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
for intervening in the marketplace in this way might
be of more assistance than querying the institutions that might be
assisted.
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 statute—that is what this Committee is doing this
morning—the 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.
Clause
215National
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.
Clause
216Bank
of
England 9.45
am
Mr.
Hoban: I beg to move amendment No. 58, in clause 216, page
103, leave out lines 9 to
11.
The
Chairman: With this it will be convenient to discuss the
following amendments:
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 Committee’s 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 group—amendments Nos. 56, 58, 59, 60, 61 and
62—would make the financial stability committee a wholly
executive body within the Bank of England. The second
group—amendments Nos. 68, 69, 70 and 71—would 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
stand—with 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
clear decision-making process, and that such
decisions are made by a wider range of individuals than is currently
the case. That is why there should be external members who can give a
wider perspective. The amendment tabled by the hon. Member for South
Derbyshire suggests the type of person who might become a member of the
committee. 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
is—something that perhaps the Chancellor muddied slightly in
that comment—is 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 director—in any organisation—is 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 entirely—if not entirely—by 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 Committee’s
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.
Gentleman’s point that there is no blur between oversight and
executive powers.
Since the
Chancellor’s 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
relating to individual actions. That contrasts with
the existing financial stability board within the Bank, which is open
to non-executives and does not make executive decisions. In his
comments, the Governor said that there should be an executive element
to the financial stability committee, and that the holder of his post
should chair it; otherwise, the committee will not get to grips with
the policy issues faced by the Bank. 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.
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