The UK’s Banking Act, which grants the Bank of England new powers to intervene in order to support financial institutions and investors, has come into force.
Under the legislation, which formalizes temporary laws introduced following the collapse of Northern Rock, a Special Resolution Regime has been introduced that allows the Bank to move in and if necessary take temporary control of or sell a troubled lender.
The Financial Services Authority can trigger the use of the regime before a bank becomes insolvent and state support can be kept hidden from the markets in order to maintain financial stability and confidence.
However, some critics say the act will shroud the banking industry in secrecy.
The act will also ensure that in the event of a bank’s collapse, savers will receive compensation within a week, the BBC reports.
“The idea is that, if there is a bank that gets into trouble, to insulate it and make the wider impact of that less, but I don’t think they can actually stop banks from getting into trouble in the future,” says Peter Thal-Larsen, banking editor, Financial Times.
L.D.