Mr.
Hoban: I take on board the Minister’s comment about
ING, but we could have dealt with that issue by just
removing—well, not just removing; that makes it sound far too
simple—the provision that relates to UK authorised financial
institutions and using a broader definition of authorised financial
institutions. The measure before us, however, would go further than
even deposit takers.
Angela
Eagle: Yes, the definition of financial institutions is
broad; it could include banks, building societies, holding companies,
investment firms and investment banks; but, given the complex nature of
relationships in particular examples, flexibility is needed so that
powers exist to react appropriately if a circumstance involves
different forms of arrangements that fall outside the original, narrow
drafting of the Bill. That is why we have tabled the amendments. We
have to be flexible. If, for reasons of stabilisation, there were a
need to direct assistance, the amendments would mean that we had the
power to direct it where it was needed.
Mr.
Hoban: Am I right, therefore, in assuming that if it was
decided, for whatever reasons, that Standard Life, which has a banking
subsidiary and is owned by an insurance company, were to acquire the
deposits of another licensed deposit taker, the amendments would enable
assistance to be given to the parent company; whereas, under the
previous rules, we would not have been able to assist the parent
company but could have assisted the banking
subsidiary?
Angela
Eagle: I do not want to get into using particular examples
or names, for rather obvious reasons. We are not talking about existing
institutions that are in difficulty, so I do not want to use the hon.
Gentleman’s phraseology with respect to particular institutions.
However, he is right in essence: the provision is about the flexibility
to deal with a circumstance that may present itself in a particular
instance where there are different arrangements. We do not want to
predict them in advance, but we want to have the power to direct
assistance and not allow too narrow a definition of “financial
institution”. It would defeat the overall object of the Bill,
which is, in certain difficult instances, that assistance be directed
where it solves the problem—that, I suppose, is the simplest way
of putting it—and the amendments would do so. The power could
not be used to bring things that are clearly not financial institutions
within the scope of the clause, so we will not be rescuing plumbing
companies. The difficulty, however, is that there is no clarity about
what a financial institution is, and of course what one is may change
or evolve. For example, we have recently seen the emergence of those
who issue e-money. Such evolution of financial arrangements will
continue. The
amendment will give us the scope to direct financial assistance where
it is needed to solve a problem. We are not specifying particular
problems. Systemic problems may emerge that have not been anticipated
and do not fall within the narrower wording in the clause. The
amendment will give us the flexibility to direct assistance where it is
most needed. Otherwise, we may suddenly find that the arrangements that
have evolved do not fit the
powers.
Mr.
Hoban: I am grateful for the Minister’s
explanation. I am beginning to understand the proposals. She mentioned
people providing e-money. I guess that is the type of
institution referred to in new clause 3, which will give the Government
powers to specify a group of institutions as financial institutions.
The obvious definition would be “financial businesses that are
not regulated by the Financial Services Authority”, which could
fall within the scope of new clause
3.
Angela
Eagle: The idea is to have a broad power that is
future-proof in its scope of financial institutions, not to spread the
powers beyond that. However, the measures must cope with the innovation
that we see happening all the time, which is often technology-assisted.
That underpins the amendments. I give the assurance that this is not a
power to go off into other areas of the economy or to deal with
different types of companies. It is trying to capture where this issue
may focus if there is a rearrangement or evolution of financial
systems. That is often accompanied by technological innovation, which
introduces things like e-money. That would not have been picked up by
the original drafting of the Bill, but it may need to be if we are
talking about systemic risk and the ability to move in and protect
depositors.
Mr.
Hoban: The Minister is tempting me down a route by talking
about e-money—I quite regret having mentioned it. Are e-money
systems such as PayPal covered by the banking industry’s
responsibilities for payment systems under part 5? I am not sure where
such systems fit within the regulatory
framework.
Angela
Eagle: I think the answer is that e-money is regulated by
the FSA regulatory framework. That may change in the future; the idea
of regulatory frameworks is that they can evolve if the things that
they are regulating evolve. Part of the difficulty is that we are
trying to pass legislation that is to some extent future-proofed to
deal with a fast-moving and innovative part of the global economy. That
is why the proposals will broaden the scope of “financial
institution”. I do not want to give examples because such things
may not exist yet. The structure of companies that may have to be dealt
with in a future credit shock may not yet exist, but we want to give
enough scope under these powers for the Treasury and the authorities to
deal appropriately with a future systemic
problem. In
response to the hon. Gentleman’s specific question, I shall have
to write to him with details because he has been so innovative that we
do not quite know the answer, but I am happy to let him have an answer
in writing, if he is
concerned.
Mr.
Hoban: Can the Minister confirm for the sake of clarity
that, notwithstanding the broadening of the scope in respect of
institutions that can receive financial assistance, they can only
receive it under the Bill in connection with parts 1 to 3 and that it
will not go wider than the terms of the
Bill?
Angela
Eagle: That is a reasonable question. Under the powers in
the Bill, assistance can be provided other than in connection with a
special resolution regime for reasons of economic and systemic
stability. One of the most obvious examples of that is the guarantee
the Chancellor gave to depositors with Landsbanki, which is not in the
special resolution regime. However, some of
those powers are required in future to ensure that Landsbanki depositors
can be covered, so it is not only about matters within the scope of
parts 1 to
3.
Mr.
Hoban: I am now pleased that I asked the question, because
the Minister’s answer goes further than the clause suggests.
Clause 214(1)(a)
says “for
any purpose in connection with Parts 1 to 3 of this
Act”. Parts
1 to 3 deal with the special resolution regime, stabilisation powers,
bank administration and bank insolvency, but I do not think that the
guarantee given to depositors with Landsbanki and the other Icelandic
banks is covered by subsection
(1)(a).
Angela
Eagle: That is true, but clause 214(1)(b) goes beyond the
special resolution regime, as the hon. Gentleman will see if he looks
at it. It refers
to “a
UK authorised institution (other than in respect of loans made in
accordance with section
215)”. Subsection
(1)(b) takes the powers slightly wider than the hon. Gentleman
suggested. However, that is for the general good, for protecting
depositors and thereby for safeguarding financial stability—that
is the connection—but not only, necessarily, within the
insolvency situation of particular
banks.
Mr.
Hoban: I am grateful to the Minister for drawing my
attention to subsection (1)(b). I am not trying to be difficult, but
paragraph (b) would be fine if the definition was related to licensed
or authorised deposit takers. However, the change in the definition of
“a UK authorised institution” to include a bank or other
financial institution gives the Government powers to give any financial
institution money, not necessarily in connection with parts 1 to 3.
That makes the scope wider than I had anticipated, given the nature of
the Bill. I am not sure what safeguards there are to prevent a
Government from using the provision to give financial assistance to any
financial institution. There is no natural or obvious limit in the
clause, given the breadth of definition that we are now introducing in
the
Bill. 9.30
am
Angela
Eagle: I do not think that the hon. Gentleman is trying to
be difficult. He is right to probe the issues. He asks why the
definition is wider than the scope of parts 1 to 3 of the Bill. I ask
him to bear in mind what we are trying to do with the Bill, which is to
have a system that can be preventive—that allows earlier
intervention to prevent more of a systemic breakdown, if that is
appropriate—rather than having to wait until a bank has entered
the special resolution regime, for example. It may not always be
appropriate to wait until something has collapsed to provide financial
assistance; it may be appropriate to offer assistance at an earlier
stage of the process to ensure that we prevent damage that might happen
if we are prevented by law from intervening earlier.
For instance,
it might be appropriate to offer assistance to prevent a company from
entering the special resolution regime, or to support a bank to
stabilise it. The guarantee offered to depositors in certain
institutions and the recapitalisation scheme itself are recent examples
of action that stabilises before a collapse can happen. Therefore, we
think that it would be wrong to wait until
the bank entered the special resolution regime to be
able to provide assistance to it, and that is for preventive
reasons. I do not
think that any Government would want to go around injecting capital
into banks for charitable purposes. It is done to prevent a systemic
collapse and there are safeguards against the improper giving of money
to financial institutions.
The measure
is an enabling power. It does not mean that it will be appropriate to
give assistance to financial institutions willy-nilly, or just because
we wake up one morning and decide that it might be a good idea. It has
to be for the reasons that we have all discussed during our debates on
the Bill and indeed during the passage of the Banking (Special
Provisions) Act 2008.
We also have
to put it on the record that we need to ensure that we get value for
money for the money that we give, so the clause is about ensuring that
regular parliamentary powers apply to money that is given, rather than
using common law, and the powers go wider than perhaps the hon.
Gentleman had thought and also perhaps wider than our original
drafting, simply because of the fact that lessons have been learned
recently. The clause is about acting in a timely fashion to prevent a
worse situation happening, which can sometimes mean acting proactively
before a crisis erupts in its full form.
Having given
those reassurances, I hope that the hon. Gentleman will be happy with
the amendments.
Mr.
Hoban: Actually, I think I can help the Minister. I
appreciate the point that she is making about wanting to ensure that we
can give financial support before the special resolution regime is
invoked or before insolvency or administration. That is entirely
reasonable. I
just wondered whether in subsection (1)(b) the financial assistance
could be restricted to deposit-taking institutions, so that the
paragraph would read, “in respect of, or in connection with
giving, financial assistance to or in respect of a bank or other
deposit-taking institution”. I want to get round the issue about
when it is a UK branch or a UK-incorporated company. So, effectively
one can give financial assistance in respect of a deposit-taker in the
UK, but that financial assistance can be provided to a bank or other
financial institution. So we are trying to restrict the circumstances
in which the money can be given but broaden the people who the money
can be given to.
Angela
Eagle: Why would the hon. Gentleman want to limit
assistance in that way when doing so would mean that the powers of
intervention might not be able to cope with a particular instance? We
obviously cannot anticipate when assistance will need to be given to
protect UK depositors—Landsbanki is an obvious
example.
Mr.
Mark Todd (South Derbyshire) (Lab): I appreciate my hon.
Friend’s willingness to take examples and apply them. If a major
insurance institution that provides important support to deposit takers
found itself in difficulty—we can recognise straight away one
such institution across the pond that was the focus of Government
intervention—would not some flexibility to respond to another
financial institution that is not a deposit taker but is intimately
connected with the support of deposit taking be an important
requirement in the Bill?
Angela
Eagle: My hon. Friend, as he often does, has got straight
to the point. I apologise if I have been waffling around it. The hon.
Member for Fareham asked whether we should limit those powers to
deposit-taking institutions, but recent experience shows that other
types of institution can also get into difficulties. My hon. Friend is
right in the sense that AIG, the largest insurer in the world, had to
be bailed out—we can use that example because the Fed did it. It
is especially appropriately in the current climate that we take powers
that enable us to provide assistance to other institutions.
I would like
to reassure the hon. Gentleman that we have no immediate plans to
provide money to insurers or investment companies, but we think it
prudent in the current circumstances to take powers that are wide
enough to cope with any systemic situation that might occur, rather
than narrowing them. I emphasise that that is in the context not only
of the Bill, but of the need for proper value for money through
appropriate Government expenditure. No Government want to have to put
money into a private sector company, but some are so important to the
economy and the world financial system that, if needs be, they must be
supported. The hon. Gentleman is trying to narrow those powers and
limit their potential use, even though we hope that they will not have
to be used often, if ever again. He is wrong to think that narrowing
them in the current circumstances, considering the interconnectedness
of the financial systems, is the right thing to do at this
time.
Mr.
Hoban: I appreciate the Minister’s comments.
Importantly, the debate has established that the Government are looking
for powers to give financial assistance to any class of financial
institution that could pose a threat to financial stability. I might
not quite have understood the Minister’s opening remarks, but
that is quite an important power, and that needs to be acknowledged
when looking at the matter.
In essence,
that power will give the Government the opportunity to provide
financial assistance to any financial institution, regardless
of whether it is an authorised deposit taker or is helping to stabilise
an authorised deposit taker. It could be used to provide financial
assistance to a company such as AIG, if we had such a company in the
UK. It could be used to provide financial support to an AIG-type
institution, even if it is not a deposit taker. It is just now that I
have got to that point. The breadth of the power that the Government
are seeking goes way beyond the original wording of the
Bill.
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