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Everybody agrees that it is appropriate that the powers exist; the only question is the legal context in which they exist. The logical place for the powers, when dealing with banks, is in this Bill, rather than in an anti-terrorism Act. As the noble Baroness said, we could not put the powers in this Bill and simply delete them from the Act, because there are other circumstances that have nothing to do with financial stability in which we may want to use them. However, when dealing with financial and banking stability issues, the logical place for such powers is in the Bill.
Lord Newton of Braintree:I had not intended to intervene in this debate, but in view of the kindly remarks uttered by my noble friend from the Front Bench about the report of the committee that I chaired some five or six years agoof whose membership at least one other, a very distinguished one, is in the Chamberit is right that I thank her for raising those points and state that I, as did the entire committee, share the view that where there is what I think we called in the report mainstream legislation, the powers should be included as opportunity arises in that mainstream legislation. This is clearly one opportunity and I, too, will listen with great interest to the Minister's response.
Lord Stewartby: I intervene only very briefly to ask the Minister to explain the definition of a UK institution, because under the first and second amendments that we are considering, bank is defined at the beginning
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The Financial Services Secretary to the Treasury (Lord Myners): I start by noting the political good will to which the noble Baroness, Lady Noakes, referred. I am very grateful to noble Lords on the Benches opposite and to opposition Members from all parties in another place for the constructive spirit in which they have approached the Bill.
The main effect of this group of amendments and additions to the Bill proposed by the noble Baroness, Lady Noakes, concerns the provision of asset-freezing powers in relation to foreign banks. I will endeavour for the benefit of the noble Lord, Lord Stewartby, to define a UK institution by reference to defining what is a foreign institution. Let me therefore start by giving a practicable and workable definition of what a foreign bank is for the purpose of the Bill and the amendments.
I will assume that a foreign bank is one incorporated under the law of another jurisdiction, but which operates in the UK through branches established here. I will argue in a moment that we already have the powers we need to freeze the assets of such banks and that new powers are not needed, but there is a more fundamental practical difficulty that I bring to your Lordships attention. Even if I agreed in principle with the noble Baroness that additional powers were needed for the purpose of freezing the assets of foreign banks operating in the UK, there would be serious practical limits to the applicability of such powers. As I said, a foreign bank is a bank that is incorporated under the laws of another jurisdiction but which operates in the UK through branches established here. This means that the UK branch of a foreign bank is not a UK entity. In fact, it is not an entity at all; it is only part of an entitya foreign entityand it has none of the legal personality that the entity has. A branch therefore owns no property, and it cannot enter into any contracts in its own name. It is therefore really only a convenient label for the foreign banks operations in the UK and for its staff who happen to work here.
There may be significant operations and lots of staff, the bank may operate from large and impressive buildings, the staff may be responsible for controlling and moving huge sums of money, and they may operate accounts that hold billions of pounds of deposits from people in the UK, but none of that means that there are necessarily any assets in the UK that could be frozen. The assets of a foreign company, of which the branch is the physical presence, may be held in the UK, but equally they may be held outside the UK; and, of course, the introduction of these asset freezing powers in the Banking Bill would make it much more likely that assets would not be held in the UK in the future.
The second problem with the amendments is that even if there were substantial assets in the UK, which were controlled by a foreign bank with a branch here and which we wanted to freeze, they might not belong to the foreign bank. It would be very easy to set up a group structure in which the UK assets of the group were not the property of the foreign bank to which the freezing orders could be applied.
This brings me to a third point. The noble Baroness referred to the concern about the use of powers in anti-terrorism legislation to freeze the assets of foreign banks. I see the difficulty, but it is about presentation not substance. Asset freezing powers on the statute book must be justified on their merits, and the statute in which they appear is not the issue. Such powers would be no more or less acceptable in a banking Bill than they would be elsewhere to those who find them unacceptable. The powers that are now proposed are intended to be targeted on and limited to foreign banks. For the reasons that I have just indicated, to make these powers effective one would also need to be able to apply them to the assets that belong to persons, companies or other legal entities connected with a foreign bank.
This brings me to the scope of the power compared with that of the existing power in the Anti-terrorism, Crime and Security Act 2001. That power is available where the Treasury reasonably believes that a person or persons, being the resident or Government of a foreign country, have taken or are likely to take,
I hear with interest, as I have heard in previous debates, the great credit that has been given to the work done by the noble Lord, Lord Newton, in respect of this legislation, but I beg to suggest to noble Lords that this is not the moment to discuss that issue; this is the Banking Bill.
The amendments tabled by the noble Baroness, Lady Noakes, would introduce conditions based on financial stability, the maintenance of public confidence, the protection of the depositors in the United Kingdom, and the fact that the foreign bank was unable or unwilling to pay its debts in relation to depositors in the United Kingdom. The existing power is in one sense broader, but in another sense it imposes a higher threshold before action is taken. There may be circumstances surrounding a bank failure in which the Treasury needs to consider its existing asset freezing power, and the conditions which noble Lords have identified in their suggested provisions are some of the factors that may be relevant to such a decision. Given that we already have freezing powers under the Anti-terrorism, Crime and Security Act that enable us to address threats to the UK economy, it would be confusing and unhelpful to create a further set of freezing powers.
In a debate in this House on the Counter-Terrorism Bill, the noble Baroness, Lady Neville-Jones, the opposition Front-Bench spokesperson on security issues, said in relation to the asset freezing powers:
Part of the problem of legislation being brought forward in amendments to successive Bills is that we ultimately getno doubt unintendedinconsistency, and duplication with minor variations of language. It becomes difficult for those who must obey the law. Consolidation would therefore be good for ease of reference and the avoidance of unintended inconsistency.[Official Report, 11/11/08; col. 585.]
I agree with the noble Baroness that it is preferable for anti-freezing legislation to be consolidated where appropriate. These amendments to establish a further set of freezing powers would create just the problem
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Finally, we have to recognise that the circumstances in which we would need to use such a power will be wholly exceptional. The recent case of the Icelandic bank, Landsbanki, to which the noble Baroness, Lady Noakes, referred, demonstrates this. Furthermore, while we certainly do not intend to use, or expect to need, the powers in the Banking Bill to deal with UK banks on a regular basis, we have to recognise that UK banks may sometimes get into difficulties. It will be the UKs responsibility to resolve them. But we would not normally expect to have to resolve foreign banks even if they had branches here. To put a power to freeze their assets in the Bill implies that it may be considered normal, rather than exceptional, for us to intervene when foreign banks are involved. That would seem to send quite the wrong signal. We have a power which we have used in exceptional circumstances. We do not need another one. I would suggest to Members of the Committee that UK banks operating in a foreign jurisdiction that took upon itself the powers to intervene as suggested by this amendment might question whether they wished to conduct business in that jurisdiction. That would not be an unreasonable question for foreign banks which currently and prospectively will continue to operate in the United Kingdom.
The proposed amendments will not strengthen financial stability because we already have powers to apply asset freezes to protect financial stability under the economic aspects of the Anti-terrorism, Crime and Security Act. That was demonstrated in the case of Landsbanki. It is surely important that this Bill is focused on measures that will strengthen financial stability and not overlap with existing powers. The noble Baroness, Lady Noakes, chided that there is little in this Bill to deal with the causes of the current banking crisis. I would suggest that this Bill is less about current crises than about crises which may occur in the future and would have to be dealt with by this Government or by future Governments. It is a Bill about establishing a special regime to deal with the resolution of failed banks, rather than a Bill which attempts to speculate on the causes of the current problems. I therefore hope that the noble Baroness will agree to withdraw the amendments in her name.
Lord Higgins: In answer to the question posed by the noble Lord, Lord Stewartby, about definition, the Minister improvised a definition and indicated that it was quite difficult to do. Is there any such definition in the Bill? If so, where will we find it? One can see the argument against duplication, but one should not underestimate the fact that in passing terrorism legislation, the House is anxious that it should be used only for what the intention was in saying that it is to deal with terrorism. It is undesirable that we should suddenly findindeed, it would deter us from going along on such a matter in the futurethat terrorism legislation is being used for purposes that no one at the time had particularly noticed. Is there not a case for putting the proposal into a separate Bill if it is intended to use it in the context of banking legislation? The noble Lord says that there are powers already to deal with the
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Lord Myners: I thank the noble Lord, Lord Higgins, for pointing out the inexactitude of my reply to the question from his noble friend Lord Stewartby. I shall try to be more precise. UK institutions are defined in Clause 2(3) as,
In respect of the noble Lords second point, we may have to agree to differ on a piece of legislation that he refers to as the terrorism legislation and which I refer to by its full title, seeking to draw attention to the fact that it is applicable to a broad range of concerns that go beyond terrorism.
Lord Campbell-Savours: My noble friend knows that I am married to an Icelander and that I am in regular contact with my family in Iceland. The Icelandic people were told that the reason for using this legislation on terrorism was that there was no alternative; it was the only legislation available. The presumption that the people in Iceland made was that, when the opportunity arose, we would either amend the existing legislation or new legislation would be introduced. In doing so, we would show the Icelandic people that we were genuine in taking our original action. My noble friend appears to be backing away from that as a proposition and justifying the existence of legislation that the Icelandic people find offensive. I find it difficult to understand why there cannot be a little more flexibility in the Governments position.
Lord Myners: I am not sure how my noble friend came to the conclusion that we gave an indication or undertaking that we would change the legislation. The legislation used in respect of Landsbanki has, I believe, been highly effective in signalling that we will not tolerate discriminatory action by the Icelandic authorities that penalises UK depositors. The legislation has achieved its objective and was appropriate to the circumstances. It remains on the statute book and there is no need to duplicate it or move the provisions from one Act to another.
Lord Eatwell: An important element of my noble friends reply to the noble Baroness, Lady Noakes, was that by accepting her amendments, he would discourage the formation of branches of foreign banks here in the UK. Is he aware that an important theme of the discussions of the Basle Committee, and a theme likely to be important at the G20 meeting in April, is precisely to discourage the formation of branches in foreign jurisdictions and replace them with subsidiaries in order to achieve regulatory consistency within any particular jurisdiction? Surely we should discourage branches which are then subject to overseas regulation by foreign regulators in which, outwith the EU, we may have no confidence.
Lord Myners: My noble friend speaks with considerable knowledge of this subject. However, there is the counter-view that the position of depositors and creditors is
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Lord Bridges: Perhaps I may add a word to reflect a different point of view. I am a trustee of a charitable trust which had some money on deposit with a firm in London that was controlled by Landsbanki. We have succeeded in preventing this money being transferred against the wishes of our charitable purposes, and that was highly unpopular in Iceland. It is unfortunate that we seem to have a state of affairs in law that is capable of being misrepresented in Iceland but which does not reflect the wishes or intentions of the British Government. I hope that in reviewing this situation we will think about the effect of our actions, however justified they are, when they are misinterpreted abroad. That seems to be at the heart of this difficulty. I venture to mention this problem because I do not think that it has been fully brought out yet in this discussion.
Lord Myners: The noble Lord may be aware that I have expressed sympathy for the position of the people of Iceland in the difficult situation in which their banks have placed them. In our representations to the Government of Iceland we have made it clear that they should not regard us as accusing them of being terrorists. At the same time, we have made it equally clear to them that we expect them to comply with their obligations in respect of depositor protection and not to act in a discriminatory way against the interest of non-Icelandic depositors, as it appears was their inclination at one stage when they were suggesting that they were going to create good banks and bad banks, leaving the non-Icelandic depositors as claimants on the bad bank. As I said earlier, the action we took, regrettable as it was in the circumstances, has nevertheless proved effective as part of our representation to protect the interest of UK depositors.
Lord Bridges: The difficulty persists that we were justified in what we were doing but a foreign Government with whom we have normally had very friendly relations were able to misrepresent our actions and look at the legislation from an entirely different point of view. I hope that whatever decision is reached in this Committee will enable us to be more open with such a country and prevent it from distorting our actions, as Iceland did very effectively on this occasion to our considerable disadvantage.
The Archbishop of York: The law is there to express an intention. Suppose the Bill were about shipbuilding, and we knew that one of our ships had suffered tremendous difficulties with its construction. The Minister
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Lord Myners: I support the sentiment expressed by the noble Lord, Lord Bridges, in respect of Iceland. If there was misrepresentation or misunderstanding, that was regrettable. Through our diplomatic agencies and intergovernmental contact we will continue to work to ensure that our position is well understood and correctly represented.
The most reverend Primate challenges us to ask whether, if the ship is holed, we should be doing something about it. I seek to reassure the Committee that we are doing something about it. The actions we have taken to recapitalise the banks, facilitate funding and expand liquidity provisions are at the core of addressing those problems in this country, problems which, regrettably, are shared with many other countries. I suggest that over the next month or two we will see a serious programme of bank recapitalisations throughout the world, as other countries continue to follow the lead set in the United Kingdom.
However, the purpose of this Bill, particularly where it deals with the special resolution regime, is to say that there is no method of regulation or supervision which will assure us that there is no prospect of failure. There is risk in business, and banking is an inherently more risky business than most. Accordingly, the Bill seeks to ensure that we have a wide repertoire of responses to deal with a failing bank should it, regrettably, be necessary to do so. Some of the powers embodied in the Bill which are contained in the current legislation which expires at the end of February have already been used very effectively to deal with failing banking institutions in this country, including Heritable and Bradford & Bingley.
Baroness Noakes: I thank all noble Lords who have spoken in this important debate, which covered not only the topic covered by the amendments but also the larger issue of whether the Bill covers all the things that need to be in the Governments repertoire in order for them to handle banking crises. The Minister chided me for saying that the Bill was not about dealing with the causes of the current crisis. Of course not, but it should be about reflecting what we have learnt since the beginning of the financial crisis and the things that we need to do to deal with it. That was the purpose of bringing together the asset freezing provisions in one placeI will come to some others later. In that way the Government, having brought forward this Bill to make provision on bankingalthough it is largely
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The Minister said that if we put these provisions in the Bill, it would be more likely that branches would be set up elsewhere. I take the point of the noble Lord, Lord Eatwell, that we do not want branches anyway, but assuming that we do, we already have the provisions in the 2001 Act. If we rephrase those specifically, we might actually reassure people coming to do business here rather than frightening them away. They should already be frightened away by the 2001 Act.
The Minister gave us a little lesson on what a branch was and seemed to imply that the amendments drafting did not take account of that. I tried extremely hard not to draft it in terms of branches but in terms of foreign banks; that was one of the things that I learnt a long time ago. But one is always open to criticism when drafting amendments.
The noble Lord quoted my noble friend Lady Neville-Jones in the context of counterterrorism. I warn him not to quote my noble friends out of context. I can say with considerable confidence that she was speaking only of counterterrorism, not of the use of powers contained in counterterrorism-based legislation in other circumstances. So we can put that to one side.
The Governments position has not changed since the report from the privy counsellors, led by my noble friend Lord Newton, back in 2003. The Government do not accept the point; they think that under the guise of counterterrorismor anti-terrorism, as it then wasthey can draft very wide powers, give the Bill a Long Title and then use it for everything. Their attitude is, We originally meant this to apply to organised crime, but if we just call it crime, we can use the powers for anything. That is one approach to legislation, and it is clearly the Governments, but we do not think that it is responsible. That is what the Newton report highlighted. We should pull out those very unusual powersthe Minister said that they were to be used only in exceptional circumstancesand put them in their proper context. That is the problem with the 2001 Act; it is there to be interpreted as time goes on. That is why it is unsatisfactory suddenly to lift a power from other legislation and use it in the context of the banking crisis. The Minister said that it was not appropriate to put these provisions in this Bill because it is a banking Bill. Of course it is appropriate, because we are talking about a banking issue. That is what my amendments were specifically designed to do.
However, the Minister said that the Government had not shifted from their position of liking broad legislation which they can pull out whenever they want rather than tailoring it to specific circumstances as was recommended by the Newton report. It is clear that we shall have to reflect further on that position. It weakens the Banking Bills ability to reflect the full range of issues that, we know from experience, are likely to come up in relation to banking crises. To that extent, the Governments attitude weakens the Bill. I shall reflect further on what the Minister said, but, for today, I beg leave to withdraw the amendment.
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