Banking Bill

That is absolutely right. It might be possible to hold a bank in its entirety in the bridge bank mechanism, with a view to managing it to be sold as a whole bank. There is no sense that considering one option excludes another. I will not ask to put our amendments to the vote; rather, they are intended to probe the Government's thought processes and clarify how they would address the various solutions, given the complexities that are attached to the bridge bank and temporary public ownership. New clause 9 deals with an issue that we touched on earlier—how to protect depositors in the event of a bank failure. There are gaps in the Bill. First, it is not clear who decides whether payment should be made to consumers or the account should be transferred, as in the case of the Bradford & Bingley, into another bank. New clause 9 was tabled to probe that issue. I have suggested that the FSCS, having consulted the other authorities, should make that decision. I am not sure that the Bill as drafted tells us who should make that decision or what the decision-making process should be. The new clause helps to flush out that issue. For depositors, I believe that the best solution in principle is the ability to go to another bank the next day to withdraw funds. If we want to protect depositors, we should make it clear that the best way of doing that is by providing that continuity of service—the Minister's first point when he moved the Government amendments. The sub-optimal solution, but it may be a necessary solution, is payment through the FSCS. As demonstrated with the Icelandic banks when deposits were moved to ING Direct, that was a much better process. It was preferable to dependence on the FSCS for people in Icesave, parts of Kaupthing Singer & Friedlander and Heritable or others that ING Direct did not wish to acquire. We need to signal that, wherever possible, a straight transfer to another bank is the preferred solution. That will give customers the most satisfaction and the most confidence in the banking system. It also somewhat removes the need for a pre-funded scheme, but that is a debate and vote for later. There are many ways to approach the issue. New clause 10 deals with the publicity that should be given when the stabilisation powers have been exercised. One challenge that arises from the Bill is that it will give the authorities some quite significant powers, but there is a lack of transparency about how they will be used. The code of practice gives some guidance about their use, but in reality, the proof of the pudding will be in the eating. Only when we have seen the powers exercised will we know the constraints within which the authorities are working or the relevant thought processes. People will learn from those precedents how the powers will be used in future. New clause 10 has various elements. The FSA needs to show how it believes that the threshold conditions have been breached, which will then trigger the stabilisation powers, and it will then be for Treasury and the Bank of England to explain why they used those particular powers in the way that they did. We debated publication in Committee. I am mindful of the risk that confidential information is relevant, which might in itself pose a threat to financial stability. It is important that information released initially should not be prejudicial to financial stability, but it can be published at a later stage. It is important that the audit trail is made available. The process of publication is dealt with in the code of practice, but the code is non-binding and does not have legal status. It is an important issue, so ensuring that there is proper disclosure of how and why the powers have been used should be built directly into the Bill. Amendment No. 74 relates to one of the issues on which we have engaged in a certain amount of debate: how the interests of creditors will be taken into account. The Bill contains some safeguards. The Minister said earlier that no creditor would be worse off, although compensation would depend on the way in which the powers had been exercised. Despite that, however, there are still concerns about the impact of the powers on the rights of creditors, and about how the Government will look at those rights when considering which powers to exercise. It would be helpful if the code of practice included a requirement for the issue to be properly discussed. In Committee we tried to amend the objectives to take account of the rights of creditors, but I think that there is a different way of trying to ensure that that happens. Amendment No. 9 and the amendments that follow it relate to the exercise of the threshold conditions. In Committee, we debated the threshold conditions set out in FSMA. They are fairly broad, and not very tightly focused. In amendment No. 8, I suggest that we focus particularly on the part of FSMA that relates to adequate resources, because that is the issue that seems to have aroused the most concern in the context of Bradford & Bingley and the Icelandic banks. We need to know exactly what the FSA is looking at. Amendment No. 9 is complementary to amendment No. 8: it asks the FSA to publish guidance on what it would consider to be a breach of threshold conditions. I am aware that we are not discussing a straightforward quantitative exercise. There will not be red lights for various ratios; there will be a combination of qualitative and quantitative assessment. However, I feel that we need some guidance from the FSA, and that it should be contained in the code of practice, which is the text from which people will work when examining the way in which the powers in the Bill will be used and what the constraints are. I am keen to ensure that the guidance covers the exercise of those threshold powers. In Committee, we debated the process whereby the FSA would consider whether the Treasury conditions had been breached, following which the Treasury and the Bank of England would have to consider how to use their stabilisation powers under clauses 8 and 9. There appears to be a slight disconnect in the Bill: there is no guarantee that identification of a breach of threshold conditions by the FSA would lead to the exercising of the stabilisation powers of either the Treasury or the Bank. It is plain to me that the process is ongoing and not linear. Amendment No. 12 makes it clear that before exercising its trigger powers, the FSA must have confirmed, in consultation with the Bank and the Treasury, that action will be taken to rescue a failing bank.