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Banking Bill

Clause 1: Overview Amendment 1 1: Clause 1, page 1, line 5, after ““banks”” insert ““and foreign banks”” I shall speak also to the 18 other amendments in the group. As this is the first group of amendments, with the leave of the Committee I shall make a few opening remarks before moving to their substance. We made it clear at Second Reading that we would bring this Bill political good will for a speedy passage as we recognised that the Government would need powers to fill a gap that would otherwise be left by the expiry of the Banking (Special Provisions) Act next month. Consideration in the other place was rushed because the Bill was not available until October, notwithstanding that the first White Paper was published last January. Even with the unusual procedure that we adopted of starting work on the Banking (No. 2) Bill, we will be hard pressed to finish our consideration before 12 February, which is a full eight days before the Banking (Special Provisions) Act runs out. The other place has decided that it will be in recess from 12 February. Our good will is tinged with the frustration that we would have preferred a little longer to take the Bill at a more considered pace. Rushed legislation is often defective, which your Lordships’ House abhors. We shall, of course, do our best, and it is in that spirit that we approach the Committee. I say this by way of background to our Committee consideration as a whole and to this group of amendments. As I said, the Bill is based largely on a White Paper published very nearly a year ago. With the exception of some new clauses, some of which were tabled only yesterday, the Bill shows almost no recognition of what has happened in the past year. It seems to respond to the problems that exhibited themselves in 2007 and not much else. This group of amendments and some others, to which we will come in due course, would fill in some of the legislative gaps revealed in the past year with which the Government appear not to have caught up. Last autumn when the Icelandic bank, Landsbanki, was in financial trouble and apparently threatening not to honour its international commitments to UK depositors, the UK Government took the unexpected step of using powers contained in the Anti-terrorism, Crime and Security Act 2001 to freeze the UK deposits in that bank to protect UK depositors. The Minister will be aware that the use of these powers, while doubtless available technically, was the cause of some controversy. There is a dispute as to the facts on which the Government rested their decision that these extreme powers should be activated, and there has been a lasting resentment in Iceland that Icelanders have been tagged as terrorists. I do not want to debate the facts and circumstances of Landsbanki—there will be plenty of other opportunities for that—but I want to raise whether this Bill should have a tailor-made version of the asset-freezing powers embedded in it. The Bill must be clear on the full range of the Government’s powers in respect of banks that fail, which in so doing have a potential impact on the UK. The Minister will be aware that when the Anti-terrorism, Crime and Security Act was passed there was much unhappiness in Parliament about the sweeping nature of its powers, many of which as we know were not confined to counterterrorism activities. That was known at the time and has been demonstrated several times since. The Government undertook to set up a review of the legislation by a group of Privy Counsellors led by my noble friend Lord Newton of Braintree. It is interesting to note that of the nine members of that review, all but two were then, or are now, Members of your Lordships’ House. Indeed, one of the remaining two is married to a Member of your Lordships’ House. The report, which was unanimous, took the view that when special counterterrorism legislation is required it must, "““contain proper protections for the privacy and liberty of the individual, and in our view, stand apart from other law so that it can be accompanied by its own tailored safeguards, including careful monitoring and review of its use. It is important that it commands public support, otherwise its use risks being mistrusted and therefore less effective””." In relation to freezing orders, the review said that the powers in the 2001 Act should lapse and be replaced in relation to counterterrorism by primary legislation based on UN Security Council Resolution No. 1373. In other cases, as the report stated at paragraph 150: "““Freezing orders for other emergency circumstances, and the safeguards which should accompany them, should be reconsidered on their own merits in the context of more appropriate legislation””." The Government have done nothing in response to the review undertaken by the Privy Counsellors, but they have used the powers in relation to non-terrorism circumstances in the case of Landsbanki. My amendment seeks to develop a tailored regime of asset freezing in the case of bank failure. I shall not deal with the amendments in great detail. They cover more than a dozen pages of the Marshalled List and are significantly based on the legislation contained in the 2002 Act, but have been tailored. Amendments 1 to 3 set up an asset-freezing procedure for foreign banks as one of the elements of the special resolution regime. Foreign banks are defined in Amendment 6. Amendments 9, 15 and 28 bring the asset-freezing procedures into the special resolution objectives in Clause 4, the code of practice in Clause 5 and the general conditions for the special resolution regime in Clause 7. The meat of the procedure is found in the new clauses and part inserted after Clause 165 by Amendments 146 to 156 and the associated schedule inserted by Amendment 209. These provisions are very similar to those found in the Anti-terrorism, Crime and Security Act 2001, but there is a crucial difference in the formulation of the basic power. Under the 2001 Act, the powers are based on the extremely broad formulation of the Treasury believing that action to the detriment of the UK’s economy had been or was likely to be taken on the basis of action constituting a threat to the life or property of UK nationals or residents. Under Amendment 146, a freezing order would have to satisfy two conditions. Condition 1 is identical to the first two parts of condition A in Clause 8 for the use of private sector purchaser or bridge bank powers. The second condition is a refinement of the third leg of condition A in Clause 8 so that instead of relating to the protection of depositors generally, as in Clause 8, the new asset-freezing power focuses on foreign banks paying up in the case of UK depositors. I have not attempted to deal with the other main criticism of the asset-freezing power made by the Newton report; namely, the lack of an appeal or independent review process. I have merely attempted to lift the very general power in the 2001 Act and place it in the Bill as a tool that the authorities have used in the past and might need to use in future to deal with banking stability or depositor protection. In addition, I have not sought to repeal the 2001 Act because the Bill does not represent the comprehensive opportunity to alter that Act’s powers in the way that the Newton report suggested. The aim is that the Treasury should look to the tailored powers put forward in these amendments rather than to the ones that were rightly criticised by the Newton report to be used in other contexts. I am sure that the drafting of some of the detailed amendments is open to criticism, but I hope that the Minister will recognise that for today’s Committee these are probing amendments. They are designed to seek the views of the Government on why the Bill does not provide a comprehensive response to the financial and banking stability issues in the light of recent experience. They are also designed to be a modest contribution to making those powers more comprehensive and making the Bill a proper reference point for all those who seek to identify the Government’s tool box in future financial crises. Importantly, they are designed to recognise the splendid work of my noble friend Lord Newton and the other members of that review, which has been ignored by the Government since it was written in 2003.