Mr.
Hoban: If the hon. Lady will bear with me, I will come to
that. I have tabled amendments that redraw the scope of proposed new
section 2B(2), to try to distinguish between the executive and
non-executive functions that the two formulations could set
out.
As I was
saying, the Government are clearly of the view that the financial
stability committee should have executive decision-making powers, and
that the chairman should chair it in the same way as he chairs the MPC.
That would not be an unreasonable view to take if the committee were to
be an executive body. There has been some comment on this matter by the
industry. In its response to the January consultation, the Association
of British Insurers said that its preferred option would be a separate
expert committee, along the lines of the MPC, with responsibility for
financial stability. That would allow the court to deal with its more
administrative role. However, if the committee is to be an executive
body and carry that authority, I am not sure that it can be a
sub-committee of the court. That is why we would reconstitute the
committee, under amendments Nos. 56 and 58 to 62, to consist of the
Governor, the deputy governor, two members appointed by the Governor
and four members appointed by the Chancellor. It would then broadly
mirror the composition of the
MPC. The
Treasury Committee has suggested that the committees functions
should include liquidity operations outside the ordinary course of
business, such as schemes comparable to the special liquidity scheme;
the functionality of payment systems; formulating policy positions with
respect to prudential regulation; directing the Banks
analytical work on financial stability, including horizon-scanning for
potential risks; and decision making in relation to the special
resolution regime. That is a reasonable set of functions for an
executive body to have.
Amendment No.
62 would tweak proposed new section 2B(2) to make it clear that the
financial stability committee would decide upon the Banks
financial stability report, and that it is there to make not
recommendations but decisions. Amendment No. 60 would require the
committee to decide whether the Bank should exercise its stability
powers rather than simply give advice. Amendment No. 63 would carve out
from the courts remit responsibility for the financial
stability objective in the same way that the MPCs objective is
carved out of the remit of the court in the 1998 Act.
My amendments
set out how the committee could be given a purely executive function,
and would ensure that the composition of the committee reflected its
executive role, putting it on a par with the MPC in
terms of functionality and membership. That is a
clear model of how the committee could work, with collective decision
making. The amendments would ensure that a range of voices were heard
when the committee made decisions about financial stability, and would
broaden engagement in decision making beyond the confines of the Bank
to include people with relevant external expertise, such as those with
recent banking, legal or accountancy experience. However, the external
appointees would have to have the credibility to make those decisions
in the way that external appointees on the MPC have sufficient
credibility to ensure that its decisions are seen as credible in the
outside
world. 10
am Moving
to the second batch of amendments, the Governor might decide, in
relation to the tripartite authorities, that we do not want an
executive body to make decisions, and that we want them to be made as
they have been made in the past few years. What we actually want from
the financial stability committee is not a hybrid of executive and
non-executive roles, but someone who will hold the executive within the
Bank to account. I have sought under amendments Nos. 68 to 71 to bring
that
about. Significant
arguments can be made for a non-executive body, and I am agnostic about
which route we take. There are merits on both sides. I am not intending
to press the amendments to a Division, but this is an opportunity to
gain clarity from the Government about their
thinking.
Angela
Eagle: Will the hon. Gentleman explain why he thinks that
the interest rate decision made by the Monetary Policy Committee is
akin or similar to decisions that would have to be made in respect of
contributing to financial stability? One is a lever to be pulled, and
is connected to something; it is about the price of money. The other is
much more diffuse and cannot be dealt with in the same way as the
Monetary Policy Committee deals with interest rate decisions. Will he
share with the Committee his thoughts on why the institutional
arrangements for making the Monetary Policy Committee decision are akin
to those that he thinks the financial stability committee should be
making if it is doing its job?
Mr.
Hoban: We need a clear structure for the decision-making
process. There are two models that we could follow: one is to vest the
power to make the decisions with the executives of the Bank of England,
as happens at the moment, and the other is to give it to a separate
committee, the financial stability committee, which could make the
executive decisions on behalf of the
Bank. The
Minister is right to point out that the MPC meets only two days a month
to make the decisionsI accept that I am grossly
over-simplifying its role. The committee members undertake a lot of
analytical work between meetings. I am not sure to what extent they see
their role on the MPC as being full-time; I suspect that many external
appointees do see it as pretty much a full-time
role.
Mr.
Todd: An important function of the MPC that could be
paralleled in such a way is communication and debate about the credible
subject with which it is engaged. Typically, the MPC members visit a
substantial number
of bodies throughout the country, write articles and contribute speeches
to bring home some of the critical monetary policy issues. One of the
things that we have learnt about financial stability is that perhaps
the debate has not been vigorous enough and that some of the messages
have not been heard loudly
enough.
Mr.
Hoban: Indeed. The hon. Gentleman makes a powerful
argument for the financial stability committee to be constituted in the
same way as the MPC. I shall come back to that point in a
minute. The
strength of the MPC in decision making is that the breadth of its
appointments provokes and simulates a debate, the point made by the
hon. Member for South Derbyshire and, as David Blanchflower
demonstrated by his remarks today, there is every breadth of view about
some of the decisions. There is positive strength from engaging the
wider financial community in a debate about how to gain financial
stability. To go back to the Ministers point, the executive
committee can meet on a more regular basis than two days a month to
make such decisions. If my recollection is rightI think that it
isthe court of the Bank of England was convened in the evening
after support was given to Northern Rock to advise on the committee. It
is not impossible to get a committee together to make decisions so that
a continual debate is in progress rather than one that would be seen as
discrete and held only on a monthly
basis.
Ms
Keeble: What the hon. Gentleman has not mentioned, which I
asked him about, is the fact that the MPC has a clear target on the
inflation figures and, in interest rates, it has a clear lever, which
is very focused. It debates wider matters, but its purpose and function
is crystal clear and tightly defined in a policy framework set by
Government, and it has mechanisms to deal with that. That is different
from what he is saying about the FSC, which is an executive committee.
He needs to talk about the purpose, functions and mechanisms at its
disposal.
Mr.
Hoban: The hon. Lady makes an important point. In the
second half of my remarks, I will expand on the financial stability
objective. Clearly, the FSC is there to contribute to achieving that
objective. She is right that it is difficult to measure whether that
objective is achieved. One knows when one does not have financial
stability, but it is not easy to say when there is financial stability.
In his remarks to the Treasury Committee, the Governor said that during
the period of tranquillity the seeds of the current crisis were being
sown. That suggests that it is difficult to determine when there is
financial stability. Whether the committee is executive or
non-executive, there is a problem of how to measure and monitor its
performance. We
could talk about more qualitative measurein evidence to the
Treasury Committee, Sir John Parker spoke about a qualitative financial
stability objective. That suggests that when there is such a degree of
subjectivity, having more voices involved in the debate may be better
than having fewer, because that makes it harder to be as precise about
whether an objective has been achieved. On more subjective areas of
debate, more voices are needed to give different perspectives, rather
than there being a house view on how financial stability should be
achieved.
I
will return to the amendments, because we will discuss the other points
in a few minutes. One criticism of having an executive committee
centres on whether it can make decisions quickly and whether the
decision-making process is sufficiently streamlined. That relates to
the point underlying the Ministers intervention. I think that
that criticism is legitimate. As I said earlier, I am agnostic on which
model should be used, but I do think that there must be clarity,
whichever is chosen. As its remit is constituted, the FSC might not be
able to make the quick decisions that the Government and others will
expect it to make in the context of securing financial
stability. On
that basis, perhaps the right model is one of scrutiny, whereby the
committee will examine decisions once they have been made rather than
have an undefined role in making the decisions. That would send the
financial stability function of that committee down a sub-committee of
the court route rather than a hybrid route. It would clearly be there
to deal with issues of financial stability; it is a sub-committee of
the court. The financial stability board already exists within a court
structure. The deputy governor for financial stability is the chairman
of that board. Non-executive directors attend and attendance is open to
all members of the court. The Governor also sits on that committee. It
is not clear how the FSC as constituted in the Bill differs from the
financial stability board. That is the board that will hold the
Government to account.
If the FSC is
to be a purely non-executive body, it must have a non-executive
majority. It should not be party to executive decision making; its role
should be confined to a forum for taking soundings prior to decisions
being taken elsewhere by executives. It should be chaired by a
non-executive in the same way that audit committees or remuneration
committees are chaired in listed
companies. It
is always important that we listen to the views of the non-executive
directors of the court, who, in their memo to the Treasury Committee in
June, outlined their strategic lead role, saying that they could,
through the regular reviews that they
conduct, endorse
the Banks strategic objectives and work programme in relation
to financial stability; to review the linkages between the Bank, FSA
and HMT, as well as the Banks own capabilities, to ensure that
the Bank is equipped to discharge its financial stability
responsibilities; and to review the effectiveness of the Banks
work on financial stability issues, including the internal organisation
of that
work. That
is a good remit for a non-executive committee. It is not clear whether
those processes that they already undertake would be incorporated
within the FSC. If those are to be incorporated, that does not sit well
with having an executive
chairman.
Mr.
Todd: Does the hon. Gentleman agree that there is another
area of inconsistency in the Bill? Care is taken to define voting
rights and others matters of that sort that might be related more
clearly to an executive function, but is there an area of discrepancy
in respect of the non-executive roles that he has highlighted? I am not
sure that the hon. Gentlemans amendments change all those; as
with my amendments, I do not think that he went through with a
fine-toothed comb to produce entirely consistent positions. Is there a
discrepancy in
focusing on exactly how people vote and when they
are entitled to do so and having perhaps slightly less material about
setting out in law a non-executive
function?
Mr.
Hoban: The hon. Gentleman makes a good point about voting
rights. If the body is expected to be a decision-making body, there
must be absolute clarity about who votes and where that power rests.
With a non-executive body, the process does not need to be as precise.
I freely admit that if I were a parliamentary draftsman, I would
produce a better, more coherent set of amendments to create the
distinction between the two, but these are a peg for debate. The
questions about the hybridity of the committee have not been properly
addressed. This is our opportunity to do so and the Minister, too, will
have the chance to do so in her
reply.
Angela
Eagle: The hon. Gentleman is right: it is a recognisable
option to table two incompatible groups of amendments for debate.
However, which amendments does he favour? He has not told us
yet.
Mr.
Hoban: The Minister must have been preparing her speech
for later on and not listening to my remarks. I have said on two
occasions that I am agnostic about this matter because I can see merits
in both outcomes. I am not comfortable with the hybrid nature of the
measure in the Bill. These are probing amendments, not ones that I
would press to a vote, but I am keen to use them to get the Government
to express why they believe that a hybrid model is preferable to either
a purely executive or a purely non-executive model. That is the purpose
of this debate. I freely admit to having a strong belief in some areas
and being agnostic in others. There are not many things in life that I
am agnostic on, but this happens to be one of them. I will return to
the areas where I am less agnostic in later
debates. The
amendments offer two choices. One is to make the financial stability
committee a proper executive body, reflecting the strengths of the MPC
in terms of its composition and remit and using that as the model of
how an executive committee can function. The type of decisions that a
financial committee will make must be thought about carefully. There
are two choices: are those decisions best made by an executive body
constituted in line with the MPC, or are they are better made within
the Banks existing decision-making processes, but with stronger
scrutiny by the court of
directors? The
hybrid model confuses membership, accountability and responsibility.
Given the importance of the financial stability objective, it is not
helpful for that to be the case. There are other issues connected with
the financial stability objective which also make it harder to hold the
Bank, whichever model is used, to
account. The
hon. Member for Northampton, North looks as though she wants to
intervene 10.15
am
Ms
Keeble: I am not going to intervene. I want to make a
speech.
Mr.
Hoban: In the expectation that I have finished, perhaps. I
am afraid that that is not the case. It is quite a challengeto
my vocal cords as well as my powers of recollectionto have a
stand part debate after such a complex set of amendments. I will plough
on.
Ms
Keeble: It is a lonely
furrow.
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