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Banking Bill

I shall give way in a moment, but I shall continue while I still have fresh in my mind the question asked by my noble friend Lord Barnett. I was a little worried that he was going to ask technical questions about the code, not least because he has my copy of it, which would have given him a distinct advantage, had he wanted to. He did not go in that direction, and for that, I am grateful. We have got ““arm's length””, ““hands on””, ““fingers in pies”” and other metaphors. Let me try to help my noble friend. ““Arm's length”” applies to situations in which there is a significant public shareholding—government finance or government-owned shareholding— but we do not own the whole bank. We must have regard to the fact that these are publicly quoted institutions with external shareholders who expect them to be run in the way that a conventional successful business would be. I characterise arm's length in that situation as being an informed and engaged shareholder, an exemplar, reaching for and achieving the standards that the noble Lord, Lord Newby, referred to earlier. By contrast, ““hands on”” would apply immediately after a bank goes into a resolution regime and in a situation where it is wholly owned by the Government on behalf of the nation, either through a bridge bank arrangement or through temporary public ownership. I do not think those terms are inconsistent; they apply as circumstances determine. For the avoidance of doubt, it is not contemplated in the arm's-length situation that the Government would in any way direct banks to lend. My noble friend Lord Barnett asked about guarantees. The existing guarantees are largely in respect of liabilities to aid banks in their funding. It is for banks whether they seek guarantees to facilitate a deepening and broadening of their funding, and if they do so, they pay what we judge to be an appropriate rate of return to us for the risk that the Treasury is assuming in guaranteeing bank obligations. There are also certain arrangements in respect of guarantees of loans made by banks, particularly relating to small companies and to ECGD, which was covered in an earlier question. It is for the individual borrower and the bank to make what would be described as an arm's-length commercial decision. The bank will decide whether it regards an application from a small company to borrow under the small business loan guarantee arrangement to be good for its client and itself. It is does, it will enter into it, but it will not be compelled to do so.