Banking reform white paper seeks further analysis on LA creditor status

HM Treasury’s white paper entitled “Banking reform: delivering stability and supporting a sustainable economy” has opened the door to further consultation with charities and the public sector about their proposed creditor status.

The document states, in paragraph 3.65, P.47 that: “It is important to consider whether any specific groups of senior unsecured creditors could experience adverse and disproportionate consequences as a result of depositor preference. Further analysis is required on, for example, the impact of placing insured depositors above banks’ own pension fund liabilities in the creditor hierarchy (there may be a risk of large, upfront costs to banks if, as a result of the preference given to insured deposits, banks are required to reduce any pension fund deficits more quickly); or the risk to public funds or socially valuable activities that may arise if deposits placed by charities or local authorities are subordinated to FSCS (Financial Services Compensation Scheme) claims.”

On P.48, Consultation Question 14 asks: “Is there a case for preferring one or more groups of senior unsecured creditors alongside the FSCS, for example banks’ own pension funds, or charities and/or local authorities? Are there any compelling reasons why these newly preferred creditors should not rank pari passu with currently preferred creditors?”

Doubtless local authorities will want to make their voices heard and are invited to direct enquiries to banking.commission@hmtreasury.gsi.gov.uk

Should any local authority readers wish to make the case on Room151, don’t hesitate to contact editor@room151.co.uk