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Banking Bill

I shall speak also to Amendments 123 and 124. Amendment 122 seeks to remove Clause 75(3). That subsection allows retrospective alteration to the law. Retrospective legislation is undesirable at the best of times, but in this instance there are practical reasons as well as constitutional ones. Much has already been said about the overwhelming importance of legal certainty in banking arrangements. The ability to legislate respectively, as set out in Clause 75(3), makes it extremely hard, if not impossible, to obtain the level of legal certainty necessary to carry out banking business. One of the reasons for London's competitive advantage in the financial services industry is the UK’s well developed legal system. However, the legal uncertainty created by the ability to alter the law retrospectively, set out in subsection (3), would be so detrimental that any flexibility gained in dealing with banks in difficulties would be overshadowed by the damage to the legal system on which banks depend. How can banks arrange their affairs in an orderly fashion if the arrangements they make can be overturned retrospectively? It makes the taking of security and obtaining a clear legal opinion on that security virtually impossible. Comment has been made in another place that this legislation would apply only to a bank in trouble, but banks deal with each other, so action taken in using the special resolution regime could affect any bank because any bank could be counterparty to the bank falling under the regime and so be drawn into the net. In practice, the sort of situation and lack of confidence that this Bill seeks to avoid could be exacerbated, or indeed created, because any institution which has the slightest chance of coming under the special resolution regime would immediately be shunned. Healthy institutions would avoid transactions with a counterparty where there is a possibility, however remote, of that counterparty falling under a regime where the law can be altered retrospectively. It would be best if this subsection were removed from the Bill. Amendments 123 and 124 propose that agreements entered into prior to any retrospective legislation are still valid. That would go some way towards achieving the legal certainty which the banking industry needs. If subsection (3) is not to be omitted from the Bill, at least these two amendments give a chance to provide some order and certainty to arrangements entered into in good faith. I am sure that the Minister, with his experience, will see the impossibility of any commercial enterprise existing in a world where agreements can be torn up at will, let alone in the banking industry where, as has already been said, legal certainty is required to avoid the need for massive increases in capital or other serious disadvantages. I beg to move.