Financial Services Bill

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. 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 not give the Bank that power—though I have to say to the Minister that I have an amendment much later on the Marshalled List which seeks to create one. 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. I must also mention Europe, which my noble friend Lord Trenchard has mentioned this afternoon. This may be the source of problems—more than usual for Europe. The Government have been devising their policy for financial stability while our neighbours in Europe have also been moving with unaccustomed speed to set up a new European supervisory architecture which is trying to accumulate as many powers as possible to trump national powers. The Minister will be aware that every time the Council of Ministers determines what national protections should exist, the Commission and the Parliament pull in the other direction. We want the UK Government to be able to chart the UK’s own course, and to frame financial stability measures and powers in a UK context, while also achieving convergence with global standards. Will the Minister say how the Government see developments in Europe? Will we in the UK be setting the agenda for ourselves next year, or will it be laid down for us by the new European Systemic Risk Board and the European supervisory authorities? If that is the case, what influence will the UK have given that qualified majority voting is involved? Once Europe has had its say, what, if any, scope will there be for national action? Put another way, is my amendment on powers completely unnecessary because Europe will be dictating the answer? I beg to move.