Q
90Mr.
Hoban: But at what point would you request that
information? Dr.
Huertas: There is a trade-off between the time
required and the type of indication and one would have to make that
judgment in the broad area of heightened supervision. More generally,
we are looking at what aspect of the data banks need to keep with
respect to insured deposits, and at the need for banks to inform their
customers on a fairly regular basis as to what is and is not
insured. Loretta
Minghella: It shows how terribly important it is for
the FSCS and the tripartite authorities to work closely together in
relation to particular firms. That is something that we want to see
enshrined in the code of practice: that we will work together as we
have done in recent times and that that will always be a feature of the
way in which the arrangements operate.
Q
91Mr.
Bone: I understand why you require the banks to hold the
information in a certain format. I have no understanding of why you
need that information in advance—of particular customers. When
the button is pushed, the deposits of each customer will have varied
from the earlier information. Why on earth do you need that information
in advance? In the travel industry, the information is not required in
advance—it is required in a format, so that it can be
immediately had and acted on. Why do customers’ details have to
be with you in advance of a
failure? Loretta
Minghella: It is not that we are particularly
interested in whether Ms Minghella or Dr. Huertas have any particular
amounts—we are not interested in individuals from that point of
view, but in making sure that the process works smoothly from day one.
It is going to be one of the jobs of the FSCS to give advice on whether
the payout could be activated speedily enough, or whether it would not,
because of the status of the system, and some other special resolution
tool might need to be chosen. That is what the FDIC does—it
works with the particular systems of the institution, testing them to
make sure that they will work effectively on the day and that the data
that should be there are there in the right form. It is not a prurient
interest in any individual’s account, but more to do with the
issues of that
system.
Q
92Ms
Keeble: I wanted to ask about the pre-funding, which is
not popular with banks. The Governor talked about the need to build up
such a fund, but if there was a decision to go with that, it would take
some years to provide the level of funding needed. What are your views
on that and on how the Bill provides for a reserve power to be used at
some future date?
Nigel
Jenkinson: As you indicated, the reserve power is in
the Bill, should the Government choose to take it
forward—
Q
93Ms
Keeble: But what kind of lead time would they
need? Nigel
Jenkinson: I cannot talk about the parliamentary
process, but I am not sure that that was the question. In terms of
building up a fund, international experience—there is a range of
sizes— would suggest typically about 1 to 2 per cent.
of the deposit base.
Q
94Ms
Keeble: How much would that
be? Nigel
Jenkinson: I should need to check to be absolutely
certain. I shall come back if I get this wrong, but I think that we are
talking of the order of just over £10 billion to £20
billion.
Q
95Ms
Keeble: Would that be
enough? Nigel
Jenkinson: In our view, that would make a significant
contribution. That would be a significant fund, certainly taking
account of the recoveries. You have to take account of what recoveries
are due to the fund in the longer
run.
Q
96Ms
Keeble: Time is short, and I had some indications from Dr.
Huertas and Ms Minghella that they might have views about the adequacy
of that size of
fund. Dr.
Huertas: With respect to the fund, it is important to
remember that the deposit guarantee promise needs to be backed by the
full faith and credit of the Government. If it ever got to the point
that the deposit guarantee promise was limited to the size of the fund,
the exhaustion of the fund and the removal of any type of deposit
guarantee for the remaining depositors would be a severe threat to
financial
stability.
Q
97Ms
Keeble: You are saying that we have to bear in mind that,
whatever happens on the pre-funding or the size of the pot, the
Government have to provide the
backstop. Dr.
Huertas: Without a Government backstop, the fund
alone is not sufficient. The Government backstop is what gives ultimate
security. Anywhere they have tried to limit the deposit guarantee
promise to the size of the fund, inevitably there have been problems.
It caused problems in the United States and in other
jurisdictions.
Q
98Ms
Keeble: Ms
Minghella? Loretta
Minghella: We agree that the crucial thing is that
the compensation scheme always has enough money to pay depositors when
necessary. That is why the national loans fund part of the Bill is so
crucial, from our point of view. Whether or not there is a
pre-fund—we welcome the debate—the crucial thing is that
there is always that backstop and that people can be confident that the
Government will always be there for the
scheme. Nigel
Jenkinson: May I add that I entirely endorse the
comments of my colleagues? It is important that the scheme can pay
out.
Q
99Ms
Keeble: Some of our constituents might think that the idea
of having a pre-funding scheme is to move some of the risk of failure
away from the Government and on to the banks. But are you saying that,
whether that happens or not, the Government still have to underwrite
it?
Nigel
Jenkinson: I think we have to be clear about the
difference between provision of liquidity and funding of the scheme and
who, ultimately, is paying. The scheme
is extremely clear that, ultimately, the levy falls on the banking
system. At present, the Government are providing liquidity.
Loretta
Minghella: There is no
permanent—
Ms
Keeble: But then it is a
loan. Dr.
Huertas: The bank, the levy payers, are responsible
for the ultimate losses resulting from the failure of the bank, in so
far as they are attributable to the amount of covered
deposits.
Q
100Dr.
Pugh: To be precise about this, what you are saying is
that a pre-funding arrangement is not sufficient. To be very specific,
would you say that it is necessary, or desirable?
Dr.
Huertas: No, it is not
necessary.
Q
101Dr.
Pugh: In your view, is it
desirable? Dr.
Huertas: Opinions differ on that
question.
Q
102Dr.
Pugh: I will take that as a “no”.
Nigel
Jenkinson: From the Bank’s point of view, it
is not necessary, but we believe that it is
desirable.
Q
103Dr.
Pugh: That is two not necessaries, one
desirable.
Loretta
Minghella: It is definitely not necessary and, if
there were one there, it would have been useful
recently.
Dr.
Pugh: Right. That is necessary, desirable and
useful.
Q
104Mr.
Gauke: May I ask the Bank of England about clause 66,
which relates to international obligations and
says: “The
Bank of England may not exercise a stabilisation power in respect of a
bank if the Treasury notify the Bank that the exercise would be likely
to contravene an international obligation of the United
Kingdom.”? Will
this mean that, essentially, the Bank of England will not need to take
a view on international obligations and that it will proceed as if
there are no issues with international obligations unless the Treasury
says
otherwise? Nigel
Jenkinson: No, I do not think it will. That is not my
personal reading of the clause. In terms of the operation of the
regime, the Bank will look at international, as well as domestic,
aspects. The clause is saying that, ultimately, the
responsibility—or treaty obligations—are for the
Treasury. That is why the clause is laid out this
way.
Q
105Mr.
Gauke: You will be aware that there is a view that the
Bank of England took perhaps too prescriptive a view as to the market
abuse directive and what it could do, as far as covert support and so
on was concerned. Do you not see this as an attempt to clip the wings
of the Bank of England in any way, or as the Treasury saying,
“We will take things on there; don’t you worry about
that, Bank of England”?
Nigel
Jenkinson: My understanding is that it is normal
practice for the Treasury to be formally responsible for treaty
obligations.
Q
106Mr.
Gauke: But the Bank of England will do its own analysis
and act
accordingly. Nigel
Jenkinson: Of course, we will take those factors into
consideration.
The
Chairman: If Members have no further questions for the
panel, that brings to an end the business for this morning.
Further
consideration adjourned.—[Mr.
Blizzard.] Adjourned
accordingly at One o’clock till this day at half-past Four
o’clock.
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