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Does my noble friend agree that those who lecture us about democracy, particularly in a parliamentary democracy, should recognise that the sovereign will of two Houses of Parliament is an extremely valid expression of democracy? We have expressed without any hesitation or qualification—rejecting every amendment that was proposed—our view on the Lisbon treaty. The best thing that we can do now in relation to Ireland is not to seek to interfere in Irish matters but to leave it to the Irish people to make their decision.
Lord Malloch-Brown: My Lords, I thank my noble friend for that important support from behind me by means of a question. For anyone who came back from the Christmas holidays feeling a little sleepy, there is nothing like Europe to make the blood rush to all our heads.
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Lord Hunt of Kings Heath: My Lords, we have not yet heard from the Lib Dems on this Question.
Lord Teverson: My Lords, from the performance of the French in the European presidency on Georgia in comparison to that of the Czech presidency on the Middle East at the moment, is it not clear that we need to change the way in which the European Union presidency works for the health of Europe and for the health of the way in which international diplomacy works? For that reason, it is so important that the Lisbon treaty is ratified and that Ireland makes a positive decision under its sovereignty.
Lord Malloch-Brown: My Lords, certainly many of us are impatient to move on and get these new arrangements in place. I commend the French presidency for its activity and vigour, although I have to say—to undermine our mutual view of this—that it was done under the old arrangements.
Lord Trimble: My Lords, during the December meeting of the European Council, when these matters were considered, did it cross the minds of the Commission or Ministers present that one of the main reasons why the Irish people rejected the treaty was because they were moving into a severe recession—more severe than ours, largely because of their membership of the euro—during which they are receiving virtually no help from the European Union? Indeed, my noble friend Lord James may be interested to learn that yesterday the Irish Government announced that they were reducing public sector salaries by 5 per cent as a mark of the severity of the recession. Did this not occur to those at the meeting in December as a possible factor?
Lord Malloch-Brown: My Lords, certainly the financial crisis was an equally big item on the agenda at that summit, but I must say that I am surprised by the thrust of the noble Lord’s question, because, like many others in this House, I attribute much of the prosperity of modern Ireland to its membership of the European Union.
Finance: Short Selling
Question
3.01 pm
Asked By The Archbishop of York
To ask Her Majesty’s Government what steps they are taking to ensure that the lifting of the ban on the short selling of shares in financial companies does not adversely affect the market.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the partial short selling ban was a temporary measure. The FSA continues to
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The Archbishop of York: My Lords, I thank the Minister for his Answer. Is he absolutely certain that those dangers of market abuse, disorderly markets and deficiency in transparency have all nearly gone? If they have not, is that not a good reason why the temporary ban should stay? Furthermore, does he agree with Martin Gilbert, who says that the quickest way of making money is by short selling any bank on rumour? Has that rumour element gone? If it has, how come Belgium, France, Switzerland and Germany have extended their short selling ban? Furthermore, all taxpayers in Britain have shares in the banks that were recapitalised. Could not someone bet on the taxpayers losing more money by short selling our own interests?
Lord Myners: My Lords, the most reverend Primate has waxed lyrical on this subject. I read with great interest his speech at the Drapers’ Hall in September to the Worshipful Company of International Bankers. I recommend it to all Members of the House who seek amusing anecdotes to tell at after-dinner speeches. It was a truly first-class speech.
The FSA has formed a view that the potential for market abuse and disorderly markets, which clearly exercised it when it introduced the ban in September, has now eased. It has issued a statement of consultation and we will respond at the end of this week. The FSA has set out the ground rules for controlling short selling in the future, with an important emphasis upon transparency and a move to symmetry with the disclosure of long positions, which I find commendable. The FSA will also issue within the next month a more reflective consultation document on the whole issue of short selling. A number of jurisdictions in the world, including, in particular, the United States of America, have removed restrictions on short selling. Others have maintained them, either on a permanent or a temporary basis—as the FSA is continuing to do.
Lord Barnett: My Lords, I may be naive on these matters, but does my noble friend accept that short selling is intended to adversely affect the markets? Is it not a little obscure what the benefits really are? Does he accept that it would be helpful if he published a document, perhaps in the Library, listing the benefits—with or without these measures—so that we can all peruse it at our leisure?
Lord Myners: My Lords, I always proceed with caution when my noble friend says that he is naive on a matter. Let us be clear: short selling is a feature of most financial markets—commodity markets, currency markets and deposit markets—and its benefits are the enhancement of price discovery and the creation of liquidity to cope with transaction volumes. Those are
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Baroness Noakes: My Lords, we agree with the Minister on the analysis of the benefits of being able to short sell in markets. However, when, in October, the SEC removed its ban on the short selling of financial institution stocks, it said that it believed that the costs of doing so had outweighed the benefits. Does the Minister believe that that will also be the case in the analysis of the situation in the UK?
Lord Myners: My Lords, I believe that the FSA’s consultation, which will be launched within the next month, will cover that. A great deal of academic research, particularly from the University of Technology in Sydney and the Cass Business School in this country, will inform that review.
Lord Newby: My Lords, is the Minister aware that on the day that the bar was lifted, a leading hedge fund manager said:
“Hallelujah. This should allow people to return to some sort of normality”?
Does he agree that it is that kind of normality that brought the banking sector to its knees and that, frankly, the country has had enough of it?
Lord Myners: My Lords, I will not be drawn into commenting on a quotation from a particular hedge fund manager. The hedge fund community is wide and diverse, and the sector’s taxonomy is complex. Suffice to say that with regard to the difficulties in the banking sector, I do not think that we can point the finger at short selling. More fundamental and deeper problems lie at the source of the difficulties that our banks and banks throughout the world are currently experiencing.
Lord McIntosh of Haringey: My Lords, does the Minister know whether the Church of England has been selling short?
Baroness Kingsmill: My Lords, does the Minister agree that short selling is a perfectly normal and respectable—
The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, we heard a question from my noble friend, and it should be answered.
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Lord Myners: My Lords, I am not aware of whether the Church of England has engaged in short selling; I am aware that Church of England commissioners, having taken advice on the ethical issues, engage in the lending of stock, which is frequently designed to support the completion and settlement of short-trading transactions. It is important to note that just about every major pension fund and every major endowment in this country is in some way or another involved in short selling. However, my noble friend made a fundamental point about stock lending practices. I have asked the FSA to look at whether those practices are sufficiently understood by practitioners and subject to appropriate regulation.
Community Amateur Sports Clubs (Support) Bill [HL]
First Reading
3.08 pm
A Bill to make provision in respect of community amateur sports clubs; and for connected purposes.
The Bill was introduced by Lord Addington, read a first time and ordered to be printed.
Merits of Statutory Instruments Committee
Membership Motion
3.08 pm
Moved By The Chairman of Committees (Lord Brabazon of Tara)
Banking Bill
Bill Main Page
Copy of the Bill
Expanatory Notes
Amendments
DPCommittee: 1st Report
Committee (1st Day)
3.10 pm
Baroness Noakes: I shall speak also to the 18 other amendments in the group. As this is the first group of amendments, with the leave of the Committee I shall make a few opening remarks before moving to their substance.
We made it clear at Second Reading that we would bring this Bill political good will for a speedy passage as we recognised that the Government would need powers to fill a gap that would otherwise be left by the expiry of the Banking (Special Provisions) Act next
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Our good will is tinged with the frustration that we would have preferred a little longer to take the Bill at a more considered pace. Rushed legislation is often defective, which your Lordships’ House abhors. We shall, of course, do our best, and it is in that spirit that we approach the Committee. I say this by way of background to our Committee consideration as a whole and to this group of amendments.
As I said, the Bill is based largely on a White Paper published very nearly a year ago. With the exception of some new clauses, some of which were tabled only yesterday, the Bill shows almost no recognition of what has happened in the past year. It seems to respond to the problems that exhibited themselves in 2007 and not much else. This group of amendments and some others, to which we will come in due course, would fill in some of the legislative gaps revealed in the past year with which the Government appear not to have caught up.
Last autumn when the Icelandic bank, Landsbanki, was in financial trouble and apparently threatening not to honour its international commitments to UK depositors, the UK Government took the unexpected step of using powers contained in the Anti-terrorism, Crime and Security Act 2001 to freeze the UK deposits in that bank to protect UK depositors. The Minister will be aware that the use of these powers, while doubtless available technically, was the cause of some controversy. There is a dispute as to the facts on which the Government rested their decision that these extreme powers should be activated, and there has been a lasting resentment in Iceland that Icelanders have been tagged as terrorists. I do not want to debate the facts and circumstances of Landsbanki—there will be plenty of other opportunities for that—but I want to raise whether this Bill should have a tailor-made version of the asset-freezing powers embedded in it. The Bill must be clear on the full range of the Government’s powers in respect of banks that fail, which in so doing have a potential impact on the UK.
The Minister will be aware that when the Anti-terrorism, Crime and Security Act was passed there was much unhappiness in Parliament about the sweeping nature of its powers, many of which as we know were not confined to counterterrorism activities. That was known at the time and has been demonstrated several times since. The Government undertook to set up a review of the legislation by a group of Privy Counsellors led by my noble friend Lord Newton of Braintree. It is interesting to note that of the nine members of that review, all but two were then, or are now, Members of your Lordships’ House. Indeed, one of the remaining two is married to a Member of your Lordships’ House.
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The report, which was unanimous, took the view that when special counterterrorism legislation is required it must,
- “contain proper protections for the privacy and liberty of the individual, and in our view, stand apart from other law so that it can be accompanied by its own tailored safeguards, including careful monitoring and review of its use. It is important that it commands public support, otherwise its use risks being mistrusted and therefore less effective”.
In relation to freezing orders, the review said that the powers in the 2001 Act should lapse and be replaced in relation to counterterrorism by primary legislation based on UN Security Council Resolution No. 1373. In other cases, as the report stated at paragraph 150:
“Freezing orders for other emergency circumstances, and the safeguards which should accompany them, should be reconsidered on their own merits in the context of more appropriate legislation”.
The Government have done nothing in response to the review undertaken by the Privy Counsellors, but they have used the powers in relation to non-terrorism circumstances in the case of Landsbanki. My amendment seeks to develop a tailored regime of asset freezing in the case of bank failure.
I shall not deal with the amendments in great detail. They cover more than a dozen pages of the Marshalled List and are significantly based on the legislation contained in the 2002 Act, but have been tailored. Amendments 1 to 3 set up an asset-freezing procedure for foreign banks as one of the elements of the special resolution regime. Foreign banks are defined in Amendment 6. Amendments 9, 15 and 28 bring the asset-freezing procedures into the special resolution objectives in Clause 4, the code of practice in Clause 5 and the general conditions for the special resolution regime in Clause 7.
The meat of the procedure is found in the new clauses and part inserted after Clause 165 by Amendments 146 to 156 and the associated schedule inserted by Amendment 209. These provisions are very similar to those found in the Anti-terrorism, Crime and Security Act 2001, but there is a crucial difference in the formulation of the basic power. Under the 2001 Act, the powers are based on the extremely broad formulation of the Treasury believing that action to the detriment of the UK’s economy had been or was likely to be taken on the basis of action constituting a threat to the life or property of UK nationals or residents. Under Amendment 146, a freezing order would have to satisfy two conditions. Condition 1 is identical to the first two parts of condition A in Clause 8 for the use of private sector purchaser or bridge bank powers. The second condition is a refinement of the third leg of condition A in Clause 8 so that instead of relating to the protection of depositors generally, as in Clause 8, the new asset-freezing power focuses on foreign banks paying up in the case of UK depositors.
I have not attempted to deal with the other main criticism of the asset-freezing power made by the Newton report; namely, the lack of an appeal or independent review process. I have merely attempted to lift the very general power in the 2001 Act and place it in the Bill as a tool that the authorities have used in the past and might need to use in future to deal with banking stability or depositor protection. In addition, I have not sought to repeal the 2001 Act because the Bill does not represent the comprehensive opportunity
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I am sure that the drafting of some of the detailed amendments is open to criticism, but I hope that the Minister will recognise that for today’s Committee these are probing amendments. They are designed to seek the views of the Government on why the Bill does not provide a comprehensive response to the financial and banking stability issues in the light of recent experience. They are also designed to be a modest contribution to making those powers more comprehensive and making the Bill a proper reference point for all those who seek to identify the Government’s tool box in future financial crises. Importantly, they are designed to recognise the splendid work of my noble friend Lord Newton and the other members of that review, which has been ignored by the Government since it was written in 2003.
Lord Newby: We have some sympathy with the amendments. We were not as critical as the noble Baroness about the use of the Anti-terrorism, Crime and Security Act 2001 in respect of Landsbanki; we thought that the circumstances justified it. We have been very struck by the response of the authorities in Iceland, who felt that the fact that the powers had been exercised under an anti-terrorism Act justified a sense of grievance and began a legal action which, I gather, has now been withdrawn, because they felt that the powers had been improperly used.
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