1: Clause 1, page 1, line 8, after “institution” insert “that is not required to hold Minimum Requirement for Own Funds and Eligible Liabilities (MREL) or is below a level of total assets of value of £15 billion index linked from 1 January 2016”
Member’s explanatory statement
This amendment seeks to ensure that the bill applies primarily to smaller banks, using Minimum Requirement for Own Funds and Eligible Liabilities (MREL) as a definition.
My Lords, I am pleased to open the Committee stage of this Bill. I expect this to be the only longish speech that I will make, so noble Lords should not worry about getting six of this length.
I have two amendments in this group but, first, for the benefit of anybody following these discussions either now or later, I shall mention the scope issue that has reared its head for several noble Lords in trying to formulate amendments. The Long Title, which defines scope, is:
“A Bill to make provision about recapitalisation costs in relation to the special resolution regime under the Banking Act 2009”.
The Bill’s provisions have effects that reach into resolution decisions, bail-in and capital structures, but various amendments’ attempts to take that into account in other relevant ways have been ruled out of scope. Indeed, in the light of this amendment-drafting experience, I wonder whether all the bits of the Bill pass the scope test; that may become clearer as we work through the amendments, in particular my Amendment 22 in this group and Amendment 23 in the final group.
I turn to my Amendment 1 and the similar amendments in the rest of the group. They have a common theme: making sure that the provisions really are limited in application to small or smaller banks, which is what we have been told they are about following on from the actions taken for Silicon Valley Bank. However, there is no such small bank limitation in the Bill. Clearly, the question arises: how small is “small or smaller”? Like other noble Lords, I have taken the view that the only clear distinction is for non-systemic banks—that is, those required to hold MREL, bail-in bonds or whatever you wish to call them, which represent the only regulatory division we have.
Of course, as raised by me and others at Second Reading, we then have the issue that the PRA has extended the MREL requirements far lower down the bank size range than systemic banks, well into the “smaller bank” range. This may well be the reason that there is no differentiation in the Bill: so that, in theory, the Bill applies to any bank and everything rests on the Bank of England’s decision. It seems that the majority of us here disagree with that and think that it should be limited by a defined measure; the obvious one is the level at which MREL is required. If the PRA causes the resolution provisions to be impeded by its MREL choices, that will be something for it and the Bank of England to consider and live with.
My Lords, I have Amendment 5 in this group, to which I will speak. I regret that I was unable to take part at Second Reading in July, but I have read the Hansard report of the debate and I can see that there is a lot of common ground on the Bill between those of us not on the Government Benches.
As this is the first time that I have spoken in Committee, I draw attention to my interests as recorded in the register of interests, in particular that I hold shares in banks which, under the terms of the Bill, will end up footing the bill if the bank recapitalisation power is used.
My Amendment 5 is slightly different from Amendment 1 in the name of the noble Baroness, Lady Bowles, and slightly different from Amendments 8, 10, 12 and 18 in the names of other noble Lords. Those amendments basically seek to confine the use of this power to small banks—typically using MREL as the deciding point. Mine does not rule out using the power for larger banks but instead inserts the requirement for Treasury consent.
The Government clearly sold this legislation, as the noble Baroness, Lady Bowles, explained, as being about smaller banks, referring to it as being a better route for a better outcome compared to using the bank insolvency procedure, which is the current default assumption for smaller banks. As is often the case with legislation, however, the stated aim then gets converted into a very broad power. This power is so broad that if the RBS failure happened again it could cover the recapitalisation of RBS, which, I remind noble Lords, cost £45.5 billion in 2008. The Bank would have that power with nothing in the Bill to prevent it.
There is a constraint on the amount of annual FSCS payments set by the PRA, which I think is £1.5 billion a year, but that can be changed by the PRA at any time, and the PRA is not, of course, independent of the Bank of England; it is fully part of it.
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There are good reasons for the Treasury to have some skin in the game. If the power is to be used for banks which have been set an MREL amount, the need for recapitalisation payments under the Bill raises an inevitable question about decisions the Bank had already made in relation to the amount of MREL or the timing or shape of the glide path that it had allowed. The Bank of England made those decisions, yet it now has the power to force the rest of the banking sector to foot the bill if those decisions prove not to be robust. The Bank of England has an obvious conflict of interest here, and it is right that the Treasury should formally agree with the rationale for the use of the power in circumstances for which it was not designed by giving its consent. Treasury consent is important also in a broader context of accountability—I shall return to that in a later amendment, but I will keep my powder dry until then.
I hope that the Minister will agree that some way of ensuring that the power is kept wholly or mainly for its original intended use—namely, for small banks—will give the banking sector reassurance that it will be used sparingly. The amendments in this group might not be the right ones, but surely something is needed.
My Lords, as we have heard, this group of amendments, including my Amendment 10, probes the reasons for including all banks in the scope of the Bill, rather than just the smaller banks, as originally envisaged in the consultation that started in January. The first sentence of the consultation was very clear:
“This consultation sets out the government’s intention to enhance and keep up to date the UK’s Special Resolution Regime … providing a new mechanism to facilitate use of certain existing stabilisation powers to manage the failure of small banks”.
But, as we have heard, it is not restricted to small banks. Most of the amendments in this group would remove from the scope of the Bill those banks that are required to hold MREL and would be subject to bail-in procedures using those MREL resources. I think the number of separate but similar amendments that we seem to have is probably down to the fact that this all happened in recess, and we did not have the opportunity to get together. I am sure that if the Minister is not able to satisfy us, we will be able to coalesce around something in common.
It is worth quoting from paragraph 7 of the Explanatory Notes:
“This means taxpayers are exposed if a small bank failure is judged to require resolution action but the firm in question does not possess sufficient MREL resources to provide for recapitalisation, unlike larger banks that do possess these resources”.
If larger banks possess those resources, as they are required to do, why do we need them to be subject to the process envisaged by the Bill? The noble Baroness, Lady Noakes, talked about the glide path situation where a bank has not quite got there—yes, I see that point—but for those that are there, does this not imply that we are not confident that the existing MREL scheme is sufficient? If there is a problem with the MREL scheme, surely it would be better to fix that rather than adding a new process on top of it.
My Lords, my Amendment 11 also—I think rather neatly—confines the Bill to what are defined as small banks. However, my concern is somewhat different from those voiced by noble Lords until now. It is that the whole approach to the resolution regime suggests that banks fail one at a time and not all together. Anyone who went through the experience of 2007 to 2009 knows that, in a systemic crisis, it is possible for all the banks in the country to be suffering major problems at the same time. In the circumstances of a systemic crisis, I fear that the mechanism proposed in the Bill could be a source of contagion, in the sense that the cost of the collapse of a bank, or of many banks together, would be seen by the market as imposing costs, which are now unbearable, on other parts of the banking sector.
This comes down to two issues—that of contagion and, I am afraid, that of persistent complacency. The Treasury and the Bank of England refuse to face up to the fact that, in the end, it is the taxpayer who will pay in a systemic crisis.
I will deal first with contagion. The levy links the financial failure of a bank or number of banks to the banking sector as a whole. Does this create a contagion effect? It must be remembered that much of contagion is created by the expectation of a cost, not just the reality. Expectation then becomes the parent of reality. It can reasonably be expected that the failure of a small bank would be manageable under the resolution regimes set out by the Bank of England and discussed in this Bill and its explanatory documents.
However, there are two fundamental problems where one could have significant contagion. One would be multiple failures, an issue I will address in a moment. The other is the potential failure of a big bank, because the Bill and the Explanatory Notes explicitly refer these mechanisms to big banks as well as small ones.
I will take the issue of the failure of multiple banks or a big bank. I wrote to the Financial Secretary about this and he very kindly wrote back a very valuable explanation. I presume that his letter has been circulated to the people who took part—no, I see that it has not. Well, I will quote a bit of it, because it seems to reveal the problem that I am identifying. He refers to multiple bank failures, but I would apply the same thing to a big bank failure. He says that there will be levies when the bank fails and adds:
My Lords, it is a great pleasure to be back in this Room—sadly, standing on this side. Nevertheless, it is an interesting experience being in opposition and doing my first Committee—a learning experience. I am grateful to all noble Lords who have participated in scrutinising the Bill. I recognise that we are at the beginning of the Session and sometimes it takes a while for things to get into place. There has been quite a lot of work done and I think we have made some very good progress. I, too, did not speak on Second Reading, and I blame that entirely on the Prime Minister, because he extended Parliament and I was already on holiday, so therefore I could not do that. I am very grateful and put on record my thanks to my colleague, my noble friend Lady Penn, who did it in my stead.
The Bill was originally developed by the previous Government and was waiting for parliamentary time, so I think my role today is to test the thinking of the new Government to make sure that they are still on the same page. I am very grateful to the noble Baroness, Lady Bowles, for kicking off this debate so eloquently and knowledgeably. I note her concerns about the scope of the Bill. I would love to say that she did not slightly lose me, but she did, so I will come back to that if it seems to be a problem that we need to look at.
I want to go back—to be helpful, possibly to me—to first principles on this. Having listened to the contributions that have gone before me, I think I have got it right that there are three groups of financial institutions. I am going to call them “banks”, because “financial institutions” is long and it takes a while to get my tongue around.
The first group are the MREL—the big eight banks. These are the ones that have been directed by the Bank of England to hold MREL, and they must also submit a resolvability assessment framework, or RAF, to regulators. The RAF is structured so that these firms can think about how their business works and what capabilities they need to achieve the three resolvability outcomes: having adequate financial resources; being able to continue business through resolution restructuring; and effective communication and co-ordination.
My Lords, I am grateful to all noble Lords for taking part in this debate on the first group of amendments. I note that the scope of the mechanism is a key and central issue, both for noble Lords and for the wider banking sector. I hope to offer some reassurance to the noble Baroness, Lady Bowles, and other noble Lords regarding this concern.
I start by addressing Amendment 1, tabled by the noble Baroness, Lady Bowles, which would prevent a recapitalisation payment involving a bank that has issued minimum requirements for own funds and eligible liabilities, otherwise known as MREL. I stress that the Government’s strong policy intention is for the mechanism provided by the Bill to be used primarily to support the resolution of small banks. The Government therefore do not generally expect the mechanism set out in this Bill to be used on the type of firms that these amendments would seek to exclude.
The principal issue here is whether that intention should be set out in the Bill. The Government’s considered view is that it is right for the Bill to contain some flexibility for the Bank of England to be able to use the mechanism more broadly in some circumstances. That is because firm failures can be unpredictable and there could be circumstances in which it would be appropriate to use the mechanism on such firms.
For example, this may be relevant in situations where a small bank has grown but is still in the process of reaching its end-state MREL requirements. Firms in this position would have at least some MREL resources to support recapitalisation but the new mechanism could be used to meet any remaining shortfall if judged necessary. Without the proposed mechanism, there would be a potential gap in this scenario, creating risks to public funds and financial stability.
Ultimately, the decision to use the mechanism would rest with the Bank of England, having assessed the resolution conditions. The Bank of England is required by statute to consult the Treasury before any use of resolution tools, providing an effective and legally binding window for the Treasury to raise concerns if it had any.
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Amendment 10, tabled by the noble Lord, Lord Vaux, would restrict the mechanism for firms whose MREL requirement is set on the basis of a bail-in resolution strategy. I additionally note here that the Government agree that bail-in exists as the primary mechanism for resolving larger, more complex banks. The Bill does not change that principle but, as I say, it is important for the scope of the mechanism to remain flexible so that the Bank of England can respond effectively as the circumstances require.
The noble Lord asked for the Government’s view of whether MREL is insufficient and whether the Bank of England should reform its thresholds. The Bank of England sets MREL requirements independently of government, but within a framework set out in legislation. The Bank of England will consider, in the light of the Bill and wider developments, whether any changes to its approach to MREL would be appropriate.
The noble Lord also asked for confirmation that the new mechanism will not be used to transfer costs from shareholders and creditors on to the wider banking sector. It is an important principle of the UK’s resolution regime that, when a banking institution fails, its shareholders and creditors should bear losses. Existing provisions relating to this will continue to apply alongside the new mechanism. This includes Sections 6A and 6B of the Banking Act 2009, which require the Bank of England to ensure that shareholders and creditors bear losses when a banking institution fails. This is an important principle that will continue to apply when the new mechanism is used. This involves cancelling, diluting or transferring common shares so that shareholders are the first to bear losses. Where necessary, the Bank of England must also reduce the value of particular types of instruments, known as additional tier 1 and tier 2 instruments, or must convert such instruments into shares.
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My Amendment 1 has another little tweak, in which I suggest that the cutoff is linked to the index-linked value of the net assets at which MREL was originally set in 2016: £15 billion. In numbers, that would mean the size now would be £22 billion if it were index linked, not £15 billion, and it would not continue to dwindle, relatively speaking, as is happening with the PRA MREL threshold. My amendment therefore overlaps with regimes that can do bail-in, although my real hope, as I have already suggested, is to make the PRA see that, for various good reasons, it should increase the MREL threshold at least by indexation, and ideally to the level where it applies only to banks that have full capital market access, so that bail-in instruments are not disproportionately expensive for them. However, if we want to coalesce around MREL as the dividing line, I am not going to rock the boat. Indeed, I tabled an amendment to that effect, but it got lost somewhere. I think the Bill Office thought that my other amendment was an amendment to my amendment.
I turn to my Amendment 22. This deletes Clause 4(3), which is not needed in the event that there is limitation to application only to non-MREL banks. I will explain how I came to that conclusion. The subsection references Section 12AA of the Banking Act 2009, which in turn references Article 47.3(b) and (c) of the EU’s Resolution and Recovery directive. Most compliance with EU directives has been put into the 2009 Act.
I happen to think, especially nowadays, that it would be much better to say more clearly what we actually meant in Clause 4(3) than to have to pedal all the way back to a European directive. I have another amendment on it, Amendment 23, right at the end of our considerations next week. I will let noble Lords know what it is all about. Article 47.3(b) of BRRD is the amount by which the authorities assess that common equity tier 1 items must be reduced to the relevant capital instruments written down or converted, pursuant to Article 61. The latter gives the order of writing down priority. Article 47.3(c) is the aggregate amount assessed by the resolution authority, pursuant to Article 46. To save noble Lords the misery of me reading out Article 46, it is the sum of write-down and recapitalisation.
To cut this long story short, the subsection refers to things that happen only when you are in a bail-in situation. So, if we limit it to non-MREL banks, it would seem to be superfluous, because there cannot be any bail-in as they are not required to hold MREL. Of course, if we use my Amendment 1 with the index threshold of MREL, we might need it or need to rewrite it.
However, thinking about it further, I also query whether this subsection is properly in scope as it seems to relate to changing bail-in requirements and not to recapitalisation. That is made clear in the Explanatory Notes, which state that Clause 4(3) basically amends the bail-in sequence and conversion of capital instruments to allow adjustment to the contribution of shareholders and creditors when exercising the bail-in write-down tool. We should bear in mind that there are other parts of legislation that tell you the sequence in which you must do one, and how you exhaust the first before you move on to the next, and all those kinds of measures.
The end result that it has a knock-on effect of increasing recapitalisation costs that are then to be met by the FSCS. As I said, that seems to depart from what I envisaged was the purpose of the Bill. I did not have in my mind that it was about levying banks to help rescue shareholders or bail-in bond holders of another bank. I understood that it would be more like the Silicon Valley Bank rescue, where the point would be to rescue unprotected depositors.
Overall, we can do without this clause in all circumstances and I wait to hear the Minister’s explanation. It would be useful, before we get to Report, if we could have some kind of laid-out worked examples of where this might come in and what might happen. I understand why the Government wish for flexibility but it is a flexibility that goes way beyond what I have understood to be the intents of the Bill. I beg to move.
I am not surprised that the Treasury does not want to narrow the drafting of the Bill to cover only those banks that do not have MREL. The Government have themselves talked about wanting to cover the case where MREL has been set but the banks are on a glide path and have not yet achieved the full amount of their MREL. It seems reasonable for the power to be used in those circumstances, but the Government have not even offered to amend the Bill to confine it in that way.
I broadly accept that there may be a good case for using recapitalisation schemes beyond non-MREL banks or those that have not yet raised their full amount of MREL, because it is genuinely difficult to predict circumstances where such a power would be extremely useful. However, when the Government draft broad and unconstrained powers, they have a duty to put checks and balances in place, and there are none in the Bill. If they do not put checks and balances in place, we must take that on as part of our duties in scrutinising legislation. My amendment has opted for Treasury consent, but there could well be better ways of putting guard rails in place. Treasury consent is not an onerous requirement when the Bank of England is handling a potential bank failure. It inevitably works closely with the Treasury; the Treasury has to be consulted whenever a stabilisation power is used, and we should be in no doubt that when, for example, SVB UK was in trouble, the Treasury was intimately involved in the arrangements to deal with HSBC very rapidly. Therefore, obtaining Treasury consent need not cause a delay or any other real problems.
So could the noble Lord please clarify under exactly which circumstances he sees the recapitalisation process in the Bill being used for a failing MREL bank? Is there a concern that the MREL resources are insufficient? Other than glide path situations, that is the only logical reason I can see to include big banks in the scope of the Bill.
Secondly, not having the expertise of the noble Baroness, Lady Bowles, I do not really understand how the two processes would work together. Is this an either/or situation; is it either a bail-in using MREL resources or a recapitalisation? If that is the case, surely there is a risk that the industry would be required to fund the recapitalisation of banks with large balance sheets instead of the costs being borne by the failed bank’s shareholders and subordinated debt holders. That would create a potential moral hazard. Or is it a combined process where the MREL resources would be used first and, if insufficient, the recapitalisation would follow on top? If that is the case, it implies that there is a concern that the MREL funds are insufficient. The best way forward would be to fix that problem rather than add another process, as I said before.
So could the noble Lord please clearly explain how he sees the two processes working together? I am drawn to the suggestion by the noble Baroness, Lady Bowles, of a worked example between now and Report to help us see how that could work. In particular, can he clearly confirm that the recapitalisation process can never be used to reduce the losses of a failing bank’s shareholders or creditors?
In the absence of a strong explanation of why, contrary to the originally stated intention, the scope of the Bill has been extended to larger banks, I would be minded to support amendments on Report that restrict its scope to exclude MREL banks.
“These levies are subject to an affordability cap”—
I did not know that—
“by the Prudential Regulation Authority based on how much the sector can safely be levied in a given year. This cap is currently set at £1.5 billion. If multiple firm failures resulting in a recapitalisation requirement is under £1.5 billion, the Government would expect the FSCS to borrow from its commercial borrowing facility and be able to safely levy from the banking sector and repay that commercial borrowing within 12 months. However, if the amount exceeds £1.5 billion, or if it is below £1.5 billion and the PRA has determined that the FSCS is unable to raise the levy on affordability grounds, the Government would expect levies to repay any borrowing from the National Loans Fund to be spread out over multiple years”.
But, no, you do not have multiple years in a systemic banking crisis; you have to operate now.
The cap of £1.5 billion is worth comparing with the measures that the Government had to take in 2007-08—Lloyds Bank, £20 billion and NatWest, £45 billion. So the failure of one of those banks could be somewhat above the affordability cap, as set out in the Financial Secretary’s letter to me. Indeed, today, those numbers could be multiplied by a factor of roughly five.
Even when MREL is taken into account, the £1.5 billion cap seems to me to expose the fact that this scheme is not applicable to large banks. For example, if we look at the largest MREL plus required capital, it is that of Barclays, which is 30% of risk weighted assets—the largest of all the major banks. That leaves 70% of risk weighted assets to which the taxpayer is exposed. There would not be a collapse of all of those, but there can be very large numbers very quickly. So the idea that with an affordability cap of £1.5 billion, one could handle the Lloyds Bank situation or the NatWest situation as the Government confronted them in 2007-08 is, it seems to me, fanciful.
This brings me to my final related point. There is a persistent reluctance in all the documents concerning the resolution regime to admit that the resolution of a large bank will always fall on the taxpayer. Given the need for the maintenance of confidence in the banking sector, this persistent reluctance and the pretence that MREL has eliminated the taxpayer from exposure is damaging to confidence. It would be valuable for the Purple Book to make clear that, in extremis, Bagehot’s rule comes into effect, the Bank lends without limit and the Treasury will step in to resolve those banks that are “too big to fail”. My amendment clears away a dangerous ambiguity in the Bill. The threat of multiple small failure will continue to exist, but it takes away the ambiguity that this could be involved in the resolution of a big bank in the circumstances of a systemic crisis similar to that which we have faced in the past.
I read somewhere that the 2024 assessment of these documents was due to be published in September, and I should like an update as to whether it has been published. Can the Minister comment on the outcomes of this scrutiny: is the system working? I understand that one bank was not quite there yet. Let us see whether we are going to try to exclude the largest banks from the scheme or whether we follow the suggestion of my noble friend Lady Noakes of getting the involvement of the Treasury. We need to test whether those banks which are deemed too big to fail have a coherent and funded plan in place should they get into financial difficulty. If that were the case, there would be some argument for potentially excluding them from the Bill, but there should at least be some safeguards in place.
Then there is the second group. This was raised with me by UK Finance, and this is why my amendment is slightly different to those of other people. There are those banks in the second group that are on the glide path to full MREL status. These institutions will get there, but it would be helpful to get an update from the Minister as to how many institutions make up this second group so that we can consider further whether there is a substantial risk and where that risk might reasonably lie—and so how long they will take to reach their destination.
Finally, there is the third group. These are the important ones. They are the ones that the Bill should be focused on. These are the smaller banks, and they are often innovative, they are often very high growth and sometimes that in itself can lead to challenges. It is these banks that the Bill seeks to target. Indeed, it was my understanding, as it was that of the noble Lord, Lord Vaux, that they would exclusively benefit from this scheme.
If things start to go awry, due to either a business-specific issue or wider market turmoil, these proposed powers would create this mechanism where the banking sector itself, in its entirety—all three groups—would fund the recapitalisation of the relevant bank or banks, and the taxpayer would be relieved of that burden. So that all makes perfect sense to me.
Then we come to the reasonable worst-case scenario, which I think is what the noble Lord, Lord Eatwell, was referring to. It is not beyond our imagination that things could get very bad very quickly, with a number of small or even medium-sized banks getting into trouble at the same time. The first group would, I hope, have their MREL in place; they would have their plan, which has been approved by the regulators to make sure that they continue.
I am slightly less clear what would happen to the second group—those on the glide path to MREL—were there to be a market-wide event. These are significant institutions and if they are to be included in this mechanism, we get into issues of how the banking sector then repays that through the levy, which I will come on to. There might well be a situation where one, two or more quite substantial institutions need recapitalisation from the FSCS in the same financial year. Have the Minister’s officials done any sort of assessment of how bad that could possibly get and any thinking about what the plan would be if it were to get that bad? Also, what would the hurdle be for declaring this sort of state of emergency?
While the FSCS might have a looming potential liability from the second group, there is also the third group to be considered. These ones are the potential future lifeblood of our financial sector in the United Kingdom and they would most likely need a relatively small amount of recapitalisation funding to get them through the turmoil. This is why parity is needed around the applicability of the scheme proposed in the Bill, but also the circumstances in which the scheme would reasonably and rationally be used—and, frankly, the circumstances in which it would not be, because it would just not work. In a reasonable worst-case scenario, how is anyone going to decide which ones get saved and which do not? One has to rely upon the amount of funding that could be affordable over several years of a levy applied to the UK banking sector, but that is not going to be enough money. How would that resolve itself and what would that process look like?
As mentioned by the noble Lord, Lord Eatwell, which I picked up in one of the briefings as well, the FSCS will have significant powers to apply the levy, not only in the financial year when the event or events take place but in subsequent financial years. If I am in the UK banking sector and things have gone pretty bad, and I suddenly have this massive weight of a levy going over several years to repay the events of one financial year, that to me is concerning.
It is also concerning because, of course, things are done differently in the EU, so you would get a slight mismatch from a competitiveness perspective. I would be worried about that. Has the Minister done an assessment of the impact of this potential multiyear hit, once we have an idea of the reasonable size and then the potential maximum size? Has he assessed the competitiveness of the UK banking sector, should this multiyear levy suddenly be required? How much could the UK’s system cost our banking sector and over what period of time? Are there circumstances, and in which circumstances, when rationally there is a systemic failure and the only person who could step in would be the taxpayer? I do not want the taxpayer to step in, trust me, but that would prevent permanent damage to one of our most important sectors.
The other key consideration is the impact on the FSCS and its ability to meet its obligations under the deposit guarantee insurance scheme, because if that has all gone to recapitalisation funding, there will be nothing left. I believe we will come on to that later in Committee.
This is a range of thoughtful amendments tabled by noble Lords and I am grateful for them. As many noble Lords pointed out, they very much go along the same sorts of lines. I look forward to hearing the Minister’s response to them. I will not go into a great amount of detail on them, but I note that my Amendment 8 takes into account those on the glide path, which we need to recognise. I am grateful to the noble Baroness, Lady Bowles, for the fine case she made for Amendment 22; I will move quickly on from that.
That brings me to the remaining amendment in the group: Amendment 18, which is in my name. Here, in essence, I am probing whether the Minister is content with the current imbalance between the banks liable to pay the levy versus the ones that, realistically, will make use of the new powers. Does he feel it is fair that the entire banking sector pays to recapitalise what, I feel, the Committee hopes will be smaller banks only? Does he accept and is he comfortable with the largest banks paying twice, in essence—particularly as they will have to have limited or no input in or influence on many of the events that might cause a resolution event or events? These largest banks will pay twice: once for their MREL and associated requirements, and again in the event of a resolution event or events of which they would not be able to take advantage.
Context is important here. We will come back to costs again but banks already pay a plethora of taxes, levies and charges, both to regulators and directly to Treasury funds. There is the bank levy, the bank corporation tax surcharge, the economic crime levy, the FSCS levy and the FCA/PRA fees. That is a lot—and let us recall that these costs are never borne by the banks themselves; they will always be borne by the businesses and consumers who use them.
I also point out that, during the Government’s consultation period, more respondents were in favour of the scope set out in the Bill than opposed. I appreciate noble Lords’ concerns about this issue and am happy to commit to exploring how to provide further reassurance on the Government’s intent via the code of practice.
The noble Baroness, Lady Bowles, asked whether the Bank of England should reduce MREL requirements in the knowledge that it could instead use FSCS funds. The Bank of England sets MREL requirements independently of government but within a framework set out in legislation. Any changes to firms’ MREL requirements would therefore be a decision for the Bank of England. The Bank of England will consider, in the light of this Bill and wider developments, whether any changes to its approach to MREL would be appropriate.
I turn briefly to Amendment 8, tabled by the noble Baroness, Lady Vere, which similarly aims to exclude from the new mechanism those firms that are required to hold MREL. I hope that I have already fully responded to her concerns in that regard; the Government are clear that this Bill is primarily intended for small banks, but that it is right to retain flexibility.