act 2009 relating to building societies and the financial services compensation scheme. They were made on 29 March to facilitate the actions taken by the Treasury and the Bank of England with regard to resolution of the Dunfermline Building Society on 30 March 2009. These instruments are being debated under the "made affirmative" procedure in accordance with the Banking Act. As the relevant powers in that Act are being exercised for the first time, and given that the circumstances surrounding the resolution of the Dunfermline did not allow for sufficient time to lay a draft of these instruments in advance, I should say that I am content that the use of this procedure is appropriate in this case. Both instruments were made on 29 March to ensure that appropriate action could be taken under the Banking Act as part of the resolution of the Dunfermline Building Society. However, they are standing instruments—they are not specific to Dunfermline and, subject to their approval by this House, will remain in force until they are revoked or changed. We will be consulting on these instruments before the Summer Recess and, if appropriate, will bring forward amending instruments at the end of the year, which will also tidy up minor drafting errors. Any amending instrument will be subject to the full draft affirmative procedure. Members in the other place have asked why we did not lay specific orders to cover Dunfermline at this stage, and standing orders later. If we had done this, any future use of these powers prior to introduction of the standing orders would need to be approved by the House by affirmative resolution. Given the extremely short period for taking action in such cases, this would severely limit our ability to use these powers in this period, limiting our capacity to protect depositors, consumers and public funds if such protection was required. I am confident that this procedure allows the maximum possible opportunity for consultation on these standing orders without limiting the Treasury’s powers to act in the interim if necessary. The order is made under powers in Sections 130 and 158 of the Banking Act to apply Parts 2 and 3 to building societies. It ensures that the bank insolvency and bank administration procedures are available in relation to building societies. These procedures are an essential part of the special resolution regime toolkit established by the Banking Act. As applied to building societies, these procedures are termed "building society insolvency" and "building society special administration". The first procedure is building society insolvency. Under Part 2 of the Banking Act, as applied by this order, the FSA or the Bank of England may apply to the court to put a failing institution into building society insolvency on one of a number of grounds. The second procedure is building society special administration, which was used in the Dunfermline case. Under the Banking Act, the Bank of England has powers to transfer a failing building society to a private sector purchaser or to a bridge bank. What is left of that society may then, on application to the court by the Bank of England, be put into building society special administration. The special administrator has two objectives. The first is to supply services on behalf of the residual society to the private sector purchaser or bridge bank so that it may operate effectively. The second is normal administration—that is to rescue the society as a going concern or to achieve a better result for the society’s creditors and members than would be achieved if it were just wound up. This measure was considered by the Joint Committee on Statutory Instruments in its meeting on 29 April. Counsel to the committee identified a number of minor drafting defects in this and the Amendments to Law (Resolution of Dunfermline Building Society) Order, to which we will turn. The Treasury has agreed to correct those defects, if necessary with an amending order, when an appropriate opportunity arises. I turn now to the Financial Services and Markets Act 2000 (Contribution to Costs of Special Resolution Regime) Regulations, which were made under new powers in the 2000 Act inserted by Section 171 of the Banking Act 2009. Allowing the Financial Services Compensation Scheme to contribute to the costs of resolving a failing bank has always been a key feature of the special resolution regime. The SRR provides the authorities with new tools to facilitate dealing with banks or building societies that get into financial difficulties. The Government believe as a point of principle that the financial services sector, through the FSCS, should contribute to the costs of the SRR. In the case of Dunfermline, the FSCS will make a payment on a net basis at the end of resolution, so it has had to pay no money up front. This is different, therefore, from the situation of Bradford & Bingley, Heritable and Kaupthing Singer & Friedlander, where the FSCS made up-front contributions to the costs of transferring deposits that it had to fund with loans from the Bank of England and which have been refinanced by the Treasury. I hope that noble Lords will agree to both these instruments.