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Chancellor launches "Banking Reform - protecting depositors: a discussion paper"

Chancellor launches "Banking Reform - protecting depositors: a discussion paper"

HM TREASURY News Release (106/07) issued by The Government News Network on 11 October 2007

The Chancellor of the Exchequer has announced today, 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. The paper has been published jointly by HM Treasury, the Financial Services Authority and the Bank of England.

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 whether:
* there should be further reform to the depositor compensation system; and
* 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 and if so how best that might be done.

In launching the discussion document, the Economic Secretary to the Treasury, Kitty Ussher said:
"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 the following objectives:
* it must be well understood by retail depositors, with consumers confident that they are protected by an appropriate, credible and reliable guarantee that can operate in a timely fashion;
* it must maintain wider market confidence with full transparency about the framework (including its funding) that would operate in the case of a disruption to banking services; and
* it must preserve the critical banking services appropriate to retail, business and wholesale customers of a bank for such time as is necessary to effect an orderly transition to an alternative banking provider; while
* it must maintain the UK's reputation as the pre-eminent location for financial services; and
* it must protect the taxpayer interest and ensure an appropriate sharing of costs between all parties.

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 measure, the Government will want to be reasonably assured that the benefits of the proposed changes exceed the costs.

NOTES TO EDITORS
1. Banking Reform - Protecting Depositors: a discussion paper is published jointly by HM Treasury, the Financial Services Authority and the Bank of England. The discussion paper is available on the HM Treasury website, at the following address: http://www.hm-treasury.gov.uk./consultations_and_legislation/bankingreform/consult_banking_reform.cfm

2. The deadline for comments on the paper is 5 December 2007, during which time the Tripartitie authorities will be actively seeking views and engaging with stakeholders.

3. Informed by responses to this paper, a consultation is proposed for early in 2008.

4. If legislative changes are required to deliver reform, the Government intends to bring those forward in the first half of 2008.

5. Contact details :
Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558, or by e-mail to public.enquiries@hm-treasury.gov.uk

6. This press release and other Treasury publications and information are available on the Treasury website. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.

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