Bill will strengthen regulation of banking sector

A range of measures to strengthen regulation of the crisis-hit UK banking sector were outlined in the Queen's Speech today.

The Banking Bill set out plans for the Bank of England and the Financial Services Authority to have greater powers to step in early to help failing banks, while confirming greater protection for depositors.

The Government is also understood to be preparing to announce today that banks will be made to treat customers fairly under plans to make the current voluntary code of practice legally binding.

Banks that do not could be forced to pay hefty fines imposed by the FSA, which is due to be appointed to police the expected new statutory set of rules.

Fears have been growing over the consequences of the lending clampdown among banks, with the Bank of England Governor Mervyn King last week warning that it posed the biggest single threat to the UK economy.

He said it was vital to have proper supervision of the banks to ensure they start lending again to consumers and businesses.

The statement on the Banking Bill said it would "strengthen the framework for protecting bank depositors, enhance financial stability through measures to reduce the likelihood of banks getting into difficulties and improve the tools available to resolve the situation if they do".

The Queen said: "The strength of the financial sector is vital to the future vibrancy of the economy.

"Therefore, legislation will continue to be taken forward to ensure fairer and more secure protection for bank depositors and to improve the resilience of the financial sector."

The Government is having to bail out major UK banks HBOS, Lloyds TSB and Royal Bank of Scotland amid the current crisis engulfing the sector.

The collapse and nationalisation of Northern Rock last year at the start of the credit crunch led to calls for the Bank and the FSA to have a better system in place.

Since Northern Rock - which caused the first run on a bank in more than 140 years - Bradford & Bingley has also had to be rescued, while this week the economic turmoil claimed its first UK bank administration.

Sub-prime lender, savings firm and debt collection group London Scottish Bank was placed into administration, forcing 10,000 depositors to claim back their cash from the Financial Services Compensation Scheme.