|Previous Section||Home Page|
Column 1242(Mr. Wells) intervened. There was a document in the early 1970s, which became well known after its results became apparent, called "Competition and credit control". Purely as an amateur--hon. Members will correct me if I am wrong--I would say that that document changed the Bank of England's attitude to the control of credit institutions and changed the nature of the banks. We all know that subsequently there was a property boom, some property scandals and the lifeboat, and Britain's economy took quite a knock, which, unfortunately, coincided with the oil price increase. Britain's economy was gravely influenced thereby.
Lord Barber was the Chancellor of the Exchequer at that time and it was up to Her Majesty's Government to encourage or restrain the then Governor of the Bank of England in respect of that document. Although there is some option in regulation, I take it that the nature of credit control and the measure of stimulation or restriction of competition is, to some extent, not in the hands of Her Majesty's Government in the same way as it was then.
We do not know about the central European banks. Mr. Delors's committee may make great suggestions, or there might be an informal committee based in Basle with the Bundesbank to the fore, which may exude influence over the climate of credit control even if there are no formal statutory powers in the regulations. Therefore, there may be a risk of the sort of influence that was or was not exercised by Her Majesty's Government in that unhappy period of our national finances not just being repeated but being beyond the control of the House or even of a strong majority Government. I put that to the Minister because I am not sufficiently expert to provide the answer, which is important.
Let me deal now with scrutiny, and, perhaps putting back on that label of which I spoke, draw attention to some of the points to which my hon. Friend the Member for Vauxhall (Mr. Holland) referred, which give me some cause for anxiety.
There is a Treasury memorandum dated 24 March 1978, signed by the Economic Secretary, relating to document 4794/88, which says in its heading :
"the Co-ordination of the laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of credit institutions".
Paragraph 13 relates to authorisation. It says :
"authorisation could be delayed indefinitely by the failure to reach a consensus view on whether it had or had not been achieved. The nature and scope of the measures which the Commission may propose to secure reciprocity are not defined or constrained in the directive ; and the procedures do not appear to have been fully thought through."
Paragraph 15 is entitled
"Impact on United Kingdom law".
It says :
"As currently drafted, the directive would require changes to the Banking Act 1987, the Financial Services Act 1986 and possibly the Building Societies Act 1986. Some can be made by secondary legislation, others not but further detailed scrutiny will be needed to establish the full implications.".
It is not detailed scrutiny to decide the detailed amendment, but it says :
"detailed scrutiny will be needed to establish the full implications."
The Economic Secretary may correct me, but I am not aware of a further explanatory memorandum, which goes into those detailed implications. I believe that the fact that that was written at all is important.
Paragraph 18 says :
Column 1243"The restrictions on third country banks were introduced at a very late stage, and without prior discussion in the Commission working groups or with the Banking Advisory Committee. These raise substantial issues of principle and practicalities which will have to be considered fully and discussed in detail with other Member States, but the Commission's proposals are unacceptable and almost certainly unworkable as drafted."
Those are important qualifications, even though, as a non-technical banking person, I do not know their full impact. We repeated some of those sentences in our report HC 43-xx 1987-88.
We included in our last report, HC 15-iii of 7 December, some of the evidence that we received from interested bodies. The British Bankers Association, again on a matter of reciprocity, said : "The Association comments that this goes too far in inhibiting legitimate transactions, and may be incompatible with GATT obligations, but it concedes that there is a dilemma."
Of course, it is a matter of dilemma for London, with its world links as well as links with the Community. I have no brief for the Bank of Tokyo--I am not sure whether its activities in this country are beneficial or not-- but the report says :
"the procedures to be applied to acquisitions and participation in Community institutions by third country banks could lead to unnecessary delay in transactions and place unfair restrictions on non-Community banks' ".
I might be in favour of what they say are unfair restrictions, but I do not know. Our closing summary, however, says this :
"In the light of the evidence it has now received, and the suggestions that the reciprocity provisions relating to third country banks wishing to establish or acquire banks in the Community could have a damaging effect on London as a whole financial centre, the Community recommends further consideration of the draft Directive by the House".
That is what we are doing.
It may be that for political reasons, which hon. Members will understand, I do not mind that this directive has an adverse impact on London as a world financial centre. I am not as great an enthusiast for that as some Conservative Members. But that is not the point of the debate. We are debating, or attempting to debate, the legal and political impact of these documents on the future financial mechanisms of our country. Whether or not we like those financial mechanisms, we are attempting to grapple with the effect of adopting the motion unamended. I do not know the answer. So far, I have heard nothing tonight that helps me to get the answer. If nothing else, we do not know what the eventual outcome will be.
The hon. Member for Hertford and Stortford asked the Economic Secretary whether the measure is subject to a majority or unanimous vote. Of course, the memoranda tell us, quite properly, that it is subject to a qualified majority. Some of the problems to which the Economic Secretary referred in his opening remarks may remain. More problems could be added. I have no idea what other nations think. It might be said that, if our fears are correct, the interests of the City of London might be prejudiced. I do not know which countries may be considered favourable. I suppose that some countries would not mind if they were. We just do not know. Even if the measure is accepted unamended, we do not know the effects. Of course, it can be amended at a later stage or changed by a vote of the Council of Ministers. A common position has not been reached.
I have grave doubts about whether the House has sufficient information and has been able, with the
Column 1244documents placed before it, to understand the implications of the proposals, still less to assess what they will be by the time they are adopted by the Council of Ministers and appear as laws of this land in the official journal of the Community.
Mr. Dykes : The hon. Gentleman should not get too carried away with the lugubrious, pessimistic view about our not being able to scrutinise. We all would like more time. The hon. Gentleman and I would like more European Supply days, and so on. The Banking Act 1987 was before the House, as a result of the Johnson Matthey collapse and the abolition of such things as Ltds and banks proper. How many hon. Members on the Floor of the House and in Committee took an interest in the subject? They were doing it on behalf of the whole House. The same applies to this type of legislation, which is developing in an evolutionary way. Perhaps the hon. Gentleman finds that more difficult to absorb and understand.
Mr. Spearing : I understand what the hon. Gentleman says. The Banking Act was a British domestic Act, and it was subsequently amended. I take his point that it may not have received proper scrutiny by ourselves or by our colleagues. All that I am pointing out is that there could have been some improvements in the proceedure that would have enabled tonight's debate to be a little more effective. I hope that the hon. Gentleman will agree that those suggestions were constructive.
Mr. Wells : Does the hon. Gentleman support the Economic Secretary's argument that the present proposals, particularly on recognising third country banks and reciprocity, are unacceptable not only to Conservative Members but to himself? Will the hon. Gentleman back the Economic Secretary, so that the Economic Secretary may refer to that when he presents his arguments to the Council of Ministers?
Mr. Spearing : I am grateful to the hon. Gentleman. Despite the fact that I said that I was not speaking with a label on, I would not, and cannot, commit Opposition Members. That is the task of my hon. Friend the Member for Vauxhall who led the debate for the Opposition. I do not have the technical knowledge with which to make a technical assessment of that point. Therefore, I regret that I cannot accede to the hon. Gentleman's request.
"the Government's intention to ensure that the Commission's action in this field takes full account of United Kingdom interests." I commend the Economic Secretary and the officials in his Department for their hard work in attempting manfully to deal with some very intractable problems. The plain truth is that the Commission seems to be dead set on these reciprocity provisions. I raised earlier in an intervention the question of what is going to happen in the outcome. There is a possibility that, at the end of the day, this directive simply will not go through because the Council of Ministers will dig in its heels and refuse to accept the proposals of the Commission. But I do not think that is really likely to happen.
What I am concerned about is the fact that, despite the numerous reports of the members of the Select Committee
Column 1245on European Legislation and despite the insistence of different Government officials in different member states, the Commission is obdurate on this question, although it is quite clear that it will cause very serious difficulties, not only for the United Kingdom but also, apparently, for the other member states.
One is bound to ask what the Commission represents if it does not represent an interest reflecting the combined views of the member states themselves. I believe that the members of the Commission must start taking note of the views expressed by member states not only in camera within the working groups and COREPER--the Committee of Permanent Representatives--but in the parliamentary institutions, as they are being expressed here today.
This brings me to my second point--the manner in which we scrutinise this legislation. I do not want to labour the point that has already been made, but at a conference I attended recently in Berlin which was addressed by Emilio Colombo, this was described by the ex-Prime Minister of Italy as the most important directive, in his personal opinion, to go through the European Community institutions since the treaty of Rome, because at the root of it is the whole question of capital movements and liberalisation of finances throughout the Community.
It really is not good enough for us to be discussing a matter of this importance at 11.30 on a Thursday evening. In my judgment, and I believe in the judgment of many other hon. Members, it should be discussed in prime time, and we should be given an opportunity to consider it properly.
Reference has been made to the Banking Act 1987. I happened to sit on the Committee on that Bill and I can assure the hon. Member for Newham, South (Mr. Spearing) that it was considered very carefully and thoroughly by the Committee. The Economic Secretary, in another incarnation, was sitting just along the Bench from me, and I am sure that he will back me up. Furthermore, amendments were made, with the co-operation of Government Back Benchers, to ensure that we had adequate protection for British banks from our predators abroad. The reciprocity provisions in this directive are very different from what we were considering in the Banking Bill as it applied specifically to the United Kingdom. The Commission really must be given some very firm instructions--I repeat, "instructions"--by the national Parliaments and by the Council of Ministers. It must be told that we are simply not going to be pushed into accepting provisions which lead, for example, the American Banking and Securities Association of London to say the following with regard to this proposal :
"The Association is therefore extremely disappointed that the Commission is souring the opportunity to create a free market by insisting on a single, uniform reciprocity clause to determine who may access the European market. It states that European financial markets are very demanding and competitive and domestic firms are growing in strength daily ... The Association states that many American firms have chosen London as their headquarters for European activities and London therefore stands to lose the most investment as a result of reciprocity problems."
Column 1246Commission. The Commission formulates proposals which are accepted, rejected or amended subject to the qualifications of the Single European Act. This is precisely the constitutional question and problem about which many hon. Members expressed concern a long time ago. Governments cannot jointly put forward proposals for amendments to the Assembly. This is not only one of the most important issues about the Community before the House, but one of the most important constitutional issues.
While the hon. Gentleman is so concerned to endorse the views of the American bankers, surely he realises that in a large market those banks are going to get in one way or another. Much of the concern that has been generated is not for real.
Mr. Cash : I am delighted that the hon. Gentleman noted that I used the word "instruction" because I wanted to seize on that constitutional question. I believe that the procedures available to the Council of Ministers can be used, because they have the ultimate say, to tell the Commission that if it persists in taking such a steadfast line and is so obdurate, at the end of the day, the Council of Ministers will refuse to accept the proposals. Therefore, there would be a trade-off.
I also believe that British interests should be protected and that is why I wanted to refer to the point made by the American banking association. We must look after the interests of the United Kingdom in this House. When the Minister returns to the Commission, he will know that in taking note of this proposal we want to ensure that the Government's intention to look after British interests will be properly and effectively safeguarded.
Mr. Bowen Wells (Hertford and Stortford) : I welcome the fact that the directive is being discussed in this take note motion at this early stage before a common position has been reached in the Council of Ministers and before the matter has been discussed in the European Parliament. It is very important that we should understand what our Ministers are having to grapple with in the Council of Ministers and to show our support, or lack of it, for the policy that they are following.
Unfortunately, most hon. Members have not had sufficient briefing or time to consider the matter. It is strange that, apart from the report from the Select Committee on European Legislation which went out for evidence which is before the House, no banks that I am aware of have briefed hon. Members for the debate tonight. Building societies and banks must support the House to assist hon. Members to understand the legislation that is going through Europe and so help us to form a view which will assist the Minister when he is debating in the Council.
I agree with the points that were made so well by my hon. Friend the Member for Esher (Mr. Taylor) about the stand that the Minister is proposing to take, I hope with the majority of our colleagues on the Council of Ministers, in respect of the reciprocity clauses. Clearly those proposals would be particularly damaging to British banking, and damaging to Europe as a banking centre. I urge my hon. Friend the Minister to ensure that the Commission does not adopt those proposals.
I invite my hon. Friend to say a little about how the discussions on the draft directive on own funds are
Column 1247progressing in Europe. Equally, I hope that he will tell us how the discussions are going on the draft directive on harmonised solvency ratios. Those directives must clearly be read in association with the directive that we are considering tonight. Will the Minister return to the House, after matters have progressed further, so that we can consider these issues before an agreement is reached?
Mr. Lilley : This has been an interesting and valuable debate. I paid tribute to the Select Committee on European Legislation before its distinguished Chairman, the hon. Member for Newham, South (Mr. Spearing) entered the Chamber. I repeat that tribute in the light of his remarks. I will endeavour to respond to the points that hon. Members made in the debate.
The hon. Member for Vauxhall (Mr. Holland) indicated that there had been difficulties of communication in the course of the debate. I failed to explain clearly to him the points that I was endeavouring to make, and I failed also to understand the questions that he was asking me. None the less, I will do my best to answer them. I suppose there was at least reciprocity between us on that front.
The hon. Gentleman raised the specific question whether reciprocity applied to takeovers by third countries of banks owned within the Community. The answer is that, as the directive is drafted, it would require the implementation of the reciprocity procedures in such cases. He also asked us to take into account potential changes in the American Federal Reserve system. That goes beyond the scope not merely of the debate but of the powers of the Community.
Mr. Holland rose--
Mr. Lilley : I will give way in a second, but what I am about to say may answer the hon. Gentleman's point. I said that it was important that the solvency and capital adequacy criteria incorporated in the directive should reflect and be compatible with international standards. Among those agreeing to the standards will be the United States, as well as Japan and other major financial countries. That has already been worked out within the ambit of the Basle agreement. It would be sensible to build on that.
Mr. Holland : My point was not there there are prospective changes forthcoming in the United States Fed, but rather that the proposed "European central bank" may well appear, we are told, in a form with powers comparable to those which the Fed had until the 1930s and the New Deal. The point that I was making was that those powers were insufficient to address the problem of insolvency in United States banks at the time or to remedy the crisis.
Mr. Lilley : I do not think that there are any plans to model the European financial system on the pre-slump American financial system. Should any be presented by the Commission, we shall notify the House and perhaps discuss them at another date.
The hon. Gentleman also raised the question of accountancy standards. There is another directive dealing specifically with that matter, which will come into effect in 1993. It will set common accountancy standards for banks. I believe that it is broadly satisfactory and has met with little criticism.
Column 1248My hon. Friend the Member for Esher (Mr. Taylor) gave welcome support to the principles that I enunciated and that lie behind the basic framework of the three directives. I am grateful to him for his support. He recognised that the directives are based on the principle of mutual recognition of home country control. That is a valuable principle with application probably to other sectors beyond banking and financial services.
My hon. Friend also made an interesting proposal which will merit study. I shall read with interest the report of the debate. The hon. Member for Newham, South raised a number of questions about the manner in which we consider important measures like this and the substance of the measures themselves. He asked whether another explana-tory memorandum had been or should be presented to the House since the one which I presented in March 1988. I agree with him that the original memorandum stated that further work was required ; since then, however, the Commission has itself agreed to reconsider the reciprocity provisions in that memorandum. There would clearly be little point in giving more explication of the meaning of the existing provision before any further thought is brought to the attention of member states and thereby immediately to the House's attention, as a result of reconsideration by the Commission. We do not know what the final legislation will be like, but we must make a judgment in the House about the point at which we debate it. I think that, in general, it is preferable to debate earlier rather than later, and I welcome the fact that we are debating this issue tonight.
We heard an interesting contribution from my hon. Friend the Member for Stafford (Mr. Cash), who reinforced concerns that I had expressed about reciprocity. I am grateful to him for that. He also made the important point that the Commission must listen not just to the voices of Government but to voices heard in national Parliaments in the course of debates such as this. He quoted Mr. Amato as saying that this was the most important set of directives since either the Single European Act or legislation made under it, and I agree that it is extremely important. It is important in itself and particularly important to the United Kingdom, because it affects an industry that is very significant for employment, and not just in London. We often refer to the City of London, but we forget that the industry is also the biggest in Scotland, and that we have in the United Kingdom not one but two major financial centres--the two most important in Europe--and that the industry employs people throughout the country. My hon. Friend also mentioned the concern expressed by American banks and the American chamber of commerce, and by other countries, about the impact of reciprocity on their banks already established in this country, or wishing to become so. That is an important and genuine concern, to which I hope the Commission will listen. Although it is right and proper that each member state in the Community as a whole should put self-interest first, we must recognise that our self-interest is always best served by our working together in an open and free-trading framework, not a protectionist and restrictive one.
My hon. Friend the Member for Hertford and Stortford (Mr. Wells) re- emphasised the importance of pressing hard on the reciprocity issue, and I can assure him that we shall continue to do so. We are grateful for the
Column 1249backing that the debate has given the British Government's position in the discussions which will continue in Europe.
The Cecchini report, which endeavours to quantify the benefits to member states in the Community as a whole from the various measures to create the single market, makes it clear that in the sphere of banking--and the related sphere of financial services that will follow from it--there is a priori evidence that restrictions exist on trade between member states, and that Britain is potentially one of the greatest gainers when those restrictions are removed. It appears on all the evidence that we have not only the largest but one of the most efficient and lowest-cost industries in most sectors of banking and financial services, and consequently stand to benefit when a single market has been created in which our banks and financial institutions can operate more freely and use their services to benefit consumers in other countries.
That is why we wholeheartedly support the underlying thrust of the directives, although we have some reservations about one major aspect-- reciprocity--and important objectives to pursue in the negotiations. We want to ensure that the directives are introduced simultaneously with the investment services directive, and that the arrangements for subsequent implementation and amendment are satisfactory and allow the highest prudential standards to be maintained.
I hope that the House will support the motion and, in taking note of these documents, will back the Government in their negotiating position for the further negotiation of these valuable directives. Question put :--
The House divided : Ayes 73, Noes 10.
Division No. 89] [11.44 pm
Alison, Rt Hon Michael
Arnold, Jacques (Gravesham)
Bennett, Nicholas (Pembroke)
Brooke, Rt Hon Peter
Column 1250Burt, Alistair
Carlisle, Kenneth (Lincoln)
Coombs, Anthony (Wyre F'rest)
Coombs, Simon (Swindon)
Cope, Rt Hon John
Davis, David (Boothferry)
Fenner, Dame Peggy
Griffiths, Peter (Portsmouth N)
Hargreaves, Ken (Hyndburn)
Heseltine, Rt Hon Michael
Howarth, G. (Cannock & B'wd)
Hunt, David (Wirral W)
Lee, John (Pendle)
Maude, Hon Francis
Meyer, Sir Anthony
Miller, Sir Hal
Nicholson, David (Taunton)
Shephard, Mrs G. (Norfolk SW)
Stradling Thomas, Sir John
Taylor, Ian (Esher)
Taylor, John M (Solihull)
Thompson, Patrick (Norwich N)
Twinn, Dr Ian
Waddington, Rt Hon David
Tellers for the Ayes :
Mr. Alan Howarth and
Mr. Tom Sackville.
Barnes, Harry (Derbyshire NE)
Hughes, John (Coventry NE)
Pike, Peter L.
Taylor, Mrs Ann (Dewsbury)
Welsh, Andrew (Angus E)
Wise, Mrs Audrey
Tellers for the Noes :
Mr. Bob Cryer and
Mr. Dennis Skinner.
Question accordingly agreed to.
That this House takes note of European Community Documents Nos. 4794/88 on credit institutions, 9224/86, 4339/88 and the Supplementary Explanatory Memorandum submitted by the Treasury on 22nd July 1988 on the Own Funds of credit institutions and 6033/88 on a solvency ratio for credit institutions ; and supports the Government's intention to ensure that the Commission's action in this field takes full account of United Kingdom interests.