Angela Eagle: Obviously, there has to be a systemic risk. The hon. Gentleman is right about insurers that are bound up in systems that may, in the end, lead to deposit-taking institutions after following a trail of instability back to a particular place. It may be the case that in certain circumstances a power to stabilise such an organisation is appropriate.
Mr. Todd: To try to be helpful, perhaps the focus therefore should not be on defining more closely the institutions that one might assist but the purpose that one would follow in assisting. We may come to this when we discuss financial stability in broader terms shortly, but perhaps a sharper definition of the purpose
Angela Eagle: Yes, but given that we have the Banking (Special Provisions) Act 2008 and are now seeking to replace those powers with a more permanent statutethat is what this Committee is doing this morningthe context is clear. I re-emphasise that there are limits on the power to spend value-for-money state aid and propriety limits. In the context of the Bill, we are discussing systemic risk, where the consequences of allowing something to fail are much greater because of its systemic importance than the consequences of intervening to save it.
Mr. Hoban: The hon. Member for South Derbyshire made a valid point about purpose. I am not sure that the purpose is as clear as it could and should be. In her responses to interventions, the Minister clarified the breadth of the power, but this is a Banking Bill, not a financial stability Bill. If there were some way of linking the use to which funds under clauses 214 and 215 could be used for the purpose of the financial stability objective, which is the context for the Bill, it would be helpful in giving people a clear view as to the purpose for which and circumstances in which the money could be used.
Amendment agreed to.
Amendment made: No. 29, in clause 214, page 102, line 15, leave out paragraphs (b) and (c).[Angela Eagle.]
Question proposed, That the clause, as amended, stand part of the Bill.
Clause 214, as amended, ordered to stand part of the Bill.
National Loans Fund
Amendments made: No. 30, in clause 215, page 102, line 26, leave out UK authorised institution and insert bank or other financial institution.
No. 31, in clause 215, page 102, line 28, leave out subsection (2).[Angela Eagle.]
Clause 215, as amended, ordered to stand part of the Bill.
Bank of England
No. 48, in clause 216, page 103, line 9, leave out , consulting the Treasury, determine and.
No. 49, in clause 216, page 103, line 11, at end insert
and monitor the delivery of that strategy.
No. 59, in clause 216, page 103, leave out lines 13 to 19 and insert
(1) There shall be a committee of the Bank, known as the Financial Stability Committee of the Bank of England, consisting of
(a) the Governor and Deputy Governor of the Bank,
(b) two members appointed by the Governor of the Bank after consultation with the Chancellor of the Exchequer, and
(c) four members appointed by the Chancellor of the Exchequer.
(2) Of the two members appointed under subsection (1)(b)
(a) one shall be a person who has executive responsibility within the Bank for financial stability analysis, and
(b) the other shall be a person who has executive resopnsibility within the Bank for financial stability operations.
(3) The Chancellor of the Bank of England shall only appoint a person under subsection (1)(c) if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Committees functions and after consultation with the Governor of the Bank.
(4) The Treasury Committee of the House of Commons may hold an inquiry into any appointment made under subsection (1)(c)..
No. 50, in clause 216, page 103, line 13, leave out from a to consisting in line 14 and insert Financial Stability Committee.
No. 68, in clause 216, page 103, line 14, leave out from of to end of line 19 and insert
8 non-executive directors of the Bank appointed by the chair of the court of directors (designated under paragraph 13 of Schedule 1)..
No. 51, in clause 216, page 103, line 17, at end insert
two other executives of the Bank appointed by the Treasury, and.
No. 52, in clause 216, page 103, line 18, leave out from 4 to end of line 19 and insert
other members appointed by the Treasury following a transparent appointment process overseen by the Commissioner for Public Appointments.
(1A) A person appointed under subsection (1)(c)
(a) must not be an executive of the Bank or a member of the court of directors of the Bank;
(b) must not be an active participant in financial markets;
(c) should have recent experience of financial markets, knowledge of legal or accountancy matters relevant to the special resolution regime under the Banking Act 2008, and international experience..
No. 53, in clause 216, page 103, leave out lines 21 to 23.
No. 62, in clause 216, page 103, line 21, leave out from first to to implementation in line 22 and insert decide upon the.
No. 70, in clause 216, page 103, line 21, leave out from first to to first the in line 22 and insert monitor.
No. 69, in clause 216, page 103, leave out lines 24 to 29.
No. 60, in clause 216, page 103, line 24, leave out give advice about and insert decide.
No. 61, in clause 216, page 103, line 27, leave out give advice about and insert decide.
No. 54, in clause 216, page 103, leave out lines 30 to 32.
No. 71, in clause 216, page 103, leave out lines 33 to 35.
No. 55, in clause 216, page 103, line 33, leave out court of directors and insert Treasury.
No. 56, in clause 216, page 103, leave out lines 42 to 43.
No. 57, in clause 216, page 104, line 16, leave out to (e) and insert or (c).
No. 63, in clause 216, page 104, line 23, at end add
(3) At the end of section 2(1) of the Bank of England Act 1998 insert and the Financial Stability Objective.
Clause stand part.
Mr. Hoban: This will be a long debate, as it includes a significant number of amendments and the clause stand part debate. I shall use the stand part debate on clause 216 to deal with the financial stability objectives set out in proposed new section 2A to the Bank of England Act 1998. This is an important area of the Bill because it deals with some of the changes to the institutional architecture in the tripartite arrangements, and in particular it deals with the scope of the Bank of England and how it carries out its duties.
The Bank has two functions under clause 216. First, it has a statutory objective of committing to protecting and enhancing financial stability, which is set out in proposed new section 2A. Secondly, proposed new section 2B establishes the financial stability committee, which will be a sub-committee of the court of the Bank of England, chaired by the Governor. I have tabled two groups of amendments to the clause. One groupamendments Nos. 56, 58, 59, 60, 61 and 62would make the financial stability committee a wholly executive body within the Bank of England. The second groupamendments Nos. 68, 69, 70 and 71would make it a wholly non-executive body. I have done that to stimulate debate within the Committee about the role of the financial stability committee, where it sits within the Bank, and what its powers and authorities are.
The Treasury Committee report on banking reform said:
The House of Commons should not be invited to consider and approve arrangements for the Financial Stability Committee as they standwith proposals of uncertain origin and with the purpose and composition of the Committee yet to be determined. This is because the committee is in danger of failing in both its executive and scrutinising functions as it is as drafted, a hybrid body.
That is the concern that we have. I want to use this debate to tease out the hybrid nature of the committee.
With regard to those amendments that would make the financial stability committee an executive body, the model that I have used is the Monetary Policy Committee. For the financial stability committee to be as effective as the MPC, there would need to be two fundamental changes to the proposals set out in the Bill; one relates to the composition of the committee and the other to its function.
The strength of the MPC is that it brings together a group of experts, some from within the Bank and some from external appointments, with a wide range of views. One only has to listen to the views of David Blanchflower today to understand the breadth of opinion in the MPC. That provides the creative tension that any committee needs to get to the right answer, using a breadth of views. Bringing in outsiders gives a broader perspective, and the MPC is credible because of the calibre of the appointments and the mix of internal and external appointments.
Given the importance of financial stability decisions, if we are to have a committee with the responsibility to promote financial stability, it is important that there is a
It is not only the Treasury Select Committee that suggested there should be expertise; the Chancellor of the Exchequer, speaking in the House of Commons on 5 June, said:
We should learn from the example of the Monetary Policy Committee, and take a similar approach to financial stability, bringing in outside expertise to advise the Governor and the appropriate deputy governor.[Official Report, 5 June 2008; Vol. 476, c. 916.]
Mr. Todd: The hon. Gentleman says outside, and one of the critical definitions of that implies outside of both executive and non-executive functions within the fabric. No MPC members currently serve on the court of the Bank, and neither should they. One of the important issues in defining what an outside individual issomething that perhaps the Chancellor muddied slightly in that commentis that a person should be entirely outside any structure within the Bank. Does the hon. Gentleman agree?
Mr. Hoban: That is what the debate is trying to tease out. If the financial stability committee is to have decision-making powers, it would be right for outside appointees to be genuinely external rather than non-executive. I will elaborate on that, but as I see it, the role of a non-executive directorin any organisationis one of scrutiny. They are not there to make executive decisions but to hold the executives to account. That is why audit committees of plcs are staffed almost entirelyif not entirelyby non-executive directors. It is the same with remuneration committees. If we ask a non-executive director to perform a role, generally that is in a scrutiny rather than an executive position.
The hon. Gentleman is right to make a distinction about the external appointees. If it is meant to be an executive committee, those people should not be non-executive directors of the court of the Bank of England, in the same way that they cannot be for the MPC. If it is a scrutiny role, they should be non-executive directors, and if it is not a scrutiny role, they should not be, because it muddies the water as to what non-executives should do.
I want to return to the parallel with the MPC. The Treasury Committees report tried to identify the strength of the MPC. It said that it has
a distinct status and authority as the body responsible for the formulation of monetary policy within the Bank of England
It noted that there was a clear separation from the court and said that the MPC had clarity of function. That goes back to the hon. Gentlemans point that there is no blur between oversight and executive powers.
Since the Chancellors statement in June, there has been a lack of clarity. The model now emerging is not akin to that of the MPC or to the scrutiny role that non-executive directors would introduce into the procedure.
Sir John Parker is a senior non-executive director of the court of the Bank of England. To his mind, the financial stability committee would make executive decisions
Ms Sally Keeble (Northampton, North) (Lab): In setting out his views, can the hon. Gentleman tell us what he believes that the scope of the executive decisions should be? That is the critical difference between the MPC and the financial stability committee.
|©Parliamentary copyright 2008||Prepared 31 October 2008|