New legislation that will allow the Minister of Finance to temporarily take over a failing bank has been passed by the House of Assembly.

Detailing the Banking (Special Resolutions Regime) Act 2016, the finance minister said it was intended to provide government with a “toolset” to deal with the failure of a bank, noting the major impact that such a failure could have on the wider economy.

“In light of the important role played by the Bermudian banking sector in supporting the economy and the need to maintain confidence in the financial system, Bermuda must put a regime in place to address the situation that might arise if the failure of a single bank leads to instability in Bermuda’s financial system as a whole,” said Bob Richards, Minister of Finance.

“Furthermore, the introduction of a robust resolution framework will provide comfort to financial institutions abroad and to external credit rating agencies of Bermuda’s readiness to handle a situation where one of its banks was in extreme stress, and will be able to mitigate the impact that such a development could have on Bermuda’s financial, economic and social framework.”

Among the powers created by the legislation is the ability for the government to temporarily take over a failing bank, noting that safeguards are included to protect the interests of shareholders and creditors.

“This tool may be the most suitable one if the Government has provided a failing institution with a significant amount of public money in order to stabilise it prior to its entry into the special resolution regime, or where it is necessary to resolve a serious threat to the stability of the Bermuda financial system,” he said.

The legislation also gives the Government and Bermuda Monetary Authority greater powers to direct and accelerate the transfer part or all of a failing bank’s business to a willing private sector purchaser or allow the creation of a “bridge bank” to assume control, stabilising the business until a purchaser is found.

He explained that the legislation mirrors the regime in place in Britain, and that the legislation had been looked at by both the Governor and the Foreign Commonwealth Office.

“The Governor confirmed that after consulting the appropriate authorities in London, he was happy to confirm that the bill is compatible with the Bermuda Constitution and that he could ‘see no reason for it not to proceed within the House of Assembly and the Senate’,” the minister said, adding that a code of practice would be forthcoming to establish when measures can be used.

David Burt, the Shadow Minister of Finance, expressed his support for the legislation, saying: “It’s important we get this right. This Bill will give us the tools that are necessary if we have to do the unthinkable — to take over a failing bank to maintain people’s money.

“I believe this Bill strikes the right balance and it enjoys our support.”

However, Marc Bean, leader of the Opposition, criticised the legislation for bailing out those who would be responsible for the problem.

“This Bill is designed to bail out the bankers,” he said. “We do not want to see the burden shifted from those who created the situation and benefited from it to the taxpayers. That is not just a bailout, it is wickedness.

“Bringing this Bill is a stopgap measure but it does not address the cause of the systemic risk — the ones who we are going for assurance are the ones that created this problem.

“This Bill basically bails out the recklessness and bad behaviour. What we are doing does not benefit the whole country, it benefits a select few.”

In response Mr Richards denied that the legislation was a bailout and maintained it was a “toolset needed if things go awry”.