Mr.
Hoban: It is right that the Government will ensure that
the people on the committee do not have a conflict of interest, but I
wonder how challenging that is to deliver in practice. Given the
interconnected nature of the financial services sector, the Chancellor,
or whoever selects the court members, will have to be very careful not
to appoint someone who has directorships across a range of City
institutions and is an active participant in the market, as they could
be excluded under the clause. The alternative is somebody who has
recently retired and has no interests, but whose market knowledge is
not as fresh as it might be. How will the Chancellor, in appointing
court members, to deal with that, particularly given the reduction in
the court’s size from 16 members to
nine?
Angela
Eagle: The hon. Gentleman rightly identifies some of the
issues that need to be balanced when deciding who to appoint. They are
not new issues for the court, however, because this part of the Bill
ensures that the financial stability committee itself comes under the
same regime that has worked successfully for the court of directors in
the past. He rightly points out that there is always a balance between
having those with enough up-to-date knowledge and savvy experience of
markets to be able to contribute and avoiding those who have so many
conflicts of interest that they have to leave the room for every
meeting. That balance will have to be borne in mind when the
appointments are made. I do not pretend that it will be easy, but those
matters will be in the Chancellor’s mind when he makes those
decisions.
As set out in
new section 2B(3), a Treasury representative and others may attend the
committee but they will have no say in decisions. The Bill also
provides the Bank with additional policy levers by which it can
contribute to financial stability. There was talk about a lack of
tools, but hon. Members recognised that the earlier part of the Bill,
which we shall start to discuss next week, puts other tools at the
Bank’s disposal to contribute to financial stability, in
particular its key role in the implementation of the special resolution
regime and oversight of inter-bank payment
systems. The
functions of the financial stability committee, which are set out in
new section 2B(2), reflect the committee’s role in advising on
and monitoring the Bank’s use of the new tools for maintaining
financial stability. The committee will make representations to the
court on the nature and implementation of the Bank’s financial
stability strategy. The court will then be able to delegate further
functions to the financial stability committee, if necessary.
I believe
that the clause establishes a coherent model for the financial
stability committee’s form and functions. Clearly that is why it
is in encompassed in the clause. We
have debated at some length a range of amendments
which seek to change in various ways the settlement of the structure
that is outlined in the clause. The hon. Member for Fareham talked
about hybridity, as he put it, and wondered whether we should have gone
for a pure executive committee or a pure committee of non-executives.
Decisions on financial stability may have to be taken extremely swiftly
in fast changing circumstances. It may be difficult to ensure that a
committee could meet with the urgency and frequency that the use of the
special resolution tools would require, which tends to militate against
a purely non-executive
committee. Mr.
Hoban: May I draw the Minister’s attention to new
section 2B(2)(b)? It states that one of the FSC’s functions will
be “to
give advice about whether and how the Bank should act in respect of an
institution, where the issue appears to the Committee to be relevant to
the Financial Stability
Objective”. That
decision may have to be taken quite quickly, but we are to have a
committee that will give advice on how the Bank should act. In a way
that new section demonstrates part of the problem: by the time the
committee talks about a particular institution it may be too late. It
may take too long to get the committee together to talk about how it
might approach a particular
institution.
Angela
Eagle: Obviously, the financial stability
committee’s work will relate to a range of work that the
tripartite system itself, in all of its forms, will be doing to monitor
the circumstances of the market. For example, although we do not
discuss it in the clause, the FSA has the duty to monitor particularly
important market participants on an ongoing basis. I do not anticipate
that a problem that serious would suddenly emerge and would not have
been tracked earlier as a potential risk. I do not envisage a problem
with getting monitoring and advice in a space of time that was too
short to draw together the members of the financial stability
committee—
Mr.
Hoban: It could make a
decision.
Angela
Eagle: Let me come to that. The hon. Gentleman referred to
the “hybridity” of the proposed model when expressing his
worry that perhaps we had not picked the right one. As I understand it,
he was getting at the hybridity between an executive committee, such as
the Monetary Policy Committee, and a scrutiny committee. The former has
been used as a model by both the hon. Gentleman and my hon. Friend the
Member for South Derbyshire and is clearly supported by the Treasury
Committee in its report, and the latter is the model that we are all
familiar
with. The
membership of the financial stability committee, as suggested in clause
216, reflects its functions. It is important to ensure that the
committee is set up in a way that best enables it to fulfil its
functions, rather than to compare it with very different committees. I
agree with my hon. Friend the Member for Northampton, North that the
Monetary Policy Committee is not a model on which to base the financial
stability committee, simply because the FSC’s job is very
different from and more complex and more difficult than the
nevertheless important one of the MPC—deciding on the price of
money, as reflected in an interest rate decision. The
FSC’s functions as set out in the Bill and
as reflected in
its membership are primarily advisory, but they are also supported by
monitoring functions. However, that does not mean that the committee
should be constituted of only non-executive
members. Mr.
Todd: I have already hinted that it is not explicitly
stated to whom the committee gives advice, whereas it is clear that the
recommendation should go to the court. The Bill is silent on who will
receive the committee’s
advice.
Angela
Eagle: That is not because we do not have a view on who
should receive the advice. It is not always the case that everything
about the operation of committees is necessarily set out in primary
legislation. On
a day-to-day basis, the financial stability committee will advise the
Bank’s executives, because it is they who will often need to
make decisions on how to deal with individual institutions, in perhaps
fast-moving conditions. The Governor and his executives derive their
authority from the court: they have delegated responsibility from the
court and are ultimately accountable to it. That will be consistent
with the strategy that the court of directors has agreed for fulfilling
the financial stability objective, and it will be the court that holds
executives and the committee to account for supporting it in meeting
that objective.
Some
decisions relating to financial stability will need to be taken by the
court of directors, particularly the setting of the financial stability
strategy. On some occasions a sub-committee will advise the court. The
approach is context-specific, and it sits better in practice than in
primary legislation. I hope that that gives my hon. Friend a view of
what was in our mind when we plumped for this
structure. 2.30
pm Our
model provides the best of both worlds; it allows executives and
non-executives to come together to discuss, debate and advise on
issues, including crucial decisions regarding banks and the operation
of the special resolution regime. In designing the financial stability
committee, the priorities of the Government have been to provide the
Bank with a single source of co-ordinated expertise and advice; to
monitor its functions and actions in relation to financial stability;
to ensure that the Bank’s executives can take timely and
informed decisions to safeguard financial stability in fast-moving
situations; and to draw clear lines of accountability from the
executive and from the financial stability committee to the
Bank’s governing body. The model that we are proposing will
allow us to achieve those
objectives. By
establishing the financial stability committee as a sub-committee of
the court, we integrate it into the existing governance structure
rather than tearing it up and starting again. That helps to ensure that
the financial stability committee will be central to the Bank’s
decision making on financial stability. The non-executive members of
the committee will provide vital expertise on financial stability,
while the executive members on the committee, including the Governor as
chair, will mean that the committee will be close enough to the action
to be able to give informed advice, often in fast-moving
situations. It
is right that the Bank’s executive takes the lead in operational
decisions, taking expert advice from the financial stability committee,
where possible. It would not be realistic to expect a committee
including the
expertise of non-executives to meet with the frequency that may be
required for decisions in fast-moving emergency
situations. I
hope that that approach at least explains the thinking behind the
model, hybrid or otherwise, that the Government have set out in clause
216 and I hope that it explains why we ask that all the amendments,
from amendment No. 58 to No. 63, not be moved or that they be voted
against.
The
Chairman: Mr. Todd, if you wish to come back on
that you must do so now; otherwise, Mr. Hoban will wind
up.
Mr.
Todd: I think that I formally moved the amendments in my
name.
The
Chairman: No, you did
not.
Mr.
Todd: I thought I said
so.
The
Chairman: Order. For the benefit of the Committee, the
procedure is that only the lead amendment is moved; the others are
moved formally in due course, if necessary. So the hon. Gentleman does
not have to withdraw his amendments, if that is what he was about to
do.
Mr.
Todd: Then I will explain why I will not move them, if
that is the case. The nub of this is a very English model, which will
greatly depend on the people who are appointed to the functions set
down in the Bill; it does not have the intellectual coherence that I
would like, but it may well work, and that is what we tend to do in
this country. On that basis, I will not move my
amendments.
Mr.
Hoban: I had hoped the Minister would address the
definition of financial stability, but she has not done so and, as this
is a stand part
debate—
Angela
Eagle: I am happy to come back to
that.
Mr.
Hoban: I should be grateful if the Minister made a long,
or short,
intervention.
Angela
Eagle: Perhaps if the hon. Gentleman makes a brief
intervention I can come back and make a longer intervention in answer
to his question, rather than try to fit it in quickly. It is not a
simple issue, Mr. Gale, as you will have noticed from our
earlier discussions. I am happy to come back on that; my apologies for
missing it out in my
response.
Mr.
Hoban: Mr. Gale, I am not sure where we are,
procedurally. I would find it more convenient, in winding up this
debate, if the Minister responded to my question about the financial
stability objective now; then I can come
back—
The
Chairman: If the hon. Gentleman would like to sit down, I
will call the Minister.
Angela
Eagle: Thank you, Mr. Gale; we got there in the
end. Again, my apologies for not covering this point
directly. The
debate featured just a sprinkling of the many different definitions of
financial stability that the Treasury Committee managed to uncover in
its hearings that various people, not only from the UK but from all
around the world, have come up with. The one that Nigel Jenkinson
quoted and the one that was quoted earlier from the Governor of the
Bank is perhaps as good as any. The fact that there are so many
definitions and they all differ slightly bears upon why there is no
direct definition of financial stability in the Bill in primary
legislation. We know it when we see it. In fact, some of the
definitions are of financial instability rather than stability. It is
interesting to note that Nigel Jenkinson in his evidence at the
beginning of this Committee’s proceedings
said: “I
do not personally think that it is necessary to have a definition of
financial stability in the Bill. We produce regular
reports”.——[Official Report, Banking
Public Bill Committee, 21 October 2008; c. 21,
Q54.] My hon.
Friend the Member for Northampton, North quoted some of them, as did
the hon. Member for Fareham.
Financial
stability is context-specific with a very broad definition that can
change quickly. We felt that it was such a moving target and so
context-specific that it would not fit easily in the Bill. The Bank, of
course, will have to agree its financial stability strategy with the
Treasury and we have every confidence that it will do so appropriately,
drawing on all the available international and academic sources. It has
the capacity to call in people to advise it on that subject. Rather
than have an awkward and rigid definition of financial stability in the
Bill, we felt that this would be the more appropriate and future-proof
way of dealing with it. I hope that helps the hon.
Gentleman.
Mr.
Hoban: I am grateful to the Minister for that addendum. In
a way it captures the essence of the debate we have had on clause 216.
It is an evolutionary
process.
Mr.
Todd: Suck it and
see.
Mr.
Hoban: That is absolutely where we are. The hon. Member
for Northampton, North gently chastised us for using the Monetary
Policy Committee as a model for this but I would point out that her
right hon. Friend the Chancellor of the Exchequer
said: “We
should learn from the example of the Monetary Policy Committee, and
take a similar approach to financial
stability,”—[Official Report, 5 June 2008; Vol.
476, c. 916.]
The present
Under-Secretary of State for Work and Pensions, her hon. Friend the
Member for Burnley (Kitty Ussher), said in July, only about six weeks
after the Chancellor came up with those wise words:
“I
know the comparison with the MPC has been made but I think it is an
entirely different
situation.” It
just shows that, even over the course of six or seven weeks, the
Treasury’s own view of this had evolved. We will see how
effective it is in practice. While not necessarily coming back to look
at legislation, I suspect that people will pore over the practice of
how the Bank of England
delivers and contributes towards maintaining and
enhancing financial stability. I am sure the Treasury Committee will be
kept busy for some time monitoring its activities in that
respect. This has been
a helpful debate. It has drawn out from the Government that we will
have to see how this works and think about the context. We are in
difficult waters at the moment trying to work out the right
institutional arrangements, but this debate has been helpful in
establishing the start of that process and we shall see how it
develops. I beg to ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
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