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Banking Bill

Clause 7: General conditions Amendment 25 25: Clause 7, page 4, line 28, leave out ““not reasonably likely”” and insert ““highly unlikely”” Amendment 25 would amend Clause 7(3), which contains the second condition that must be met before the FSA can fire the starting gun that will allow the stabilisation powers to be exercised. This is one of the more important amendments that we shall consider today and one about which the banking industry feels strongly. Condition 1, which is set out in subsection (2), is that the bank is failing or likely to fail the threshold conditions—we alluded to that in earlier amendments—but condition 2, which, as I said, is set out in subsection (3), is as follows: "““Condition 2 is that having regard to timing and other relevant circumstances it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the bank that will enable the bank to satisfy the threshold conditions””." Amendment 25, to which I am glad to see the noble Lords, Lord Newby and Lord Oakeshott, have added their names, would change ““not reasonably likely”” to ““highly unlikely””. It would thus make the FSA’s judgment based on positively rejecting whatever plans a bank has in place to meet its threshold conditions rather than simply saying that it is not convinced by them. There is a world of difference between these two tests and the evidence that will need to be amassed to deal with them. Let me give an example: a three-horse race. Assuming perfect betting markets, the odds are 5:2 on for horse A, 3:1 for horse B, and 25:1 for horse C. It is highly unlikely that horse C will win. It is also not reasonably likely. It is not impossible, but with two much higher rated horses in the race, horse C would be both not reasonably likely and highly unlikely to win. I was in that position this afternoon with a horse that was at 25:1 and duly did not win. It is highly likely that horse A will win; that is where the money is. It is not reasonably likely that horse B will win, given the form of and betting support for horse A, but it is certainly not highly unlikely that it would win, as it has a 3:1 chance, which is relatively short odds. Under these rules, horses B and C would both be taken off to the FSA’s knackers’ yard, while only horse A would survive for another day. If we changed the test, as in my amendment, only horse C would fail. The powers in the Bill are, as we have said, very extensive and should not be capable of being triggered lightly. The hurdle which the Bill sets must be sufficiently high to ensure that banks that are capable of getting their houses in order and meeting the threshold conditions must be given that opportunity. There are no appeal provisions in the Bill and no provision for challenging the tripartite authorities’ actions other than judicial review, which is not a serious mainstream option when dealing with the kinds of powers in the Bill, which, inter alia, can alter contractual rights and deprive owners of their property. There is also no parliamentary process to act as a counterweight. That is why the nature of the test is particularly important. It is important to the current providers of capital to banks and to any future providers of capital. If we set up a regime that makes it too easy for the state in its various guises to disrupt a banking business, that will make the UK a less attractive place for banking businesses to make their home. As the cost of capital may rise for UK banks, we may lose our appeal as a good location for global capital, which of course owes no country allegiance. For an economy that has been heavily dependent on financial services that is not a good thing. I asked the Minister to reflect on the unintended consequences of Sarbanes-Oxley, about which I spoke at Second Reading. I urge him not simply to read out his speaking note which will tell him to resist this amendment. I ask him in particular to consider the ramifications of this condition 2 test and whether it is a proper test in all the circumstances. I beg to move.