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Banking Bill

Debate on whether Clause 4 should stand part of the Bill. This is a crucial clause and I should like to have a quick word with my noble friend on subsection (2)(c) referring to ““the bank administration procedure””, which is then referred to in Clause 5(1)(c) dealing with the code of practice. The code of practice is inevitably a draft as we cannot have the full code until the Bill is enacted, but I remain unclear about the Chancellor’s view, as expressed by my noble friend and others, on an arm’s-length procedure in the management of the banks. There are so many conflicts between the arm’s-length procedure and the way in which the banks are supposed to be run. Even with government guarantees on banks, do they have the commercial right not to use the loan guarantee because they feel that lending to a particular customer or client is not a viable proposition? We are told in the draft code that the Treasury may take a hands-on role in managing the affairs of the bank, which is in direct contradiction to an arm’s-length procedure. You cannot have an arm’s-length procedure in running the bank if it is left to make its own commercial decisions and the Treasury then takes a hands-on role. I raised this issue with my noble friend on Second Reading and referred to what the Governor of the Bank of England said. This usually very cautious gentleman, Mervyn King, effectively implied that the banks could not be left to carry on as they would wish, which seems to say exactly that the Treasury will take a hands-on role. What do the Government have in mind on the bank administration procedure? They have asked for a response to the draft code to see whether anyone has any ideas about changing it. I would like to know exactly what the Government have in mind. Do they believe that if the banks do not lend, the Treasury will take a hands-on role, or will it be an arm’s-length procedure?