Ian
Pearson: I understand the concerns of the British Bankers
Association on that matter, and my officials have had extensive
discussions with its representatives. It is represented on the expert
liaison group, whose views we have been listening to intently. It is
fair to say that partial transfers are the most contentious part of the
special resolution regime. We are keen to ensure that creditors are no
worse off in the case of partial transfers, which is one of the reasons
why we inserted clauses in the Bill that will enable us, through
secondary legislation, to provide strong safeguards.
As I have
explained, we are consulting on both the code and some of the
legislation on safeguards for partial property transfers. If I may
engage in a little publicity, the document “Special resolution
regime: safeguards for partial property transfers” is available
today at the very reasonable price of £14.35, but it is free to
members of the Committee, who I am sure would like to take one from the
brown box in the Committee Room. The document answers several of the
points that the hon. Member for Southport raised because it
specifically covers set off and netting arrangements, security
interests, structured finance and third-party compensation. It includes
consultation on the code, which the hon. Member for Fareham also talked
about on several occasions. We are keen to see comments on the code
from
outside. Mr.
David Gauke (South-West Hertfordshire) (Con): We will have
a greater opportunity to debate those matters when we get to clause 43
and, to some extent, clause 42. Is the Minister saying that the
safeguards will be included in the secondary legislation or in the code
of practice? Presumably there will be a combination of the two, but can
he give us some guidelines on what the balance will
be?
Ian
Pearson: The stakeholders we consulted this year have been
very much of the view that they want the safeguards in secondary
legislation, rather than in the code. We have taken that to heart,
which is why we have produced the consultation document. It is right
that those safeguards are enshrined in secondary legislation. When the
hon. Member for Fareham has had an opportunity to look at what we are
proposing, he might start to take a different view of the code than
that expressed in his previous comments. Rather than putting the
safeguards in the code, it is right that they should be enshrined in
secondary legislation and that Parliament should have an opportunity to
debate them. We have tried, as far as possible, to reflect the views of
stakeholders in the secondary legislation.
The hon.
Member for Fareham rightly said that it is easy to recognise what
temporary public ownership or a private sector purchase are, but that a
bridge bank is slightly different and might appear strange to people
from outside looking at our deliberations, so I shall explain in a
little more detail what the bridge bank option will do. In essence, the
bridge bank option will give the Bank of England the opportunity to
stabilise a bank, preserve franchise value and ensure that consumers
have continued access to banking services. It will provide
the Bank with time to pursue a private sector solution where that could
not otherwise have been arranged immediately by allowing, for example,
potential acquirers the necessary time to carry out essential due
diligence on the business. The bridge
bank option is important, as it enhances the possibility that the
authorities can facilitate the onward sale of the bank to a private
sector purchaser, which, as I have said, is the Government’s
favoured option for bank resolution. I understand the views that Angela
Knight from the British Bankers Association has expressed. In response
to the hon. Member for Southport, the BBA and the Building Societies
Association recognise the potential utility of the bridge bank as a
tool, but they have concerns about the safeguard provisions and the
situation of creditors, which we are trying to
address. Of
course, it is important that bridge banks be managed in the right way.
The hon. Member for Fareham raised issues about what we mean by
management on a conservative basis. It is appropriate to set out how
that will work in practice in greater detail and, to that end, the code
of practice, which the Committee considered on clause 5 and which is
available for consultation, makes illustrative provision.
It may be
helpful to put on record the fact that the Bank of England will not
profit from operating a bridge bank. The compensation provisions, which
will be discussed in detail in due course, provide that a bank
resolution fund must be established when a bridge bank is created. The
fund provides the failing bank with a contingent economic interest in
the resolution. The bank resolution fund is a scheme under which the
failing bank becomes entitled to the proceeds from the sale of some or
all of a bridge bank’s business, less any deductions necessary
to reflect the use of public funds in the resolution, including the
placing of public funds at contingent risk, or any other costs of the
resolution. On the winding-up of the failing bank, the net proceeds of
the resolution will flow to the creditors and, should creditor claims
be satisfied in full, the shareholders of the failing
bank.
Sir
Peter Viggers: I am listening carefully to the Minister.
He said that the entitlement would be minus any amount reflecting the
net cost. Is he referring to the Treasury and Bank of England costs of
administering the bank? There must be management and administrative
costs involved. I imagine that most costs would be ring-fenced within
the bank, but there must be costs of administering the entity at the
centre. How will the costing be done and how will the Government,
through their various manifestations, charge for
management?
Ian
Pearson: My understanding of the legislation is that the
Bank of England, which will be pursuing the stabilisation option, can
retrieve its costs from the bridge bank. I am not aware that there are
likely to be substantial Treasury costs involved, but if I have
information about that, I will get back to the hon.
Gentleman. Let
me take up the other points raised in the debate about the bridge bank
being managed on a conservative basis. The bridge bank will carry out
the banking business transferred to it, which is likely to be
predominantly deposit taking. It could take on new business, but it is
not at all intended that it compete aggressively in the marketplace. Our
intention is to return a bridge bank to the private sector swiftly, if
that is consistent with the special resolution objective and meanwhile
operate the bridge bank conservatively. I do not
believe that the bridge bank would have an unfair advantage over
private sector banks or that it would distort competition. It would be
inappropriate for a bridge bank to compete unfairly on the back of
public sector support and we do not intend that to happen. EU state aid
rules and other relevant competition rules would prohibit it in any
case.
1.30
pm In
conclusion, I believe that having the provisions as a tool will be an
important part of what we need to put in place for the future. It would
not be sufficient to have only the ability to take a bank into
temporary public ownership or to transfer it to a private sector
purchaser. This is an essential tool but, as with all these tools, we
hope it will not have to be used. Given the circumstances in respect of
bridge banks and the issue of partial transfers, it is right that we
consult widely with the industry about the potential ramifications and
that we take due consideration of the views expressed to us in
response, which the hon. Members for Southport and for Fareham have
already mentioned. I am confident that as a result of that consultation
we can produce secondary legislation that will give safeguards on
partial property transfers. Our early discussions with the industry
have been
positive. Question
put and agreed to.
Clause
11 ordered to stand part of the
Bill.
Clause
12Temporary
Public
Ownership
Ian
Pearson: I beg to move amendment No. 90, in
clause 12, page 7, leave out line
4.
The
Chairman: With this it will be convenient to discuss
Government amendment No.
91.
Ian
Pearson: These minor amendments are technical
clarifications to the code of practice provisions in relation to banks
and temporary public ownership. Amendment No. 90 removes the
requirement for the code of practice to make provision about the
content of share transfer orders. Every share transfer order will be
different, as determined by the particular bank in question. As such,
it is not appropriate for the code of practice to attempt to describe
in detail the content of such
orders. Amendment
No. 91 clarifies the code of practice provisions in relation to banks
in temporary public ownership. As currently drafted, the code would
have to make provision about the management of transferees. However,
the code should not provide guidance on the management of the owner of
the bank in temporary public ownership, that is the company fully owned
by the Treasury or a nominee of the Treasury. Rather the code needs to
make provision about the management of the bank itself.
Amendment
agreed to.
Amendment
made: No. 91, in
clause 12, page 7, line 5, leave
out ‘transferees under share transfer orders’ and
insert ‘banks taken into
temporary public ownership under this section’.—[Ian
Pearson.] Clause
12, as amended, ordered to stand part of the
Bill.
Clauses
13 to 15 ordered to stand part of the
Bill.
Clause
16effect
Mr.
Bone: I beg to move amendment No. 113, in
clause 16, page 8, line 10, at
end insert— ‘(3A) Subsection
(3) has effect notwithstanding any provision in European Union
law.’.
The
Chairman: With this it will be convenient to discuss
amendment No. 114, in
clause 31, page 14, line 7, at
end insert— ‘(3A) Subsection
(3) has effect notwithstanding any provision in European Union
law.’.
Mr.
Bone: I tabled these two amendments to help the
Government. I hope that when I have explained them they will be
accepted, or at least the Government will think about them and come
back on Report.
We are
talking about a Bill and provisions that we hope never to see in force.
If we had been talking five years ago about banks collapsing and the
need to make provisions for them, people would have laughed—it
just does not happen. It happened a hundred years ago. So, it may be
that all our deliberations are for nothing. The Act may never come into
force. The Minister has said on many occasions that it will only be
called on in exceptional circumstances. I agree with that, but he has
also gone on to say on a number of occasions that we want clarity and
speed. If there is a failing financial system, speed is needed to deal
with the outcome. The Bill seeks to ensure that the effect of
transferring shares—or of transferring property, which my other
amendment refers to—can happen straight away, without
interference. It is clear that that is the intention of clauses 16 and
31. The transfers will have effect whatever any legislation says, so
any contract law or other legislation will be ripped up to allow for
these special, unusual provisions—temporary ownership of a bank,
for
example. The
problem is that the Single European Act overrides, or at least the
Government believe that it overrides, existing UK legislation. We could
find ourselves in the kind of situation that I think has already come
about in the current financial debacle, in relation to Northern Rock.
The Northern Rock provisions were delayed because the Government had to
get clearance from the EU that there was not a problem with state aid.
That clearance was negotiated and achieved, but it took time. If the
special provisions in the Bill ever needed to be used, speed would be
required. The whole Bill is designed for speed. There can be partial
ownership, a sale to a private sector purchaser or nationalisation.
What we cannot have is the European Union saying, “Hang on a
minute; you can’t do that. You are in breach of EU law.”
Worse still would be the EU not making that decision and not saying
anything, leaving us in limbo. It would say, “You might be in
breach of EU law, so you
can’t do it,” and meanwhile the whole of our financial
system would collapse. That cannot be allowed. The Government will
possibly put two fingers up to the EU and do it anyway, but we do not
want to be in that situation. The Government have made it clear that
their intention, despite what the EU says, is that this will happen.
That is what I assume; if the Minister says that that is not the case,
we have a serious
problem. The
Minister might be minded to say to me, “You can’t do
this. You can’t add that amendment because it is not
legal.” I am afraid that I am not a lawyer, and I apologise for
any mistakes that I might make in the pronunciation of some of the
cases that I will mention. The Minister might refer to the Factortame
case, which relates to the Merchant Shipping Act 1988. The European
Court of Justice—the Luxembourg-based judges who extend our law,
almost behind our backs—ruled that that Act was illegal. The
matter went to the House of Lords, where it was decided that the
European Union Act is incorporated into British parliamentary law. That
makes it difficult for us to overcome the problem that I have been
talking about. We cannot be sure that the transfers of property or
shares could occur without EU approval, and in the turmoil we might not
get that approval, or it might be delayed. If that was the case, there
would be no point in making the proposal. However, no one Parliament
can bind a following Parliament. It does not have the power to do that,
even if it wanted to, despite what some Ministers think. We are a
sovereign nation. It will be helpful to the Committee to know that that
is not my personal opinion, and that it is therefore not necessarily
correct. The
Thoburn v. Sunderland city council case was on this very matter.
With your permission, Mr. Illsley, I shall read a short
paragraph from the conclusion. Lord Justice Laws
stated: “Whatever
may be the position elsewhere, the law of England disallows any such
assumption. Parliament cannot bind its successors by stipulating
against repeal, wholly or partly, of the 1972 Act. It cannot stipulate
as to the manner and form of any subsequent legislation. It cannot
stipulate against implied repeal any more than it can stipulate against
express repeal. Thus there is nothing in the 1972 Act which allows the
Court of Justice, or any other institutions of the EU, to touch or
qualify the conditions of Parliament’s legislative supremacy in
the United Kingdom. Not because the legislature chose not to allow it;
because by our law it could not allow it. That being so, the
legislative and judicial institutions of the EU cannot intrude upon
those conditions.”
It is quite
clear from that judgment that any Government could put a little line
in, as my amendment does, to take the EU law out of a specific Act.
That can be implied or real. In here it will be real because we are
saying it. Is it the Government’s view that the Bill as it
stands would allow all these special provisions to occur without any
regard to EU law? If that is the case, I will be content, but I still
think it would be useful to have my amendment. If it adds nothing, it
does not damage the Bill. However, it may help to clarify the position
so that the law is as I think the Government want it to be. Therefore
in this extreme emergency, which we hope will never occur, there will
be clarity that what the British Government and this Parliament decide
is the law and cannot be overturned by a small group of judges in
Luxembourg who say, “By the way, you cannot have temporary
ownership of the bank. You cannot sell it on privately despite the fact
that you have torn up all your own laws of contract or your competition
laws.”
I do not want
the Minister to tell us that we are the heart of Europe and that that
will never occur. We are talking about extreme circumstances. I need to
know, before deciding whether to press the amendment to a vote, whether
the Government intend our law to be supreme or whether they accept that
the EU will look at our decisions and then decide whether we can
proceed. If that happens there will be delay and there would not be
clarity. I am grateful to the Committee for listening to that point and
I shall be interested to hear what the Minister has to say in
response.
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