Banking (Special Provisions) Act 2008

Banking (Special Provisions) Act 2008

2008 CHAPTER 2

Commentary on Clauses and Schedules

General

Section 16: Financial Provision

61. This section provides for any expenditure incurred by the Treasury in the following connections to be paid from money provided by Parliament:

• in connection with the provision of financial assistance to any body in relation to which a section 3 or 6 order is made, or to any person to whom a transfer is made;

• in connection with the giving of an indemnity to the directors of a body in relation to which a section 3 or 6 order is made, to the directors of any body to which a transfer is made, or to the directors of a group undertaking of such a body;

• in connection with the giving of an indemnity to the Bank of England in relation to any lending or other financial assistance to such a body;

• in connection with the giving of an indemnity to a valuer appointed under section 9; or

• otherwise incurred by virtue of the Act.

62. Subsection (3) provides that it is immaterial whether the indemnity or arrangements mentioned in subsection (1) were given or put in place before or after the passing of the Act.

63. In line with accepted practice set out in Managing Public Money(3), a Department which takes on contingent liabilities should report these to Parliament at the earliest opportunity and should consider backing such liabilities with statutory cover. This is because Parliament has the same interest in any expenditure which arises because of a contingent liability as in any other form of expenditure.

64. The Treasury announced on 20^th September 2007 that it would put in place guarantee arrangements for existing deposits in Northern Rock plc. The Treasury made a further announcement on 11^th October, explaining that it would extend the guarantee arrangements announced on 20^th September. It also announced that it had agreed to indemnify the Bank of England in respect of facilities advanced by the Bank of England and any other liabilities that might arise from the Bank of England's role in the extended guarantee arrangements and additional facilities. On 18^th December the Treasury announced that the guarantee arrangements were to be extended to a number of unsubordinated wholesale obligations. The full text of all these announcements can be found on the Treasury website.

65. Parliament has been kept informed about these announcements. The contingent liabilities described in these announcements have not crystallised.

66. The Treasury may also wish to provide financial assistance while a deposit-taker in public ownership in a variety of ways including – but not limited to – providing grants, loans or guarantees to the company, indemnifying directors, or giving a capital injection.

67. This section provides the necessary statutory cover for the existing and possible future financial assistance provided to Northern Rock plc. It would also cover financial assistance provided to any other authorised UK deposit-taker affected by the Act.

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See Annex 2.5 of Managing Public Money, published on the Treasury’s website www.hm-treasury.gov.uk.