Dunfermline Building Society - authorities step in to safeguard savers
30th March 2009
The Financial Services Authority, H M Treasury and the Bank of England (the Tripartite authorities) announced that the retail deposits and some other parts of the business of the Dunfermline Building Society have been transferred to Nationwide.
The FSCS has been working with the Tripartite authorities and will be involved in the rescue package for Dunfermline Building Society after the FSA triggered the Special Resolution Regime (SRR) set out in the Banking Act 2009.
The SRR provisions ensure that it is business as usual for customers of the Dunfermline Building Society who will be able to access their accounts in the normal way.
It is the first time that the authorities have used the new powers set out in the Banking Act 2009, which received Royal Assent in February.
As part of the resolution of Dunfermline Building Society, HM Treasury is providing £1.5bn to Nationwide to cover the liabilities that are not covered by the assets that Nationwide is also acquiring. In return, the Treasury has acquired rights in respects of the proceeds of the wind-down and realisation of the assets of the administration estate, and has a claim on the Financial Services Compensation Scheme as outlined in Sections 214B of the Financial Services and Markets Act 2000.
The FSCS expects to contribute towards the costs of funding the transfer. This will be on a net basis at the end of the process once the level of costs, the level of protected deposits and the level of recoveries FSCS would have received in an insolvency have been calculated. The FSCS will calculate the costs of compensation it would have paid and an independent valuer will identify the recoveries figure.
There are significant assets which have not been transferred to Nationwide that could lead to significant recoveries. These assets include, for example, the commercial loan book and parts of the mortgage book. Realising the value of these assets will greatly reduce the cost of the resolution. Therefore, at this stage, it is reasonable to assume the final bill to which the industry will contribute will be significantly less than the value of the eligible retail deposits transferred to Nationwide today.
FSCS will keep the industry informed of developments.
More information on the Special Resolution Regime (SRR)
The Banking Act 2009 establishes a permanent Special Resolution Regime, providing the Authorities with tools to deal with deposit takers that get into financial difficulties. The Bank of England is responsible for the operation of the SRR; including deciding which resolution tool to invoke.
The SRR enables the FSCS and the Tripartite authorities to work closely to ensure an orderly resolution to maintain financial stability or protect the public interest, taking into account the objectives set out in the Banking Act 2009.
There are a variety of tools available under the SRR including:
- a transfer of all or part of a bank's business to a private sector purchaser (via either a share transfer or a property transfer), to a temporary bridge bank owned by the Bank via a property transfer (combined with the Bank Administration Procedure), or into temporary public ownership (to a nominee of H M Treasury or a company wholly owned by H M Treasury) via a share transfer; or
- to place a bank into the Bank Insolvency Procedure, followed by a payout or transfer of FSCS protected depositors.
If a SRR is triggered the FSCS will never be asked to pay more than the amount of compensation that would have been payable under the scheme if the powers under the Banking Act 2009 had not been exercised.