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Lord McIntosh of Haringey: I suppose I will have to, yes.

Lord Peston: I thank my noble friend for his positive answer. I am somewhat torn. We are not making very rapid progress. I would like to debate with him whether "mission statement" is worse than "core objectives"--I find both equally loathsome. Equally horrible is the word "chair" instead of "chairman", which I regard as the worst solecism of all, and which I never use. I thank my noble friend, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.7 not moved.]

5.30 p.m.

Lord Mackay of Ardbrecknish moved Amendment No. 8:

Page 3, line 12, at end insert ("and make a statement to Parliament on the contents of the report").

The noble Lord said: In moving Amendment No. 8 I shall be brief as it is pretty self-explanatory. The Bill as it stands says:

That, of course, can mean there may be a debate, if arrangements are made, or there may not. I have added the words,

    "and make a statement to Parliament on the contents of the report",

to take this one step forward, so that it is not just a matter of laying the report before Parliament. This could be a very important document, especially if we discover what the mission statement is, and this amendment could give both Houses the opportunity to discuss serious issues relating to the Bank. However, the problem, as I see it, is that laying copies before Parliament does not necessarily mean that there will be any kind of question and answer or debate, which is why I put in the words I have proposed. I shall be interested to hear what the Minister has to say. I beg to move.

Lord McIntosh of Haringey: I hope we can do better than that. The Chancellor said on 20th May last year that he would arrange for a debate in the Commons on the Bank's annual report. If I may speak to myself as a "usual channel", I shall encourage myself to see that a comparable debate is arranged in this House. The noble Lord will agree that a debate would be much better than a statement. A statement is a very limited thing which provides only for questions from principal Opposition spokesmen and then 20 minutes of Back-Bench contributions. We would much prefer to have a full debate and that is the intention.

Lord Mackay of Ardbrecknish: I am delighted to hear that. I thought, when I was preparing this this morning, that I had asked for the wrong thing; I should

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have asked for a debate. But I am delighted to hear that the Chancellor has given that indication to the other place, and that the Minister appreciates that this House would also like that opportunity. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 [Cash ratio deposits]:

The Earl of Home moved Amendment No. 9:

Page 3, line 25, after ("with") insert (", and the payment of fees in lieu of such deposits to,").

The noble Earl said: As we are now moving on to the financial arrangements and the payment of fees, perhaps it is appropriate that I should again declare an interest in that I am a director of a merchant bank, Morgan Grenfell. It is a British registered merchant bank and ultimately owned by the German Deutsche Bank.

Amendment No. 9 is prompted by a remark made by the Chief Secretary for the Treasury in Committee in another place, when he said:

    "We considered all the options--fees and charges--and came to the view that the cash ratio deposit system had worked quite well in the past and we are now putting it on a statutory basis".

That may well be, but the Bill more than halves the reasons for having them at all. The new look Bank will be so different from its former self that I seriously wonder whether CRDs are as appropriate as they were previously.

I wonder, therefore, whether the Minister can tell us why the Chief Secretary discarded fees and charges as an option, particularly at a time when there is a plethora of financial and other institutions which will escape paying anything towards the work of the Bank. Fees and charges seem to me to be becoming ever more appropriate as CRDs become less appropriate, just at a time when CRDs are being put on the statute book for the first time.

I also believe that fees would give the Bank and the relevant institution much greater flexibility. There are institutions, for instance, which have a very small deposit base but a very large asset management business. The imposition of this scheme may put considerable strain on the banking book of an institution such as the one I describe, whereas the asset management side of the business could absorb equivalent costs comparatively easily. Indeed, there are all sorts of other types of institution which could be affected by the Bill.

I apologise to noble Lords, as I should have said at the beginning that I was also speaking to Amendment No. 14. Some of the institutions which could justifiably be involved are spelled out in Amendment No. 14. Other institutions may specialise in mergers, securitisation, insurance or leasing. There are many types. To carry out some of these specialisations, for prudential reasons the institutions will keep an appropriate level of capital, reserves and liquidity. From this, noble Lords will see that there are potential wide divergencies in the type of the eligible liability base of different institutions.

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Paragraph 2 of Schedule 2 is misleading as it now reads. It refers to the aggregate of sterling and foreign currency liabilities. However paragraph 19 of the consultation paper on cash ratio deposits tells us that foreign currency liabilities are only foreign currency liabilities which back sterling assets. Not everything is quite as simple as it seems, and this is only one example of how very different the banks and financial institutions' balance sheets may turn out to be and how very different their eligible base may be.

The amendment is designed to give the Government and the Bank more flexibility in the way the Bank is funded, and as such I hope that the Government will take it seriously. To discard fees as an option, at least at this stage, would be extremely restrictive. I beg to move.

Lord Stewartby: May I add a word in support of my noble friend Lord Home? I repeat the declaration of interest as a director of a bank and a building society which I made on Second Reading. I am also a director of one or two other companies which might be required to pay if these amendments were agreed.

The point I want to make is that when cash ratio deposits were introduced, a very substantial part of the work of the Bank of England was in the supervision of deposit-taking institutions. Therefore, the requirement for such institutions to provide the bulk of the funding of the Bank was evident. However, now that the supervision is due to be transferred away from the Bank of England, the residual functions of the Bank of England which will remain are not nearly so closely focused in aggregate on the deposit-taking institutions as they were before, and there is a case for looking at spreading this charge more widely.

My only concern about this is how it could be defined in detail and made workable. You would have to have a de minimis exemption; otherwise under the wording of Amendment No. 14, for example, which states,

    "any institution authorised for the purposes of the Financial Services Act 1986",

it could cover a large number of bodies and it might not be practicable. Certainly, within the City of London there are many institutions which gain from the work of the Bank of England in the international market place in relation to sterling and other international matters. They will receive the services of the Bank for nothing, and the deposit-taking sector will be paying separately to the Financial Services Authority, but will also be left carrying the whole weight of the Bank of England in its revised form.

I believe there is merit behind the amendment of my noble friend Lord Home, although its actual implementation may require some further refinement.

Lord McIntosh of Haringey: The noble Earl, Lord Home, in moving the amendment asks the Government to take it seriously. I can assure him that we do. Let me set out the basis on which we have approached this problem and the rationale for our views on currency ratio deposits.

The CRD scheme is important because it puts this source of funding for the Bank on a statutory basis for the first time, and makes the income secure. The current

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voluntary scheme applies only to banks authorised in the UK, and UK branches of European authorised institutions. The proposed statutory scheme will apply also to building societies, which have acquired many of the characteristics of banks in recent years. What distinguishes banks and building societies from other groups of financial institutions is that they typically borrow short and lend long--their balance sheets contain loans and other assets of long maturity and deposit liabilities, many of which can be called on at short (or no) notice. Other financial institutions, including securities firms and insurance companies, typically match the maturity of their assets and liabilities much more closely.

The amendment would widen the population of institutions that fund the Bank to include all institutions that are authorised under the Financial Services Act of 1986 and also insurance companies. Those are the ones which I described as matching the maturity of their assets and liabilities more closely.

It is appropriate for banks and building societies to place CRDs to provide income to the Bank, because they clearly benefit from the Bank's function as a provider of liquidity to the financial system. Only a few banks have accounts at the Bank of England to settle obligations with each other. But the other deposit-taking institutions manage their liquidity through deposits and credit facilities with the settlement banks, which in turn ultimately depend on their access to liquidity from the central bank. This in effect ensures deposit-taking institutions against the risk they run from having liabilities at call but assets that are less liquid.

Therefore there is a clear dividing line between deposit-taking institutions which depend on access to central bank liquidity and other financial institutions which do not. When the noble Earl recommends a system of fees and charges which would widen the base, he forgets the fact that it is a very common central banking arrangement in many countries that cash-ratio deposits or their equivalent should be used as a way of approximating the benefit of liquidity. For those reasons we cannot support this amendment.

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