Banking Bill

It is worth reiterating that a major banking failure in this country is extremely rare. That makes the need to answer questions about this crisis sooner rather than later even more important. We are told, however, that we are required to deal not only with the present crisis but to introduce a regime for long-term confidence—hence the Chancellor's reference to this legislation being permanent. The problem that I have with the reference by the hon. Member for Twickenham (Dr. Cable) to a tsunami is that tsunamis are natural and largely uncontrollable. The image of a house fire used by my hon. Friend the Member for Tatton (Mr. Osborne) is much more apt, because house fires are often caused by the carelessness of owners, and they can be prevented. We have heard a series of recommendations from Conservative Members on how reform needs to take place. To give the Government credit, we have also been teased with opportunities for reform that will be brought forward in due course, including the much-awaited report from Lord Turner. It would be a much greater reflection of confidence in the UK financial system in the long term if, as I would have liked, there had been some provision in the Bill to return to parts of it at a future date, in the light of experience and of needs. The impact assessment highlights the potential for shareholders' interests to diverge from those of depositors in times of financial stress. That is seen most clearly in the balance that needs to be struck between making rapid pay-outs to depositors and the need to maintain value in the banks. Disorderly bank failures will affect the City's pre-eminence as a financial centre, but so too will maintaining a divergence between the interests of shareholders and depositors, when they do not normally conflict. It is important to ensure that these are brought back into alignment as quickly as possible, and I would like some assurance from the Minister that he feels comfortable that that is embedded within the Bill. I raise this issue because the time scales for the Government holding shares and being involved in the management of banks are likely to be long. The impact assessment hints at that, in showing that the average length of the crises in the developed countries is five and a half years. As the Bill proceeds, we need more detail on how and when intervention will occur, more modelling of the effects on shareholder confidence and a reassurance that the Government will resist micro-management for long periods. There is a follow-on from that in respect of the work done for the impact assessment, as we must ensure that the costs of the proposed measures have been accurately defined, given the lengths of time that are likely to be involved. The Bill is heavily dependent not just on secondary legislation, but on the code of practice. I was grateful for the comments and assurance earlier that the code of practice will be produced in parallel with progress on the Bill. I would like to make two points about the code. A restricted number of people are presently envisaged as consultees for the code of practice. It needs to be wider, and we need input from practitioners to ensure that the code is practical and avoids unintended consequences. I look forward to hearing the Minister's comments on that. The list of areas to be covered in the code is set out in clause 5. Given the emphasis elsewhere on protecting depositors, I am surprised that the code of practice makes no mention of communication with depositors and provides no guidance on it. I would very much like to see a widening of the code beyond its current narrow confines, so that we can see how it will operate at a wider level. The problem of information from the Bank of England is still a live issue. Clause 223 removes the need for the Bank to prepare a weekly return of accounts. I cannot pretend that the Bank of England's weekly return of accounts has been my favourite bedtime reading, and I understand why the measure is necessary—something my right hon. Friend the Member for Wokingham (Mr. Redwood) hinted at in his speech. However, the lack of transparency over introducing it now, when the weekly return is already in place, will create the impression of doing deals behind closed doors, leading to the inability of shareholders and depositors to hold management to account. I have to say that I do not think that it will work, as I am less sanguine than my right hon. Friend about the City's ability not to leak. It was never my experience that it was able to keep a secret for very long; indeed, the situation where rumours are about is far more dangerous than where there is real information. A number of Members have spoken about the role of the Bank of England. I support the greater prominence of its role, as set out in the Bill. I also welcome the Chancellor's agreement to review the regulatory system. What we need to ensure is that it regulates the right things, but I pick up a point made by some Labour Members: having a light touch and being radical are not incompatible in producing a review of the regulatory system. I welcome the Bank of England being given oversight of inter-bank payment systems, as when the Bill kicks in, customers should see no difference during a crisis.