Treasury Committee report tackles financial stability

A report from the Treasury Committee has sought to address financial stability with a series of recommendations to preempt weaknesses exposed in times of financial crisis.

The Banking Reform report is calling for changes to deposit protection, and says the tripartite authorities need to stand by the introduction of tough deadlines for paying compensation claims.

John McFall, chairman of the Treasury Committee, says: “There has been much focus on whether the appropriate compensation limit should be £35,000, £50,000 or £100,000. This is irrelevant if we do not possess a deposit protection system that actually works.

“It is far more important that banks are able to identify who their insured depositors are, and that the Financial Services Compensation Scheme is able to process compensation claims quickly.”

The report also urges the government to clarify the role of the proposed BoE Financial Stability Committee, and recommends that the Financial Services Authority prepare and consult on a code of practice for firms under heightened supervision.

The Treasury Committee agree that the FSA should be solely responsible for placing firms in the Special Resolution Regime, the range of measures put in place to minimise banks in danger of failing.

But it says the BoE must have the power to recommend an institution to be placed into the regime.

McFall adds: “As the regulator, the FSA should have the sole authority to place firms in the SRR. But the BoE must have the power to recommend that the FSA pull the trigger to bring an individual institution into that regime. The system we propose maintains a clear line of authority, while ensuring that the BoE has a reason to engage with individual institutions.”