Banking reforms allow Treasury to act in secret

by Gill Montia

Story link: Banking reforms allow Treasury to act in secret

The Chancellor of the Exchequer, Alistair Darling, is proposing that the Treasury be endowed with new powers to enable it to deal with any future crises in the UK banking sector.

The new measures would allow for a “period of non-disclosure” to enable the rescue of a financial institution to be kept secret until it has been completed.

The run on Northern Rock last September resulted from publicity about the bank’s liquidity crisis, creating panic among depositors and scuppering any chance of a quick sale to a third party.

The proposals would also allow the Government “to take temporary ownership of all or part of a bank as a last resort” and by way of an early warning system, banks would be required to provide the authorities with details of their liquidity at short notice.

In addition, depositors in a collapsed bank or building society would have their savings paid out within one week of the collapse.

Since October of last year, the Government’s guarantee to depositors has provided 100% compensation for savings up to £35,000; previously, the guarantee granted 100% protection for £2,000 and 90% protection for the next £33,000.

Currently, the Treasury, the Bank of England and the Financial Services Authority are jointly responsible for UK banking regulation but if the proposals are adopted, the Chancellor would have the final say on any situation in which a bank needs to be rescued.

Legislation on the new measures is expected to be put before Parliament this summer, following a period of consultation that ends on 23rd April.