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Banking Bill

I also speak to the related Amendment 159B, and have grouped a question on whether Clause 169 should stand part of the Bill with these amendments, for the convenience of the Committee. These are probing amendments about the investment of funds within the Financial Services Compensation Scheme. As I understand it, if contingency funding were introduced, the aim would be to amass between 1 and 2 per cent of deposits. In today’s money that would amount to around £15 billion, which is a not inconsiderable sum. My Amendments 159A and 159B amend subsection (2)(f) of proposed new Section 214A of the Financial Services and Markets Act 2000, to be inserted by Clause 167. New paragraph (f) allows regulations to deal with how funds held in the compensation scheme are to be invested, and my amendments say that any such investment must not distort existing markets; that is, the Financial Services Compensation Scheme must not use its financial muscle to become dominant in any investment market. There are many investment markets in which even this sum of money would not be noticed, but that would not necessarily be the case for all potential investment homes for the money. I have linked these amendments to new Clause 169 because that clause allows contingency fund money to be invested in the National Loans Fund, as specifically referred to in new paragraph (f). In another place, the Minister said that this would in fact be the default option for contingency fund money. Will the Minister confirm whether that is the position? It seems to have both advantages and disadvantages. On the one hand, it is clearly inefficient for the FSCS to set up an investment management arm to manage contingency funds. If it did so, it may well run into the dangers posed by my Amendments 159A and 159B. On the other hand, however, the investment returns earned in the compensation scheme ought to be at least as good as the banks themselves would have got, otherwise that will in due course penalise the banks as they would have lost the opportunity to make their returns and they may have to put even more money into the compensation scheme at a later date. Will the Minister explain on what terms the Financial Services Compensation Scheme would expect to lend its money to the National Loans Fund? Subsection (2) of new Section 223A of the Financial Services and Markets Act 2000, inserted by Clause 169, allows the Treasury to set terms. What sorts of terms would be set? Would they be market returns? If they are lower than market returns, how can the Government justify setting up pre-funding, taking the money and sticking it in the NLF to the disadvantage of the banks?