The New Banking Act finally came into being which gives the Bank of England more powers to intervene into matters of failing banks, mostly in the interest of savers and the investors and the overall economic and financial system. This is termed as the Special Resolution Regime(SRR),under which the savings will be returned to the customers within a week’s time if the bank they have deposited in is failing. This measure is to boost up the general confidence level which has plummeted incredibly after Northern Rock applied for public funds some 18 months back.
The Act will also provide for a failing bank to close in a very organized and orderly way through options such as nationalization, bail-out, commercial acquisition etc. The SRR is in a way a last resort. That is to say, it will be exercised when the treasury and FSA have given up on saving the falling bank. The fate of the bank and its customers will depend on the decisions of the Bank of England, the central authority, which will act in the light of the following:
1) To protect and enhance the stability of the financial systems of the UK
2) To protect and enhance public confidence in the stability of the banking systems of the UK
3) To protect depositors
4) Protect public funds
5) To avoid interfering with property rights.
Needless to say, other factors such as market conditions and salability of good and bad assets will also influence the decision majorly. A Special Resolution Unit has been set up to discuss issues in this respect.
The Act has had mixed reaction from different corners. While some view it as a beaconing light and a much needed tool to maintain financial stability in such torrid times, others have found it incomplete as in it can only provide orderly closing down of a failing institution and not prevent it as a whole.
Only time will tell if its effective or not. For the time being customers can take a breather as they will not have to endure sleepless nights over the security of their funds.
