BBA urges caution on legislation for banks in crisis

by Gill Montia

Story link: BBA urges caution on legislation for banks in crisis

The banking industry is urging Chancellor of the Exchequer, Alistair Darling, to take a cautious approach to new legislation that is being drawn up as a result of the Northern Rock crisis.

The British Bankers’ Association (BBA) has advised the Treasury that it could undermine creditors’ rights if it proceeds with a “special resolution regime” that would be implemented when a bank is at risk of collapse.

The “regime” aims to protect depositors and the BBA’s chief executive, Angela Knight, believes the proposals could deter people from investing in or lending money to banks.

The proposed legislation could force banks to contribute to a compensation fund for depositors and Ms Knight believes this will be expensive and unnecessary.

The BBA would prefer the government to examine why the Treasury, Bank of England and Financial Services Authority did not use all the measures available to them during the Northern Rock crisis.

Ms Knight says: “We find it difficult to accept that there needs to be widespread changes when the regulators did not use all of the tools at their disposal … the concentration should be on prevention and clarification of responsibilities, not on fundamental changes to the insolvency regime.”