Mr.
Hoban: I beg to move amendment No. 64, in
clause 216, page 103, line 43, at
end insert— ‘(6) Proceedings
of the Committee shall be made public in good time unless disclosure of
the proceedings would result in a threat to financial
stability.’. This
goes back to how we hold the committee to account. Without wishing to
test your patience, Mr. Gale, the comparison is with the
MPC, which produces minutes on a monthly basis. They shine a light on
how the MPC operates, and its thought processes and deliberations. That
is exactly the point where there is a parting of the ways between the
MPC and the financial stability committee, and how we expect them to
work. From the discussions that we have had and on the basis of the
remit of the financial stability committee, particularly when it gets
down to institutional level, we know that specific data or information
about particular institutions will be discussed, and we need to be
careful about how that is
disclosed. At
the same time, there will be more generic debates about risks and how
the Bank responds to them, and how it exercises its functions under
part 5 to oversee inter-bank payment systems. As there will be
legitimate public interest in those matters, I tabled this probing
amendment to understand from the Minister how she would expect the Bank
to report and make known the operations of the
committee.
Mr.
Breed: The debate on the last set of amendments was
useful, and I think that to come to no overall conclusion after two and
a half hours of discussion is probably about
right. Comparison
was made with the MPC. One of the great principles of the MPC is that
it publishes its findings, albeit some weeks later, which give some
reasonable idea of its operation. The amendment seems entirely
appropriate, in the sense that if we are to make such comparisons and
try to get to that, it would be appropriate for the financial stability
committee to publish its proceedings as well. Of course, the sting in
the tail is that that could create the financial instability that the
financial stability committee is supposed to address. It would torpedo
itself. I
am not entirely convinced by all of this. The situation that pertained
at one time was that the central bank—the Bank of
England—was charged with responsibility for financial stability,
had a deputy governor in charge of it, and had it on the agenda of the
court on a fairly regular basis, yet we are now supposedly to have an
independent Bank of England, and we are telling it how it should carry
out that function. I am happy that we will support the
proposal.
If
we are to understand whether the financial stability committee is
working, its proceedings will have to be published; otherwise, all of
what we have done or are trying to do will be to very little point. I
expect that, inevitably, there will be confidentiality in respect of
some aspects of the committee’s proceedings, and it might be
right for those aspects not to be published, but on the whole it would
be appropriate to publish the proceedings. I support the
amendment.
Angela
Eagle: We have already discussed how financial stability
issues are different from monetary policy issues, and said that owing
to the nature of financial stability, discussions will often be
particularly market-sensitive, and at times firm-specific in nature. It
is important to bear that fact in mind as we consider
amendment No.
64. The
amendment seeks to place an obligation in the Bill that the proceedings
of the committee should be made public in good time, unless doing so
would result in a threat to financial stability. As the Chancellor said
on Second Reading, the financial stability committee’s
deliberations will be made public, although not immediately. The hon.
Members for Fareham and for South-East Cornwall acknowledged obvious
reasons for
that. We
do not consider it appropriate to include such a requirement in the
Bill, but we expect that the deliberations will be made public in due
course—sometimes in a more timely fashion than at other
times—depending on the context, and it will be for the Bank to
decide how it does that. I hope that, with those reassurances, the hon.
Member for Fareham will withdraw the
amendment. The
hon. Member for South-East Cornwall said that the Bank was independent.
It is independent with respect to monetary policy, but it has other
duties, as part of the tripartite arrangement and to Parliament, which
do not make it independent in every aspect. Clearly, it will want to
ensure that it continues to engage with expert advice and the public,
and to explain what it is doing in this important part of its
work. 2.45
pm
Mr.
Hoban: I am grateful to the Minister for those comments;
she makes some valid points. My only comment is about the
timing—the delay between meetings and the publication of
minutes. If a pattern is established of the minutes being published on
the last day of every month but suddenly they are delayed by six weeks,
that would trigger concern about financial stability in the market. We
need to be clear about frequency, timing and the expectations of the
markets of how the information will be disclosed. However, I beg to ask
leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
216 ordered to stand part of the
Bill. Clauses
217 and 218 ordered to stand part of the
Bill.
Clause
219Chair
of
court Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: The clause gives the Chancellor of the Exchequer
the power to designate a member of the court to chair its meeting.
Could the Minister elaborate, confirming whether that will be an
executive or non-executive member of the
court?
Angela
Eagle: The clause provides for the court to continue being
chaired by a non-executive. Although, under the Bank of England Act
1998, the Governor chairs the Bank’s court of directors, since
2003 the Governor has delegated the chairmanship of court to one of the
non-executive directors. This change formalises in legislation what has
been practice since 2003. It is a sensible provision, which formalises
the Bank’s current practice and is fully supported by the Bank
of England. I hope that the hon. Gentleman will be happy for the clause
to stand part of the
Bill. Question
put and agreed to.
Clause 219
ordered to stand part of the
Bill. Clause
220 ordered to stand part of the
Bill.
Clause
221Tenure
Mr.
Hoban: I beg to move amendment No. 65, in
clause 221, page 105, line 24, at
beginning insert— ‘(A1) In
paragraph 1 of Schedule 1 to the Bank of England Act 1998 (Governor and
Deputies: appointment) for sub-paragraph (1)
substitute— “(1)
Appointment as Governor of the Bank shall be for a period of 8
years. (1A) Appointment of the
Deputy Governor of the Bank shall be for a period of 5
years.”’.
The
Chairman: With this it will be convenient to discuss the
following amendments: No. 66, in clause 221, page 105, line
24, leave out from first ‘of’ to ‘add’ in
line 25 and insert ‘that
paragraph of that
Schedule’. No.
67, in
clause 221, page 105, line 26, leave
out ‘twice’ and insert
‘once’.
Mr.
Hoban: The amendments refer to the tenure of the Governor
of the Bank of England. The clause limits how many terms the Governor
can serve—he can serve no more than two terms. It is the view of
my party that those arrangements work against the perception of the
Governor of the Bank of England as independent. The fact that the
Governor has to be—can be—reappointed could create in the
minds of observers some doubt as to whether he is independent of the
Chancellor. The Governor may wish to be reappointed, and there may be a
sense that he tempers his decisions so as to improve the chances of his
reappointment. To be absolutely clear, I do not believe that that has
occurred so far, but there is potential for that risk in the
future. As
a consequence, on several occasions we have proposed that the Governor
should serve a single, non-renewable term of eight years. That is in
line with the term served by the governor of the European Central Bank,
who serves a single eight-year term. Such a provision would enhance
people’s view of the independence of the Governor. Other
processes too could be used to strengthen the independence of
appointments, to ensure, for example, that the process is open and
transparent. There have been cases in the past where appointments to
the MPC have not been made openly and transparently; we think that that
should change. The Chancellor of the Exchequer has recognised that in
connection with other appointments to the MPC.
We also felt
that, when it comes to the reappointment of the current Governor, at
the time of the current period of financial instability, there could be
a concern that the Governor may have been put under pressure, because
he was awaiting reappointment. It would be better to have much greater
clarification about Governor status than is the case at the moment,
where it is possible for the Governor to be appointed for a second
term. We therefore believe that a longer single term is in the wider
interests of the Bank of England and of ensuring that the Governor is
seen to be independent of the Treasury.
Angela
Eagle: In considering the amendments, it might help if I
explain some of the context of clause 221 as it currently
stands. In his letter to the Treasury Committee of 19 June 2008, the
Chancellor set out his plans to strengthen the procedure for future
appointments to key roles in the Bank and the Monetary Policy
Committee. These measures include limiting external appointments made
by the Government to the Monetary Policy Committee to a maximum of two
terms, and limiting the Governor and deputy governors to serving a
maximum of two five-year terms in a particular
post. While
not captured in the legislation before us, the Chancellor also
announced that in future, vacancies for Governor and deputy governor
and external Monetary Policy Committee appointments would be openly
advertised and be conducted in a way consistent with the principles of
open competition. With respect to the tenure of the Governor, which
these amendments seek to change, the current five-year term for the
Governor and deputy governor was set at the time of nationalisation in
1946 and has proved itself perfectly effective ever since.
Turning to
the specific amendments, we believe that having a maximum of two
five-year terms in office offers a strong balance between certainty and
continuity on the one hand, and flexibility on the other. A five-year
term for the Governor, with the possibility of a second term, gives
that individual a natural break point at which they can consider
whether they wish to continue in the role. It also gives them something
to work towards and provides an opportunity to consider their
performance. In contrast, a single eight-year term might actually
discourage some strong candidates from applying, as they do not feel
that they can make such a long commitment. It might also increase the
likelihood that a Governor would step down mid-term, potentially
creating uncertainty and speculation in the financial markets. It is
for those reasons that the Government oppose amendments Nos. 65 to 67.
I hope that the hon. Gentleman will recognise that there are arguments
on this side, as well as his own advocacy for a longer term, and he
should take them seriously when considering whether he wishes to press
the amendment to a
vote.
Mr.
Hoban: I do not intend to press the amendment to a vote,
but not because I have been persuaded by the Minister’s
argument—far from it. However, we shall live to fight this
battle another day. With that, I beg to ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Clause 221
ordered to stand part of the Bill.
Clause 222
ordered to stand part of the Bill.
Clause
223Weekly
return Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: The clause removes the requirement established by
the Bank Charter Act 1844 that the Bank of England must produce a
weekly return of accounts. My understanding is that, following the
passage of this change, the Bank will be able to determine whether, and
in what form, it produces a return.
My
understanding is that the genesis of this change was the debate that
took place around Northern Rock last year. There was some debate about
whether Northern Rock could have been saved if there had been a less
transparent process. A great deal of that argument rested on the market
abuse directive, whether a consortium of banks could pull together to
buy Northern Rock, and a whole host of arguments around that. That is
not necessarily germane to the amendment, but one argument made at the
time was that the Bank of England’s weekly return would disclose
financial assistance given to a bank, which might trigger awareness in
the market of a bank receiving financial support. Hon. Members may
recollect that it was the Governor’s announcement that Northern
Rock was in receipt of support from the Bank of England as a lender of
last resort that triggered the run on the
bank. The
Government consultation response stated that there had been support for
the change, but the summary of consultation responses suggests that
very few people responded to the proposal to withdraw the weekly
return. Can the Minister elaborate on what the alternative mechanism
for reporting the Bank of England’s assets and liabilities might
be? Is there widespread support for it? It appears to have generated
relatively little interest in the
consultation.
Angela
Eagle: The clause removes the requirement, established in
the 1844 Act, on the Bank of England to produce a weekly return of
accounts. That requirement has since been overtaken by other elements
of transparency, but it has remained and the Bank has always done it,
with nobody realising that it might cause a problem until recent
events, as the hon. Member for Fareham pointed
out. In
removing the requirement, the clause removes the legal obligation that
could give rise to unnecessary early disclosure of liquidity support. I
want to reiterate that the Government have a strong commitment to
transparency and believe that the free and effective flow of
information is vital, both to a functioning market and to the trust
placed in public institutions. In periods of high market stress, as we
have been experiencing recently, there may be circumstances where
immediate disclosure of liquidity support is in no one’s best
interests. The clause allows the Bank to delay the disclosure of
liquidity assistance.
The clause
operates together with clause 230, “Registration of
charges”, to remove provisions that may require premature
disclosure of liquidity assistance by the Bank of England. Clause 223
addresses disclosure from the Bank, while clause 230 addresses
disclosure from the recipient institution. The Bank of England weekly
return is a short weekly statement of accounts. It has ceased to be
needed as a record of the Bank’s
activities since other instruments, including an
annual statement of accounts, have superseded it. The Bank also remains
subject to normal Office for National Statistics and Companies Act
reporting
requirements. The
publication of a weekly return is not only unnecessary, but potentially
damaging. Analysts have been monitoring the return to detect changes in
the Bank of England’s capital position that may indicate that
liquidity assistance has been provided to a market participant. In the
case of Northern Rock, for example, analysts studied the return in an
attempt to determine the amount of liquidity support drawn down.
Members will be aware that early disclosure of liquidity assistance of
that kind can be deeply damaging, and can potentially lead to runs on a
bank or a serious effect on market sentiment. The clause, therefore,
addresses one avenue of such early disclosure, which is a reasonable
and proportionate
step. Members
will rightly wish to know for how long the Government expect the Bank
of England to limit disclosure of liquidity assistance. The Government
have been consistently of the view that it is neither right nor
practicably possible to restrict disclosure over anything other than
the short term; Members raised that point during the Second Reading
debate. The Government do not expect the Bank to keep liquidity support
covert permanently or for any substantial period. However, it is
possible to delay disclosure, and that could make a significant
difference to the effectiveness of liquidity assistance. The clause
takes an important step in working to achieve that.
Members
will understand that it is not possible for the Government to indicate
any precise time frame for the period under which restriction of
liquidity support will be kept covert—to do so in advance is
necessarily arbitrary, and could also be counter-productive in that it
would invite analysts to continue intensive scrutiny after whatever
period the Government had
announced.
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