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Banking Bill

I have gained some insights into the arguments on the government side but I cannot say that I am in any sense convinced by them. I think that the Minister said that these clauses cannot override the financial collateral arrangements directive, but there are those who would wish to see that more explicitly reflected. I shall reflect on it, as I hope the Government will if that is indeed the position. My first pair of amendments relates to contracts to which the bank is not a party. There is a balancing act here. The Minister is saying that we want a lot of flexibility because we do not know what kind of contracts might be in a chain related to the bank. I understand that point but I am not convinced that these are likely to be the usual contracts. On the other hand, I am told that using a reference entity or an underlying share is perfectly normal in driving the derivatives and similar markets. Therefore, on the one hand there is the possibility of putting major uncertainty into those markets and, on the other, the possibility that the Government might, in some slightly ill-defined circumstances—if they had a failing bank and some of these complex contractual terms down the line—want to unwind them. At the end of the day the Government will have to decide where the balance lies. If the Government leave major uncertainty in relation to the legal effect of contracts such as derivatives, which are an essential part of the financial services industry, they could be destroying the UK as a location for such contracts and English law as the law governing them, which may take a whole raft of business out of UK markets. That is the main danger. We then went on to the issue of set-off and netting which, with respect, I do not think the Minister dealt with any better. He referred to the consultation that has just ended, which I acknowledge, but that is in relation to partial transfers only. The powers in Clauses 47 and 48 to protect set-off and netting relate only to partial transfers and not to the provisions that I have been talking about, which are not related to partial transfers. I have some difficulty in seeing how the Minister expects to provide a form of legal certainty around those contracts. I think the Minister is saying, ““We will be reasonable when we come to them, so we won’t upset contracts””, but that is not good enough for contracts that are traded in marketplaces. I am sure that we will discuss that later when we get to Clauses 47 and 48. The Minister could see from the look on my face that I was far from convinced by his response. These are important issues, and the Government need to reflect on whether their theoretical imaginings of things that might go wrong when dealing with a failing bank are more important to them than the impact they will have on some financial markets. That is a really serious issue for the Government to reflect on between now and Report. The Minister has said that he will reflect on it. The Treasury knows the people who have been analysing this, and it should have further analysis available. I would not like to leave the Government in any doubt that we thought this a serious issue that needed to be resolved. I beg leave to withdraw the amendment. Amendment 40 withdrawn.