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Banking Bill

Facing representations on these two amendments from all parts of the Committee, including the Benches behind me, puts me in a somewhat defensive pose. I am therefore going to rely to a certain extent on several of the contributions that help me with my case as well as making additional points, to which I need to respond. I am grateful to the noble Lord, Lord Higgins, for pointing out that if we had thought to make the code part of the legal framework, we ought to have put its contents into the Bill. There is a good reason why we have not done that. I recognise the additional points that he made, which I will respond to in a moment. Likewise, I am grateful to the noble Viscount, Lord Eccles, because he is right that my noble friend Lord Eatwell raises the most significant of issues with regard to the effectiveness of the legislation and has identified an area on which we need legal certainty and will need precision. It is a problem that we need to confront; indeed, it would have been remiss of us if we had not addressed it in this legislation. However, the noble Viscount is right that in Clause 48 and later clauses we have provision for secondary legislation that gives legal weight to specific areas that my noble friend has identified. We will come to those issues in due course, but I reassure my noble friend that we take his position seriously and his anxieties need to be addressed. We are addressing them with legal certainty—not the legal certainty of seeking to make the code a legal entity, but the legal certainty of secondary legislation, which surely ought to be preferred if my arguments about the issue of flexibility regarding the code meet the agreement of the Committee. The provisions of the code are intended to provide guidance. The code may set out provisions that should be taken into account, or it may provide for the approach that the authorities should normally seek to adopt. The expectation will be that the authorities should follow the code and that, if they do not, a public explanation will normally be needed. We are at one with the amendment to which the noble Lord, Lord Howard, spoke, to the extent that the code has those expectations built into it regarding the legislation. That is different, however, from a hard-edged statutory requirement to comply with the code, which would be inappropriate to its function and would be unduly restrictive on the flexibility of the authorities. The code is something to which the authorities must have regard, but it is not a rigid set of statutory requirements, nor does it have to be exhaustive in nature. That is just as well. I return to the obvious point about this legislation: it is difficult to identify from where a crisis emerges. The authorities have to respond. If we are overprescriptive about how they should act we may not anticipate a particular set of circumstances which all would subsequently agree the authorities had acted properly upon in identifying the problem and taking prompt action, when prompt action is in the very nature of the issues involved when we are discussing confidence in relation to financial structure. We might inhibit that opportunity because we had been prescriptive in primary legislation, and those opportunities do not occur that often. Primary legislation passed at this point in time is inevitably conditioned by the world we are in at present and by the many issues that the current crisis has identified, but that does not mean that it exhausts all potential threats to the financial system. That is why we not only seek to take on board the points identified by my noble friend Lord Eatwell and the concerns expressed by other contributors to this debate but also require some degree of flexibility, particularly as in other aspects, certainly with regard to making the code fully legally enforceable, it would have been better if we had drafted the Bill to include the code in those terms. There are good reasons, which I have identified, why we do not want to be saddled with that degree of rigidity. The status of the code means that authorities can provide greater guidance about the steps that can be anticipated to be taken under the special resolution regime than would otherwise be possible. Bank resolutions are likely to be very complex and varied in their nature and, dare I say, may have an element of unpredictability as well. One of the risks of imposing more rigid requirements would be that resolution scenarios would not be sufficiently anticipated and the authorities would not therefore be able to respond in any given situation in a manner best placed to achieve the special resolution objectives. For example, further provision can be made in the code on topics such as the meaning of the SRR objectives, how the authorities will balance the objectives in deciding between stabilisation options and how they will work together. We are only in the early stages of the Bill’s proceedings but we have had enough evidence already of how much the prospective role of the authorities and how they will act exercise the Committee. I am merely indicating within this framework that there is some understanding in the Committee of the necessity for a degree of flexibility. Each section in the code can include more descriptive and therefore more helpful language on the intentions behind any specific action or requirement within it. That is why the code should not be in the Bill but can supplement it by providing information that it would not be appropriate to set out on the face of the Bill or in an instrument of similar status. The code will provide a significant amount of detail about the way in which the authorities will implement the SRR and can be updated to reflect experience gained from operating the special resolution regime without imposing hard-edged duties or requirements on the authorities. I recognise that there are other views about this issue in the Committee, but if we conceded the legal status of the code, we would introduce rigidities with regard to the legislation against a background where the main argument, as presented by my noble friend, was covered in subsequent provisions. I hope that my noble friend will therefore feel able, with some confidence, to withdraw his amendment.