Banking Bill

It is a pleasure to follow the hon. Member for Stratford-on-Avon (Mr. Maples). I have heard him make similar speeches about how individuals should take responsibility to manage risk. He has given the same treatise about moral hazard before, and I know that he is not comfortable with the full, all-deposit guarantee. I understand his point when it is applied to normal circumstances, and I would agree with him in normal circumstances. However, the economic climate is very unusual at the moment. Obviously, we welcome the increase in the deposit guarantee to £50,000, although we would have liked it to have gone much further. With the increase came the argument that the guarantee covered 98 per cent. of all depositors, which is absolutely true; the problem is that it goes nowhere near covering 98 per cent. of all deposits. That is why local authorities, charities and pension funds have huge exposure if they put part of their money into some of the banks and schemes. Icesave was used as an example. I am aware of one organisation that put a substantial amount into one of the Icelandic banks. It did not simply look up the website and send a cheque. It checked not with one credit agency, but all three; it did all the due diligence that it could, and it still might get stung. When we get to the stage of considering regulation more generally, rather than the narrow but important element in the Bill, the Government should consider how the credit rating agencies work, and the agencies' transparency and fee structures. I do not mean to be over-critical, but something has gone seriously wrong when people depend on credit ratings that turn out to be wholly false. I shall not range too widely; I want to stick to specific clauses in the Bill. Before I do, I should say that I agree with many hon. Members that we need to have the debate on the necessary changes in regulation soon and that I want go into a little depth on the subject of my earlier intervention on the Chancellor. The Banking Bill flows from ““Banking reform—protecting depositors: a discussion paper””, published in October 2007; from the Chancellor's statement on 11 October that he would review the existing supervisory regime; from the January 2008 ““Financial stability and depositor protection: strengthening the framework”” document; and from the July 2008 ““Financial stability and depositor protection: further consultation”” document. I should not forget the Banking (Special Provisions) Bill, which allowed the nationalisation of Northern Rock. All those other documents were informed mainly by the Northern Rock crisis. This Bill follows in the wake of a new banking crisis and must set out the framework for dealing with failing banks generally—bank insolvency, bank administration, the Financial Services Compensation Scheme, inter-bank payments and other matters such as the Scottish and Northern Irish note issue, on which I shall touch briefly at the end. Other aspects of rebuilding confidence and stability in the banking system are variously the responsibility of the FSA, the Bank of England or the Treasury and may not require legislation; existing powers may be able to introduce such measures. I am pleased that we are finally getting round to discussing the Bill, not least because the foreword to the July 2008 Treasury publication that I mentioned stated:"““The recent sustained period of disruption in global financial markets, starting in summer 2007, has had a widespread impact on firms and markets across the world””." It is right to put on the record that nine months ago, on 21 January, I asked the Chancellor a question that others have also raised: would it not make sense to draw up the detailed changes needed to deal with failing banks before a nationalisation or takeover was required? He said that that would take some time, although I did not expect it to take this long. Since the Northern Rock debates—let alone the Northern Rock rescue plan, which happened some time later—three banks have been recapitalised, the takeover of Bradford & Bingley has been facilitated, there has been a massive expansion in liquidity provision and an increase in depositor protection, and the Government have stood behind inter-bank lending. Although I back those plans and expect them to work, it seems staggering that a key plank of the Government's programme—to have in place the full panoply of protection that we needed, including to deal with failing banks—is being introduced a year after we first discussed it in October 2007 and 18 months after what the Government recognise as the start of the financial crisis in summer 2007. We are putting in place provision to deal with failing banks after the banks have failed and a year after we started debating the issue. I want to turn to some of the clauses, although I am not going to go through all the clauses of concern to me because that can be done in Committee, and other hon. Members have raised many of my concerns already. However, I have a few questions that have not yet been touched on. Before I come to those, let me mention the special resolution regime and in particular the concept of the bridge bank as a stabilisation option. During the Banking (Special Provisions) Bill, I said that there was the facility for a primary transfer of private assets to a public body and then the provision for a secondary transfer back to the private sector. However, there did not appear to be provision for what we might call a private sector administration and then a secondary transfer to the private sector proper. I am very pleased that the bridge bank concept is there as an intermediate stage to allow secondary transfers to wherever; that is particularly helpful. Clause 19 relates to the use of a share transfer instrument. That can allow bank directors to be appointed, removed or have their contracts varied, and that is extremely sensible. However as the hon. Member for South Derbyshire (Mr. Todd), the right hon. and learned Member for Rushcliffe (Mr. Clarke) and others said, we need to look again at the relationship between the state and the banking system because of the new arrangements—the huge stake that the Government and the taxpayer have in the banks. It is worth the Treasury considering that that power to have bank directors appointed, removed or their conditions varied should be applicable only to the Bank of England and that the Treasury should not be included as a body able to hire, fire or vary contracts. If it had those powers, that would bring a real risk—even if only of perception—of the wrong sort of political interference. By all means, the Bank of England should have the powers, and quite right too. However, if the Treasury took such decisions, that might give the wrong signal. Why has the Treasury been included as a body able to direct such hiring and firing and the amendment of bank directors' contracts? Clauses 42 and 43 are about the restriction of partial transfers to protect certain interests. That is also welcome, not least because it gives the Treasury the powers to avoid the difficulties with ““set-off”” or ““netting”” arrangements; that is incredibly important if everything is to be done properly. However, all that will be achieved by secondary legislation. When will the Treasury publish the draft statutory instruments? Will there at least be codes and guidelines for us to see in Committee? Clause 64 has been touched on, and it is extraordinarily wide. It allows the Treasury, by regulation, to make provision in relation to capital gains tax, corporation tax, income tax, inheritance tax and stamp duty of varying sorts. Subsection (4)(a) allows it to"““modify or disapply an enactment””." The Chancellor said earlier that that would only happen in the prosecution of the delivery of a special regime for a failed bank—I am paraphrasing, but I think that that is what he said. They are very sweeping powers, and if the Economic Secretary could tell us why the Treasury deemed it necessary to include such a wide list, that would be helpful. Clause 73 covers the distribution of assets on dissolution or winding up the surplus after creditors and shareholders have been paid. I presume that the power to alter priorities is to ensure that, where taxpayers money has been used to prop up and assist a building society, money can be returned to the taxpayer should there be any surplus left, rather than dispersed in the normal way with the winding-up of a company. I would be grateful for confirmation of the logic behind the power to alter priorities in clause 73. Part 4 of the Bill will empower the Treasury to regulate the pre-funding of the Financial Services Compensation Scheme. We have heard a lot about that, and I want to go on record to say what everyone else has said: it is absolutely right and proper that pre-funding takes place, but to do it now at a time of fragility, thin balance sheets and terror in the banking system might not be the cleverest idea. It would be useful if the Economic Secretary could advise what the Government's thinking is on that, and tell us whether they want to see heavy-duty pre-funding now, or whether it will be rolled out over time as economic circumstances improve. I turn briefly to part 6, which deals with Scottish and Northern Ireland banknotes. I understand that the provisions will allow authorised banks to continue to issue them in the normal way. The question that arises with the Lloyds TSB takeover of HBOS is whether the Bank of Scotland part of HBOS, or Lloyds TSB HBOS, will still be an authorised bank to ensure the continued printing and distribution of Bank of Scotland notes, or would the new entity be authorised to do so? I am sure that that is the case—the Chancellor seemed to indicate that it was earlier—but clarification would be helpful. I would like to end with two questions, which have been touched on, about the Bank of England. Clause 218 might effectively reduce the number of meetings of the court of directors by half, and clause 223 removes the requirement for the Bank to produce a weekly return of accounts. At face value, that opens up questions about the proper level of internal questioning and scrutiny, and of external transparency of the Bank. I understand the Chancellor's argument that when the Bank of England is the lender of last resort, in extremis, any indication that Bank A, B or C has borrowed £5 billion, £10 billion or £15 billion from the Bank of England might send a particular signal to the market. But on the basis that the Bank is currently almost a lender of first resort, that stigma has gone completely, and I wonder whether that lack of transparency and the consequent opaqueness is the right thing to do. I am sure that the Economic Secretary has taken notes on those questions and will give me full answers in few minutes time when he sums up, or in Committee at some later point. We have no intention at all of standing in the way of the Bill. We welcome the stabilisation package, and we have said that we expect it to work. We may table amendments with the purpose to probe, or to improve, and we may well have tough questions on the rationale for certain things, but tonight at any rate, we will certainly not be calling for a Division on the Banking Bill.