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Banking Bill

Before I address the amendment, which I hope to do with a clarity that does not require the noble Baroness, Lady Noakes, to have to refer to Hansard to understand my answer—I apologise if I was not clear—I should perhaps start by reminding noble Lords of the rationale for including temporary public ownership as a stabilisation option under the SRR. The private sector purchaser and the bridge bank stabilisation options are the key resolution tools, and the powers to effect them have been conferred on the Bank of England. In some situations, it may be appropriate to take a bank into temporary public ownership. I shall come back to the meaning of ““temporary”” in a moment, if I may. For example, temporary public ownership is likely to be the most suitable resolution option in situations where the Treasury has provided a failing bank with a significant amount of public money to stabilise it; or where wholesale and long-term restructuring is required to return the bank to the private sector; or where the bank is subject to a very fast-burn or complex failure, such that there is insufficient time or means to effect a property transfer or share transfer to a private sector purchaser without significant risk. Those three examples are all characterised by considerable uncertainty, which is why it is difficult to be precise on how long a temporary period of public ownership might last. This is the option under the SRR which deals with the most complex and difficult-to-solve situations. The transfer to another bank—the bridge bank—is by contrast relatively simple and straightforward, so that option would be used only in the most serious and complex situations. Not surprisingly, the authority to use this power is reserved to Ministers. Temporary public ownership provides a stable platform for restructuring a bank’s business. Again, that can take some considerable time, bearing in mind the fact that there may be considerable chaos in the banking system and that the difficulties may not be unique to one particular institution but common to many. My own business experience and that of many others in this Committee suggests that it is not a good idea to have a deadline, which I know is not the purpose of the amendment, because the time that it might take to give effect to such a resolution regime may be much longer. Under the powers provided by the Banking (Special Provisions) Act 2008, Northern Rock and Bradford & Bingley were taken into temporary public ownership. In answer to the question from the noble Baroness, Lady Noakes, Bradford & Bingley is in temporary public ownership. As noble Lords will know, it is the Government’s intention that Northern Rock and Bradford & Bingley will in due course be managed at arm's-length by UK Financial Investments Limited. While details are still to be finalised, and provision will need to be made on a case-by-case basis, it is likely that any other bank taken into temporary public ownership would also be managed at arm's-length by that body. Amendment 7 aims to provide a strong indication that the period for any temporary public ownership will be less than three years. I agree that it is the ultimate aim and priority to return any government-owned bank to the private sector. What do we mean by ““temporary””? The noble Viscount, Lord Eccles, reminded me of my earlier comments on that. I define temporary as not indefinite and not permanent. This is a clear expression of intent, and I took some comfort, at least in part, from the noble Lord, Lord Higgins, on that point. In my earlier observations about the difficulties that one might experience in going through this process, I hope I found some resonance with the noble Lord, Lord Blackwell, in saying that even if one were to put a period in the Bill, it is difficult to know whether it should be two years, three years or five years. It all depends on the circumstances. It is important that this House and the other place will be able to hold the Government to account, and if the Opposition believe that the Government are abusing the temporary nature of this provision, they will, no doubt, be vigilant in challenging that situation. As the noble Lord, Lord Turnbull, noted, under this option, there can be multiple outcomes, which suggests that putting a finite period on a reporting obligation is tricky. The key issue is that this is a clear declaration of intent. The Government do not wish to acquire banks for some political or social purpose. As the noble Lord, Lord Newby, pointed out in the context of Northern Rock, it was not our preferred outcome but, in the circumstances, it was the right outcome. I do not believe that setting a timing objective in legislation is helpful, even when, as in this amendment, there is flexibility. I appreciate the intention behind the flexibility in the proposal from the noble Baroness, Lady Noakes. I have previously outlined some of the situations where temporary public ownership may be beneficial; for example, where the Treasury has invested significant amounts of public money in a bank. In such situations, the judgment about when to return such a bank to the private sector should be determined by the public interest of protecting public funds as well as other SRR objectives. I have already reiterated that it is not the purpose of this legislation to do anything other than to hold banks in public ownership for as short a period of time as is consistent with other objectives relating to financial stability and protecting public funds. I believe the Government have demonstrated their clear intention to run the banks in which they have taken shareholdings or which they have acquired on an arm's-length basis to support an as-rapid-as-possible return of those institutions to the private sector. I therefore request the noble Baroness to withdraw her amendment.