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Banking Bill

On the basis that I was rather slow in getting to the point on the previous amendment, perhaps I may try to make amends by saying that I think that the noble Lord, Lord Newby, will be pleased with my answer when I get to it. Clause 20 provides that a share transfer instrument or order may enable the Bank of England or the Treasury to appoint or remove directors. It also provides that the instrument or order may confer on the Bank or the Treasury the powers to vary or terminate the service contracts of directors. Such provision gives the authorities the necessary power to put appropriate management into place once control of the failing bank has been transferred. It is, of course, critical that the deposit taker has a board of directors with the appropriate expertise to manage the business. However, in the period immediately preceding the transfer, members of the board may have resigned, the existing board may not have the necessary expertise, or it may no longer be appropriate or suitable to run the bank. The conditions that have occurred prior to the clause becoming relevant surely give rise to questions about competence, appropriate skill and the worth of these people to the bank. The noble Baroness’s amendment seeks to specify that a share transfer instrument or order may not make provision in relation to the terms of existing contracts relating to directors. However, the Government consider that this is an important power to have. Let us suppose that the Treasury takes a failing bank into temporary public ownership. It may be appropriate to amend the provisions of a director’s contract—for example, by changing the length of his tenure or remuneration arrangements—or, to provide another example, to amend the notice period for a director’s dismissal. Such measures may be necessary to put appropriate management arrangements in place. The breadth of the powers under the clause was noted in the other place. While I acknowledge that this is a broad power, I repeat the reassurances offered by the Economic Secretary. As he noted in the other place in Committee when this clause was debated, the terms under which former directors were employed are a matter for the previous board. He also stated that those terms would be governed by normal contract law. This is the case because they would have been determined before the bank needed to be resolved: hence there would be no property transfer instrument. He went on to say that any amendment to a director’s service contract would be governed by contract law. This is also the case. While the clause provides a power for the Bank or the Treasury to alter a director’s service contract as part of the resolution of a failing bank, any modification made using the powers would be treated as part of the contractual arrangements between the director and the bank and would be governed by normal contract law. Moreover, of course, any power under the clause could be used only once the general and specific conditions were met, and would have to be exercised in a way that is compatible with the European Convention on Human Rights and with Article 1 to the first protocol in particular. In answer to the noble Baroness’s question, the intention of the clause is to allow the authorities to have the ability, should they believe it to be appropriate, to terminate a contract without compensation, to modify a contract without compensation and to remove any entitlement to bonuses that have not been paid. Those are right and proper powers to have in place in the circumstances which this Bill contemplates. Therefore, I ask the noble Baroness to withdraw her amendment.