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Banking Bill

I am grateful for the constructive way in which the noble Baroness has presented her amendment. There is not a great deal of difference between the Government’s approach to these issues and the one that she has identified, but we have reservations about the amendment, which would permit the code to include a section on the meaning of the stability of the financial systems of the UK. Our problem is quite straightforward. The draft code of practice expands on the term, "““stability of the financial systems of the UK””," by referring to, "““the stable functioning of the systems and institutions (including payment and settlement infrastructure) supporting the efficient operation of financial services and markets for purposes including capital-raising, risk-transfer, and the facilitation of domestic and international commerce in addition to day-to-day banking””." This is a useful elucidation of the term, and I accept that there could be other competing and useful definitions. However, we do not believe that we have in the draft code an exhaustive definition of financial stability. We do not think that we could have such a definition. The problem is how to define financial stability in such a way that it would obtain among all commentators and all those interested in the concept, and how to identify what acts might pose a threat to financial stability. After all, instability is the product of challenges to the system, and it is not easy for us to foresee these and to produce an exhaustive definition that pays full regard to that. Whether the financial system of the UK is stable or whether any particular act would threaten financial stability depends a great deal on the circumstances and is likely to vary as the operation of global financial markets change and as the British economy and its relationship to such global financial markets evolve. We have therefore included in the code of practice an elaboration of what financial stability means, and it will be used to guide the authorities in determining whether the specific conditions for the special resolution regime have been met, as set out in Clauses 8 and 9. However, this definition is not intended to be exhaustive and definitive. That is why we shy away from the noble Baroness’s objective, although I recognise the value of what she proposes. We do not think that we should make such a definition mandatory in primary legislation. We hope that it will be recognised that the code of practice is likely to change over time. That is in the nature of codes of practice and why they have elements of flexibility. We are therefore resistant to an amendment that would require us to be quite definitive about a concept which we could not claim to be definitive about. I hope the noble Baroness will recognise that I am not hostile to her intent but am struggling with the fact that the Government do not think that they can fulfil the objective which she has indicated in her amendment. That is why I hope she will consider withdrawing it.