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That begs a rather big question. If the Government really believe in temporary public ownership, as opposed to old-fashioned nationalisation, a healthy deposit-taker would already have been transferred back to the private sector and would not exist as a potential public sector purchaser of a failed bank. The Minister also said that they might want to sell to the commercial arm of a foreign state. My party is not attracted to either of those options, but for the purposes of the Bill we have accepted them. My Amendment 1 therefore seeks to make the Bill consistent and to refer to a commercial purchaser. The amendment conforms the language of Clause 1 with that of Clause 11. If this is accepted, the heading to Clause 11 should be aligned as well, but that can doubtless be achieved separately. I beg to move.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, I welcome the constructive opening comments made by the noble Baroness, Lady Noakes, and I will do my best to ensure that we comply with the spirit that she evidences and that she says she expects from us. I agree with her that it may be necessary to return to some of the issues of substance at Third Reading, including, where that would be helpful, through the tabling of further opposition amendments. Of course, this will need to have been agreed through the usual channels. In particular, we have agreed through the usual channels that it would be helpful to further consider issues around Clauses 22, 34, 38 and 48, including with external stakeholders. I would like to inform your Lordships’ House that the noble Baroness and I will not move the following amendments today: 21 to 23, 27 to 30 and 34 to 38. We will instead return to address these amendments at Third Reading.
Amendment 1 would change Clause 1 so that the private sector purchaser stabilisation option is referred to instead as commercial purchaser. This is similar to an amendment that the noble Baroness tabled in Committee. Following that debate and her comments now, I believe I understand her main concern on this. It is not, as I had previously thought, a concern about discrepancy, but rather that, in presenting this stabilisation option, both in the title to Clause 11 and in Clause 1,
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This is not something about which the Government are trying to keep quiet. I wish to be very clear that we must use these powers in whatever way meets the special resolution objectives. Thus, the text of Clause 11 refers to a commercial purchaser to take account of situations in which the transferee may not be entirely privately owned. Given this, one may argue that the heading of that clause and the title “The stabilisation options” for these clauses should change to reflect this. The Bill has, however, been drafted with a number of main headings which use terms to reflect the main purpose behind the powers. The stabilisation options have been labelled “private sector purchaser”, “bridge bank” and “temporary public ownership”. None of those terms has precise meaning unless given so under the clauses that provide for them. In each case the clauses are clear. Furthermore, we have been clear in our presentation of the clauses how the powers can be used.
The principal purpose of the stabilisation option in question is to achieve a transfer of the shares or property of a failing bank to a private sector purchaser, which is why the option is labelled, and why Clause 11 is titled, thus. For that reason, I invite the noble Baroness to withdraw her amendment.
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Baroness Noakes: My Lords, I thank the Minister for that response. It seems that the Government want the ability to say that “black is white” and “white is black” if they choose so to do. We said in Committee that the Government were spinning through this Bill. This is not the only place where they are spinning, but it is perhaps the most egregious example. The Minister has disappointed me in not wishing to stick with proper drafting procedures by using words that have precise meaning. Instead, he has used words that convey something to some people but that are not intended to be used in that way in the detail. That is very regrettable, but I shall not pursue the case further. I beg leave to withdraw the amendment.
2: Clause 1, page 2, line 5, at end insert—
“( ) If there is any conflict between the roles of the Bank of England, the Treasury and the FSA, or if there is any disagreement between all or any of them as to their roles or responsibilities, the view of the Treasury shall prevail.”
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Baroness Noakes: My Lords, this amendment deals with the question of who is in charge, which has hovered over the tripartite authorities since late summer 2007. My party has been asking that question since the Northern Rock affair and it was also picked up by the chairman of the Treasury Select Committee in another place. The question has never been answered.
We debated this in Committee in conjunction with a further amendment which also sought to require the ongoing co-operative tripartite working that we have been told is the underlying modus operandi of the tripartite arrangements. Many of us have concerns about the tripartite arrangements because the stresses and strains within them were evident for all to see in summer 2007. In Committee on 13 January, the Minister told us that from his experience,
That is not quite as ringing an endorsement of the tripartite authorities as we, or indeed they, might have hoped for. Indeed, there is evidence in the Bill—notably in the way that the Bank of England expects to work via its new Financial Stability Committee—that joint working will not be the norm. Instead, we have a picture of the tripartite authorities working in silos with occasional interaction between them rather than the reverse. At the end of the day, the tripartite arrangements will be judged by their outcomes. If they do not work well and the Government pass up opportunities in the Bill to make them work better, the Government will take the blame.
Amendment 2 is not an optional extra, because it goes to the heart of accountability. As my noble and learned friend Lord Mackay of Clashfern said in Committee:
“I would have thought it a necessary condition of an effective organisation that the buck should stop somewhere. It is therefore important that somebody—some group or institution—should have responsibility for the ultimate decision”.—[Official Report, 13/1/09; col. 1131.]
My noble and learned friend then referred to the FSA's decision under Clause 7. It is clearly the FSA's decision, but it cannot be reached without consulting the Treasury and the Bank of England, and the question must arise: what happens if there is a dispute between the parties? If we faced another Northern Rock case, where there clearly were differences of opinion within the tripartite authorities, we would need to be clear where ultimate responsibility and accountability lie. It is not enough to say that each party will be accountable for its own decisions, because not every decision will have been documented in the Bill or allocated to one party. Nor is it enough to say that there is collective accountability, because that is simply another way of saying that accountability is diluted and weak.
I concede that there was a difference of opinion in Committee about who should have the final say. Some favoured the Bank of England. The noble Lord, Lord Newby, conceded that, as a matter of practicality, the Treasury calls the tune, as he put it. However, he most definitely did not want to name the Treasury in case it got above itself.
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My brief spell in the Treasury many years ago did not leave me with quite that kind of antipathy towards it, although I am not uncritical of it. At the end of the day, we are talking more about the responsibility and accountability of Ministers, not the hardworking and able civil servants in the Treasury. The Treasury Minister, the Chancellor and the First Lord got away scot free in respect of ultimate responsibility for their role in Northern Rock. That is why we must not let that happen again and why I have tabled my amendment again for Report. I beg to move.
Lord Stewartby: My Lords, I add a brief word in support of what my noble friend has just said. There was a long period of public discussion about where the responsibility and authority lay in the case of Northern Rock. It was almost a classic case of what can happen when these matters are not thoroughly clarified. If this complicated legislation is to work effectively, it must be publicly understood where the ultimate responsibility lies. The point has been very well made, and I do not need to make it again, but if what is said in Amendment 2 is correct, there is no reason why what it says should not be in the Bill. If it is not correct, we have further questions to ask.
Viscount Eccles: My Lords, I, too, support my noble friend’s amendment. Two uncertainties run through the whole Bill. One is how detailed a definition we may have of financial stability and thus of financial instability. The other is the question of the threshold conditions—what constitutes going over the border of the threshold conditions in Schedule 6 to the Act of 2000? We have pursued both, and will pursue further on Report, the meaning of financial stability and the trigger for the threshold conditions not being met. In these circumstances, the Treasury, by which I might easily mean in current circumstances the Prime Minister and certainly the Chancellor of the Exchequer, will in fact decide. It is quite unreasonable that this should not be recognised and, as my noble friend Lord Stewartby just said, quite unreasonable that it should not be in the Bill.
Lord Myners: My Lords, the amendment, and the issues to which it draws attention, was debated in Committee. I regret that I could not sufficiently comfort the noble Baroness, and other noble Lords who supported her at that stage, that her amendment is not necessary or desirable.
Let me remind noble Lords of the arguments that I put forward. The Bill sets out resolution processes whereby each of the tripartite authorities has lead responsibilities in the areas in which its expertise and authority lie. Thus the FSA—the independent regulator—will be responsible for taking the regulatory decisions about whether a bank should enter the SRR and for the ongoing supervision of any bank while it continues to operate in the SRR. The Bank of England will be responsible for the operation of the SRR and the tools in it, other than temporary public ownership, as well as for its traditional functions as a central bank, such as providing liquidity assistance. Finally, the Treasury will either take, or have the final say in, those decisions that would have a significant impact
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This position has been consulted on and is supported by stakeholders. As the noble Lord, Lord Newby, pointed out in Committee while explaining why he could not support the noble Baroness’s amendment, requirements are imposed on the authorities throughout the Bill to consult one another before discharging their various responsibilities. These requirements are explicitly provided for in the Bill to underline the importance of tripartite co-operation and consultation. Of course, proper mechanisms—I am thinking, in particular, of the standing committee—already exist by which the authorities are able to consult one another closely in dealing with any potential threat to financial stability, the banking system or depositors. The noble Baroness chides me with evidencing a less-than-ringing endorsement. I hope that I will always exhibit moderation in this Chamber and decline hyperbole but, for the avoidance of doubt, I have observed the tripartite system in operation from close quarters as a director of a regulated entity, through my membership of the Court of the Bank of England and, more recently, through my involvement in Her Majesty’s Treasury, and I think that it works well.
I do not think that it is necessary for the Bill to go further than this and to specify that one authority would always have the final say. It would be counterproductive and damaging; for example, it would mean that our system of independent financial regulation would be compromised. If the Treasury were to disagree with the FSA’s judgment that a bank remained in compliance with its regulatory threshold conditions, under the noble Baroness’s amendment the Treasury would be able to override the FSA’s decision. On what basis could the Treasury take such a decision? On what grounds could it claim to have better regulatory and supervisory understanding of the bank than the regulator? At the very least, the Treasury would have to develop a significant shadow supervisory function to analyse regulatory information. It would have to gather such information itself, which would create duplication, confusion and dilution of responsibility.
It would also send a strong signal that the SRR could be triggered for reasons of political expedience rather than because there was a genuine risk that a bank might fail and damage financial stability. This charge was laid against the Government—wholly irresponsibly and without the least foundation, I might add—in respect of their actions in nationalising Northern Rock. The Government believe that the permanent regime for dealing with bank failures should not allow even a scintilla of doubt over whether political motivations will override judgments taken by the independent regulator or the central bank within their respective spheres of authority and competence.
I could labour the point further, but it is straightforward. I believe that I have said enough and that my answer has addressed the point raised by the noble Lord, Lord Stewartby. It would be wrong to opt for an overly simplistic approach of determining who is in charge. We should recognise that these three bodies work together and that each has an area of
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Baroness Noakes: My Lords, I thank my noble friends Lord Stewartby and Lord Eccles for their support of this amendment. I thank the Minister for improving just a little on the endorsement of the tripartite authorities that he gave in Committee. If we keep going on the Bill, he might get to a positive statement about them at some stage. But let us put that on one side.
There seem to be two universes. One has the Banking Bill, where the relevant authorities do their own things, which is what my amendment is about, and in the other there are the tripartite authorities, which are supposed to work well together but, as the evidence from Northern Rock showed, did not. We have not had another test; we only ever had one public test, which they failed. My point was about the broader issue of the tripartite authorities and the inability to hold to account anybody other than this collection of bodies. Speaking as a parliamentarian, I am frustrated by that. However, one cannot let one’s frustrations get in the way of letting the Bill go forward. I see the Minister’s point about not compromising the judgments of certain players, but I continue to believe that the co-ordinating aspects of the tripartite authorities are not well reflected in the Bill. I have raised that matter at other points in our deliberations on the Bill, but I will pursue it no further. I beg leave to withdraw the amendment.
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Clause 4 : Special resolution objectives
3: Clause 4, page 3, line 22, at end insert “which includes ensuring that that they have access to their deposits as rapidly as possible and that depositors and other customers have continuity of banking services”
Baroness Noakes: My Lords, this amendment would add additional words to objective 3 of the special resolution objectives as set out in Clause 4(6). Currently, objective 3 is to protect depositors, which we agree is a very important objective. We know that in practice the protection of depositors is one of the most important considerations that have driven government actions to date. Indeed, some of us have struggled to see that some of their interventions have genuinely been about systemic risk at all and that the protection of depositors has driven policy. However, this focus on protecting depositors concentrates on those who have financial assets in the system and ignores the wider dimension of banking services. Of course, many people have deposit accounts in which they store their savings or spare resources. However, many more do not have savings but have a crucial reliance on their bank for everyday transactions. Those bank accounts might
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In Committee, I cited the statistics in the Government’s regulatory impact assessment, but they bear repetition. Ninety per cent of wages and 98 per cent of benefits are paid into a bank account or a Post Office account and 75 per cent have at least one direct debit. I doubt whether there is a business in the land that survives without a bank account. I go so far as to say that ensuring the continuity of banking services is at least as important as protecting depositors. It is one thing to have to wait for one’s deposit money to be returned; it is quite another if one has no ability to manage household finances or draw cash from a hole in the wall. The one thing that would destroy confidence in the banking system is if banking services were disrupted. Therefore, continuity of banking services is essential for the achievement of objective 2, which is about that confidence, as the Minister pointed out in Committee.
The Government have included words about continuity of banking services in the code of practice, but omission of such words from the objectives means that the continuity of banking services is no more than an optional extra as far as the objectives are concerned. The Minister will be aware from our exchanges in Committee that the banking industry has a particular concern that, if continuity of banking services is not hard-wired into the special resolution regime, the Financial Services Compensation Scheme could end up being overengineered at a cost of around £1 billion. That is what the FSA’s current consultation could involve. While this is a cost that the banks would have to pay in the first instance, we should be in no doubt that consumers would end up having to pay for it.
If we ask the man in the street what they want from the bill, I am sure that they would tell us that they want their bank accounts to remain functional and that they do not want to pay any more for that. That is what my amendment is designed to achieve. In Committee, the Minister said that the code of practice was a better place for explaining the meaning of terms. I accept that up to a point, but not when it drives at the heart of what the objectives are. Clause 4 has only the protection of depositors as an objective. It is perfectly possible to protect depositors without protecting banking services at all; the two are not synonymous. For example, I do not regard my internet savings account with a bank that is not my main bank as part of the banking services that I need. It is simply a financial asset, which I need to have repaid if the bank goes belly up. However, I most assuredly need the banking services to deal with everyday life from my main bank. That is why we need to ensure that continuity of banking services is clearly specified as an objective in the special resolution regime. I beg to move.
Lord Newby: My Lords, we supported the amendment in Committee. As the noble Baroness has just said, the Minister stated that we should all be relieved that the relevant provision is referred to in the code. The problem is that the code is an obscure and amendable document. The Bill is neither obscure nor amendable in the same way. The amendment covers an extremely important point of great concern outside these walls.
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Lord Stewartby: My Lords, I do not think that the Government have sufficiently taken on board the enormous importance of continuity. They accept that it should happen but, by resisting the sort of amendment that would specifically spell it out, they make one feel that it is rather a subsidiary objective. The clause contains several objectives, such as protecting public funds, enhancing,
and others. These are all important and necessary objectives to spell out. However, for most people and businesses involved with banks, the most important thing is uninterrupted service and continuity of their banking arrangements. I hope that the Government appreciate how strong the feelings about this are.
Viscount Eccles: My Lords, I add that the Government’s view on this seems in sharp contrast to the amount of space in the Bill devoted to the importance of resco continuing to give service to newco.
Lord Myners: My Lords, the noble Baroness pointed out in Committee that the British Bankers’ Association feels strongly about the amendment. I am not surprised to hear it; the Treasury has also had communications from the BBA. For example, I have read the BBA’s briefing paper for Second Reading in another place, which referred to the need for,
- “the balance between delivering compensation payments through the FSCS and seeking to maintain access to funds through alternative solutions”.
The question that we must ask ourselves in relation to this subject, or any amendment, is whether the amendment is necessary to the Bill, rather then whether the British Bankers’ Association wants it. As I pointed out in Committee, the concepts of continuity of access to banking services and rapid access to deposits are already present and correct within the special resolution regime objectives. I am not sure that I would be drawn as far as the noble Baroness in suggesting that this was almost as important, or as important, as protection of depositors. However, I have no doubt that it is important, for the reasons that the noble Baroness and the noble Lord, Lord Newby, explained with such eloquence.
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