Chancellor Launches Banking Reform Discussion Paper

by Jason Gorringe, Tax-News.com, London

12 October 2007

The Chancellor of the Exchequer has announced in an oral statement to Parliament, the publication of a discussion paper taking forward his commitment to improve the framework for dealing with banks in distress, including the arrangements for depositor protection.

In line with the Government's objectives of financial stability, competitiveness, and consumer confidence, the discussion paper seeks views on the way in which the current framework for dealing with banks in distress may be enhanced.

In particular, the Chancellor has argued that there should be further reform to the depositor compensation system; if there is a risk of a bank failing, when another solution cannot be arranged sufficiently quickly, there is a case for preserving critical banking functions.

In launching the discussion document, the Economic Secretary to the Treasury, Kitty Ussher stated that: "To maintain trust in the financial system, consumers want to be sure that they will be able to get their money back in a timely fashion if a bank were to run into problems. They also want to know that they will continue to have access to day-to-day banking services with strong safeguards in place, at least until they can transfer services in an orderly way."

"It is in all our interests that the framework for depositor protection delivers an orderly and transparent process with a better protection scheme as its foundation. In taking forward this review, we remain fully committed to seeking and listening to a wide range of views before legislating in the forthcoming Parliamentary session."

The discussion paper sets out that in order to maintain the consumer and market confidence that are essential to meet the Government's central objective of maintaining financial stability, any reform must meet strict objectives.

The publication of the discussion paper represents the first stage of engaging with stakeholders, and informed by the responses to this, the Government intends to follow up with a consultation document in early 2008. Before enacting any concrete measures, the Government will want to be reasonably assured that the benefits of the proposed changes exceed the costs.

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