New Banking Act Introduced

A Cloaks and Daggers Mission…

The new Banking Act has been passed and will come into force.

This will see an increase in the Bank of England’s intervention powers, and gives them the power to intervene more quickly to help struggling banks and protect investors, behind closed doors, in order to try and maintain the financial stability of the economy.

However, critics are unsure about the secrecy surrounding the Banks intervention, claiming that not knowing what is going on could be detrimental for consumers.

The secrecy would not normally be allowed, but the new Banking Act allows certain decisions that are made to be excluded from disclosure under the Freedom of Information laws.

Currently, if a bank collapses, compensation payouts could take weeks to be processed, leaving customers with money concerns in the mean time, however, the new Act allows consumers to receive compensation within a week should their bank collapse.

The new Act should also make the transfer of a customer from one bank to another easier if their current bank does collapse.

Professional Opinions About The Act…

Editor of the Financial Times, Peter Thal-Larsen, has said that the Act will basically let the financial authorities take action sooner to move savers’ deposits from any failing banks before they tackle the banks other problems.

He said: “the idea is that, if there is a bank that gets into trouble, to insulate it and make the wider impact of that les, but I don’t think they can actually stop banks from getting into trouble in the future.”

Chief Executive of Hermes Equity Ownership Services, Colin Melvin has also said: “we welcome the new Banking Act and the enhancement it will bring to the regulatory framework, including the strengthening of the Bank of England.

“However, we need to do more to stimulate growth and restore confidence and trust in the financial sector.”

The new laws will make the temporary Acts introduced after the collapse of Northern Rock, which was nationalised after confidence in it disappeared, permanent.

At The End Of The Day, Is It Going To Help?

According to BBC business correspondent Joe Lynam, until recently, it was very unusual for banks to apply for emergency funding from the Bank of England because there was stigma attached which caused a fall in confidence levels in the bank.

In fact, it is believed that, 18 months ago, Northern Rocks public appeal for funding from the Bank of England, may have hastened its downfall.

The aim of the new Act is unlikely to stop unstable banks from collapsing, but will let the Bank of England help struggling banks behind closed doors in order to act in the overall best interests of the economy in order to try and prevent a situation similar to that of Northern Rock.

What Do You Think?

Will the new Act work? Is it in the best interests of the economy to keep struggling banks secret, or is it unfair on consumers? Comment here.