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As I was saying to the noble Lord, Lord Hodgson of Astley Abbotts, in some ways the noble Lord is right. We are still too close to the crisis to see all the implications of what has happened. We have here an architecture for building a safer system built around the Council for Financial Stability. I do not know what to say in response to the noble Baroness, Lady Noakes, saying that the Conservative Party does not
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Baroness Noakes: My Lords, I did not say that individual members of my party did not have a very clear view. I said that we did not have a definitive view for the party as a whole. We have an open mind, as I made absolutely clear. The Government do not have an open mind, which is why the Minister is resisting this amendment.
Lord Myners: The Government had an open mind in very carefully considering the implications. Let the Committee be in no doubt that we have spent a great deal of time considering the issues of size, interconnectivity, complexity and whether one organisation should include insurance, banking and securities. We have spent considerable time in reviewing the matter and we have reached our conclusions. However, for a party that is about to offer itself to the nation as being prepared for Government to say that its members have individual views but that it does not have a view as a party is absolutely extraordinary. However, looking at the faces of some the noble Baroness's supporters sitting behind her, my surprise is no greater than theirs. With that, I thank the noble Lord for stimulating this debate and discussion but I urge him to withdraw his amendment on the basis that the purpose that he seeks to achieve will be delivered by the model and the legislation as currently drafted.
Lord Hamilton of Epsom: I thank all noble Lords who have contributed to what has been an interesting debate. I do not accept the premise of the Minister that somehow this is all going to emerge from these constant reports that have been coming out of the Bank of England and the FSA and will come out of the new bodies in the future. I do not think that a regular monitoring of risk is a suitable way of addressing the question as to whether we have organisations that are too big to fail. Although everybody is frightfully keen on addressing this as if it is nothing to do with anything other than Glass-Steegall, it is not, as I hope I have indicated.
All enormous organisations-I am sure the noble Lord, Lord Haskins, would support me on this-are very reluctant to break themselves up voluntarily. In terms of shareholder value, there are very often obvious benefits in big organisations breaking themselves up. They never do, however, because the people who run very large organisations enjoy running very large organisations. They do not want suddenly to find themselves running a much smaller organisation because they have split their business in half. Let us be absolutely clear. Goldman Sachs, or indeed any other large organisation, is not going voluntarily to split itself up into smaller bits. That is why somebody has got to do it for them.
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The Conservative Party is absolutely right to have an open mind on this whole question. If, at the end of the day, by some miracle, this report is instigated-I take all the worries that noble Lords have that we probably will not see this legalisation on the statute book-it would be obviously easier for my party to come to a clear decision as to what should happen. What we want is the facts and for the debate to go on, as my noble friend Lord Lawson has indicated. There are pros and cons on this issue. It is not altogether straightforward. I am the first to accept that. On the other hand, we have suffered desperately from organisations that are too big to fail and from big banks that have speculated with depositors' money. When they go down, the taxpayer has to move in to bail them out; otherwise an awful lot of ordinary people would lose money. I give way to the Minister.
Lord Myners: How small does the noble Lord think an organisation needs to be to fail? My experience was that even an organisation as small as the Dunfermline Building Society in the end became too big to fail because of its consequences. This is why we need to have all the steps that I have been articulating to make sure that individual organisations are safe and secure.
Lord Hamilton of Epsom: That is precisely the point of having a report that would look into all these issues. I do not know why we have to answer them all here now. It did not matter how big or small the Dunfermline Building Society was. It had a very large amount of depositors' money. Therefore, those people had to be bailed out by the taxpayer. There is, anyway, an undertaking from the taxpayer that he will actually bail out deposits-it used to be £35,000; I think we are up to £50,000. Automatically, they are going to move in on an organisation such as that.
I totally accept the point made by my noble friend Lord Trenchard that there should be no question of us moving unilaterally on this. It would indeed be very dangerous and concerning if we were to do that. That is certainly not something that I advocate. I advocate that this issue be debated in a way that there is absolutely no chance that it will be debated under this new structure if it ever comes into being. All we have is a number of people sitting around making risk assessments. Will anybody grasp the nettle and say that what we should be talking about is organisations that are small enough to fail?
I am grateful to everybody who has contributed to this debate. I should like to test the opinion of the Committee on this amendment.
6.29 pm
Contents 123; Not-Contents 113.
Addington, L.
Alderdice, L.
Alton of Liverpool, L.
Anelay of St Johns, B.
Ashdown of Norton-sub-Hamdon, L.
Astor of Hever, L.
Attlee, E.
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Bates, L.
Bottomley of Nettlestone, B.
Bradshaw, L.
Bridgeman, V.
Brooke of Sutton Mandeville, L.
Brougham and Vaux, L.
Burnett, L.
Caithness, E.
Cathcart, E.
Chidgey, L.
Colwyn, L.
Cotter, L.
Craigavon, V.
Crathorne, L.
Crickhowell, L.
De Mauley, L.
Dear, L.
Denham, L.
D'Souza, B.
Dykes, L.
Eccles, V.
Falkland, V.
Ferrers, E.
Forsyth of Drumlean, L.
Fowler, L.
Gardner of Parkes, B.
Glenarthur, L.
Glentoran, L.
Goodhart, L.
Goodlad, L.
Greenway, L.
Hamilton of Epsom, L. [Teller]
Hanham, B.
Harris of Richmond, B.
Higgins, L.
Hodgson of Astley Abbotts, L.
Hooper, B.
Howard of Rising, L.
Howe, E.
Howe of Aberavon, L.
Howe of Idlicote, B.
Howell of Guildford, L.
Hunt of Wirral, L.
Inglewood, L.
Jenkin of Roding, L.
Jones of Cheltenham, L.
Kimball, L.
Knight of Collingtree, B.
Laing of Dunphail, L.
Lawson of Blaby, L.
Lindsay, E.
Livsey of Talgarth, L.
Luke, L.
Lyell, L.
Lyell of Markyate, L.
McColl of Dulwich, L.
Maclennan of Rogart, L.
Maginnis of Drumglass, L.
Mar and Kellie, E.
Marlesford, L.
Mawson, L.
Methuen, L.
Montrose, D.
Morris of Bolton, B.
Neuberger, B.
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Noakes, B.
Northbrook, L.
Northover, B.
Norton of Louth, L.
Oakeshott of Seagrove Bay, L.
O'Cathain, B.
Onslow, E.
Plumb, L.
Rawlings, B.
Razzall, L.
Reay, L.
Redesdale, L.
Rennard, L.
Renton of Mount Harry, L.
Roberts of Llandudno, L.
Rogan, L.
Ryder of Wensum, L.
Sanderson of Bowden, L.
Scott of Needham Market, B.
Seccombe, B. [Teller]
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Shaw of Northstead, L.
Shephard of Northwold, B.
Skelmersdale, L.
Slim, V.
Smith of Clifton, L.
Steel of Aikwood, L.
Stewartby, L.
Stoddart of Swindon, L.
Strathclyde, L.
Swinfen, L.
Taylor of Holbeach, L.
Taylor of Warwick, L.
Teverson, L.
Thomas of Gresford, L.
Thomas of Winchester, B.
Tonge, B.
Trefgarne, L.
Trenchard, V.
Tyler, L.
Valentine, B.
Vinson, L.
Wallace of Saltaire, L.
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Walpole, L.
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Bach, L.
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Bhattacharyya, L.
Bilston, L.
Blackstone, B.
Borrie, L.
Bradley, L.
Brennan, L.
Brett, L.
Brookman, L.
Brooks of Tremorfa, L.
Campbell-Savours, L.
Clark of Windermere, L.
Clinton-Davis, L.
Crawley, B.
Davidson of Glen Clova, L.
Davies of Coity, L.
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Dean of Thornton-le-Fylde, B.
Desai, L.
Dubs, L.
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Erroll, E.
Evans of Parkside, L.
Farrington of Ribbleton, B.
Filkin, L.
Foster of Bishop Auckland, L.
Gale, B.
Gibson of Market Rasen, B.
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Golding, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
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Lord Davies of Oldham: My Lords, I beg to move government Amendment 3 and, with the leave of the Committee, to speak to Amendment 4, which is grouped with it. Throughout the stages of this Bill in another place, the Government have been very clear that they intend to produce a statement under Clause 1(5). The Economic Secretary to the Treasury was clear about our intentions; the production of a full draft statement to enable proper scrutiny of the Bill also clearly indicated the Government's intention in that respect. However, seeing as we are continuing to debate this point, the Government are happy in addition to make it explicit in the Bill. Our amendment therefore makes it a requirement for the Treasury to lay a statement under Clause 1(5). However, we consider "must" preferable to "shall", as it is more consistent with the remainder of Clause 1, where "must" is used to connote an obligation. I beg to move.
Viscount Eccles: My Lords, it is always interesting when there is a conversion from the permissive to the mandatory-a move from some quiet, partial obligation
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- "keep under review the impact (if any) on the stability of the UK financial system of events or circumstances outside the United Kingdom (as well as in the United Kingdom)".
It seems extraordinary to me that those words are in that clause.
The sub-prime market-in the derivatives of the same, which started in the United States-had some effect upon the stability of the United Kingdom. I hope, then, that this move to "must" means that we shall stop looking entirely inwards and start to remember that it might have been good to have had some idea about what was happening in Iceland before the crisis-and that it might now be good to have some idea about what is happening in China. Indeed, the Chinese are beginning to make considerable investments in the United Kingdom. No doubt, they can finance those without recourse to any British bank because they have a great pile of United States Treasury bills with which to pay.
I feel strongly that the Bill-in this part, at least-has a certain irrelevance or out-of-date thinking in it. It is said by the Prime Minister that we live in a global economy, and that he thinks he is the first Prime Minister to have been in that office when the world became truly global. Yet the Bill, and this part of it, seems to indicate that we can draw a line around the UK financial system without regard to whether it is possible to do that. My contention would be that that is not possible.
It is possible to see part of the financial system as an enabling mechanism for making our economy grow either at one pace or another. Indeed, that is the most important issue facing us in the near future; how fast will our economy grow? However, it is not possible to look at the UK financial system as though it was just ours, with no impact being provided by our system and our banks on the rest of the world or by other people's banks on what happens here. We deserve a much better explanation of why the Government have moved from a permissive to a Hegelian position by using "must".
6.45 pm
Baroness Noakes: My Lords, the ingenuity of my noble friend Lord Eccles in raising so many issues in the context of a may/must amendment leaves me speechless. My Amendment 4 in this group is, as the Minister pointed out, the may/shall amendment. I had hoped that we would have one of those debates where the Minister would talk about the necessity of having flexibility and I would say how important it was to have certainty, but the Government have come along and trumped my amendment with their may/must amendment. I will of course accept that; it is a perfectly acceptable response to my amendment.
Lord Davies of Oldham: My Lords, I am grateful to both noble Lords who have spoken in this short debate, which I detect is somewhat shorter than those that we
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I want to emphasise, realistically, that the noble Viscount sought to widen the debate when the issue is in fact narrow. It is about a requirement only to lay a statement, not the wider objectives of financial control. It is about making a statement on the process; therefore I hope that the noble Viscount will recognise that I understand his point. I was quite delighted when the noble Baroness suggested that I could have made a longer introduction to the government amendment, but its virtue stands in its brevity and, as she knows, I am a Lord of few words. Therefore I am grateful for her agreement.
5: Clause 1, page 2, line 8, after "Council," insert-
"( ) specify the responsibilities of each relevant authority in protecting or enhancing the stability of the UK financial system,"
6: Clause 1, page 2, line 8, after "Council," insert-
"( ) specify the powers each relevant authority is able to exercise in protecting or enhancing the stability of the system,"
Baroness Noakes: My Lords, I shall move Amendment 6 and speak to Amendment 27, which is in this group. These amendments concern the financial stability powers of the FSA, the Bank of England and the Treasury. In the first group of amendments this afternoon, which seems rather a long time ago now, I focused on the responsibilities of the tripartite authorities. These amendments are the flipside of that, namely the powers that can be used to fulfil those responsibilities. Amendment 6 adds a further item which the statement issued by the Treasury under Clause 1(5) should cover, namely the powers of the relevant authorities to protect or enhance financial stability. Since my very similar Amendment 5 found favour with the Government this afternoon, I have some hope that Amendment 6 will, perhaps, similarly find favour. It is fair to say that requiring the statement to set out the powers is not an onerous requirement.
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The current draft of the statement says what the objectives and responsibilities of the three parties are. It goes on to talk about the discussion and co-ordination functions we debated earlier, but it does not say how one gets from discussion and co-ordination to action-that has to be by way of the powers of the individual bodies. The Government's position is that the council itself should not have any powers-that was established during our earlier debates-but that makes it all the more important that the powers exist to deliver financial stability and to establish who holds them. Ignoring the powers, as the draft statement currently does, leaves questions dangling in the air about whether there are indeed sufficient powers to deliver financial stability.
That leads me to the second amendment in this group, Amendment 27, which requires the Treasury to prepare a report on the powers needed by the tripartite authorities to fulfil their financial stability responsibilities. If the existing powers are found to be insufficient, my amendment says that the report should identify that and set out recommendations for remedying them. Proposed new subsection (3) gives the Treasury one year to deliver this report.
The Banking Act which we processed last year gave the Bank and the Treasury a suite of powers which could be used to deal with a threat to financial stability from a bank which was in financial difficulties. Those powers are necessary, but they are not sufficient to deliver financial stability. The Act also gave the Bank of England an explicit financial stability objective, but did not add any further tools or powers. The Governor of the Bank of England was quoted by the Treasury Select Committee in another place last year as saying that,
- "it is not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons".
There is nothing in the Bill which gives the Bank an ability to do more than issue sermons.
In the evidence sessions to the Public Bill Committee in another place, the Bank of England's representative said,
- "we are still at the stage of thinking about the kinds of tools that would be used".-[Official Report, Commons, Financial Services Bill Committee, 8/12/09; col. 30.]
In other words, this Bill does not settle the question of what tools are needed. The Bank of England's discussion paper of last November and its financial stability review earlier this year outlined its thinking on the macro-prudential tools needed for financial stability. The Bill does not progress that. The Bank and the governor have been clear that they do not see their monetary policy responsibility as extending to asset prices and asset bubbles.
My honourable friend George Osborne demonstrated in his recent Mais lecture that financial crises are always linked to a major increase in debt, one of the consequences of which is often rapidly rising asset prices. There is a pressing need to identify what tools will be used when debt and asset prices rise to alarming levels. The Bill does not deal with that. At a more mundane level, the Bank of England representative made it clear in his evidence to the Public Bill Committee that the Bank lacks an information power to underpin its role in the special resolution regime. The Bill does
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At Second Reading, the noble Lord, Lord Eatwell, referred to the need for a radical agenda which included pro-cyclical provisions and leverage collars. He noted that the Bill does not set out powers and responsibilities for putting this sort of agenda into action. There is not even a whisper of them in the Bill.
Amendment 27 does not seek to provide any answer to the question of what powers are necessary to underpin financial stability, or who should exercise them. It does however give the Treasury responsibility for pulling together the various strands of work, identifying what powers are needed and recommending what should happen if they do not already exist or are held by the wrong people. It allows one year for the task. There has been a prodigious amount of work done in this country and under the auspices of the G20. This talking shop has to result in some action, and importantly Parliament must be involved in the decisions, which is why my amendment allows for the laying of the report before Parliament.
The noble Lord, Lord Eatwell, was firmly of the view at Second Reading that in the UK we do not need to await full global agreement before pressing ahead. I broadly support that position, with the caveat that while the UK can front-run on issues-and given the size and importance of our financial services industry it would be natural to do so-we must not allow ourselves to end up out of step competitively with the rest of the world.
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