I am delighted that tomorrow the first parts of the new Banking Act come into effect and give the Bank of England new powers to resolve failing banks and protect depositors. At the heart of the Act is the creation of a Special Resolution Regime for UK banks and building societies. The FSA will have the power to trigger this regime before an institution becomes insolvent. And once a bank is in the regime, the Bank will have the powers to arrange for it to be wound up , drawing on a new bank-specific insolvency-procedure, or to transfer the whole or part of the bank to a commercial purchaser, if necessary via a temporary bridge bank owned by the Bank. If none of these options is sufficient to protect financial stability, there will be the option of temporary public sector ownership. In the course of the legislative process, we have identified and enacted wide ranging protections for netting and set off and creditors generally to ensure that no one is made worse off by the resolution than they would have been if the bank had gone into a simple administration. The Act also puts the Bank’s financial stability objective onto a statutory footing and formalises the Bank’s role in overseeing those payment systems that are essential to the smooth running of the economy.
But that retreat from globalisation would also have a cost in inefficiency and restraints on the flows of capital between countries. We should not forget that the last decade of free financial markets has been a time of great progress across the developing world in Asia, Eastern Europe and South America. But the process of building up national controls is already underway in many countries including even the UK which has long been one of the most open economies for capital and ownership. It will continue unless we can convince each other that much better structures for cooperation and coordination are in place. That is an acute problem within the EU where the single market is based on a common passport. But dealing with the European problem is not the main priority since most of the biggest banks in the world are based elsewhere. I don’t think we should give up on this international agenda. The package of economic measures that were rolled out late last year – from coordinated cuts in interest rates, to provision of dollar liquidity and measures to support banks – showed the power and possibility of coordinated action. The programme of work on the regulatory implications of the crisis which has been coordinated by the FSF and will go in April to the G20 Summit demonstrates a wide accord on the main regulatory issues. But we need more progress on implementation as well as policy.