(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 bankthe Bank of Englandwas 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 committees 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 committees 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 coursesometimes in a more timely fashion than at other timesdepending 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.
Mr. Hoban: I am grateful to the Minister for those comments; she makes some valid points. My only comment is about the timingthe 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.
Chair 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 Banks 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 Banks 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.
(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 servehe 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 becan bereappointed 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 peoples 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 Ministers argumentfar 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.
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 Englands 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 Governors 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 Englands 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 ones 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 Banks
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 Englands 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 covertto 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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