Page last updated at 12:00 GMT, Wednesday, 18 November 2009

Queen outlines new banking laws

A banker walking through the City of London
The new laws on bonuses, if passed, would apply only to new contracts

The government has outlined two new bills in the Queen's Speech designed to strengthen financial regulation and reduce the nation's debt levels.

The Financial Services Bill calls for a new Council for Financial Stability and gives the Financial Services Authority (FSA) greater powers to regulate banks.

The FSA would also be able to void overly risky employment contracts.

The Fiscal Responsibility Bill would commit the government to halve its budget deficit within four years.

"As the economic recovery is established, my government will reduce the budget deficit and ensure that national debt is on a sustainable path," the Queen said.

The government hopes to fast-track both bills through Parliament.


The Council for Financial Stability, which was first outlined by Chancellor Alistair Darling in July, is intended to consist of Treasury, Bank of England and FSA officials.

It would have the job of analysing risks in the financial sector, to ensure that the recent financial crisis is not repeated.

Gordon Brown "A return to old ways is impossible"

The Financial Services bill also requires major banks and other important financial firms to hold larger capital reserves and to prepare so-called "living wills" to ensure they could be wound up in the case of failure, without putting the entire financial system at risk.

The bill will also include the FSA's new regulations covering banks, which were unveiled in August.

Under the code - due to take effect from January - bonuses should not be guaranteed for more than a year.

Senior employees should have their bonuses spread over three years under the code.

The rules are aimed at linking pay more closely with the long-term profitability of banks, as well as addressing concerns that big bonuses led to excessive risk-taking which contributed to the financial crisis.

The new bill adds to these rules by giving the FSA the power to stop excessive payments and to cancel any pay packages which appear to reward undue risk-taking.

There will not, however, be any cap on bonuses.

Last month, the Centre for Economics and Business Research said City bank bonuses would hit £6bn this year, up from £4bn in 2008, because of rising profits and less competition.

The bill also outlines plans for a new national money guidance service, delivered by a new Consumer Financial Education Body.

This would make it easier for consumers to take action against financial institutions.


The Fiscal Responsibility Bill commits the government to halving its budget deficit within four years.

It gives Parliament the power to approve multi-year government spending plans.

The UK, which now has overall debt of £825bn, is set to borrow a record £175bn over the next two years.

Further details are due to be set out in the pre-Budget report on 9 December.

It is still unclear whether Parliament will have time to pass the bills.

There are likely to be about 70 days of parliamentary business before the next general election, which must be held by June.

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