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Banking Bill

Amendment 175 would place on to statute the requirement that a representative of the Bank of England should sit on the governing body of the Financial Services Authority, and that a member of the FSA’s board should serve as a director of the Bank of England’s court. Noble Lords will be aware that it is already possible under current legislation for such cross-memberships to exist. Nothing in law prevents such arrangements. In fact, it is established practice that a deputy governor of the Bank—currently Sir John Gieve—sits on the FSA’s board, and that the chairman of the FSA serves as a non-executive director of the Bank. This long-standing and mutually beneficial arrangement has been important over the years in enhancing communication and co-ordination between the two authorities’ strategies and activities. I have no reason to suppose that it will cease in the foreseeable future. As former members of the court, the noble Baroness and I have seen this successful arrangement in action. Consequently, I have considerable sympathy with the spirit of her amendment. However, I do not agree that it is appropriate to place this arrangement on a statutory footing. First, it is unnecessary, as cross-membership of the FSA and Bank’s governing bodies is already allowed. Secondly, as I have said, I see no reason for this or any subsequent Government not to continue the current practice of cross-appointing a member of court to the FSA board and vice versa, unless it were inappropriate or impossible to do so. I accept that this would occur only in exceptional circumstances. However, in order to allow for this possibility, we do not think it is appropriate for the arrangement to be a statutory requirement. Amendments 180 and 183 seek to appoint the FSA’s representative on the Bank of England’s court as a member of the Financial Stability Committee established by the clause. We will discuss the form and function of the Financial Stability Committee when considering later amendments, and I do not wish to pre-empt that debate. However, in relation to these amendments, I emphasise that one of the Government’s priorities in establishing the Financial Stability Committee is to provide the Bank of England with as much relevant expertise as possible to support it in its enhanced financial stability role under the Bill. That is why we are undertaking a recruitment process to put in place a new Court of Directors. As part of the recruitment, we are ensuring that members of the court will have the right mix of knowledge and expertise to manage the Bank’s affairs effectively. They will include non-executive directors with financial and banking backgrounds who are also, as my noble friend urged, challenging, engaged and occasionally contrary. This relevant expertise in the area of financial stability, which I believe will be important for a number of members of the court, will be particularly crucial for the four directors who will form part of the new Financial Stability Committee. Depending on circumstances, it may be appropriate for a member of the FSA’s governing body who is also a member of the court to be present at meetings of the FSC. However, we believe that it is important that members of the Financial Stability Committee can secure input and expertise from outside the Court of Directors if they wish. This is why proposed new Section 2B(4) of the Bank of England Act 1998 will allow the committee to co-opt other non-voting members to the committee. These could include a representative from the Financial Services Authority or elsewhere. Therefore, although in principle I agree with many of the sentiments behind the amendment proposed by the noble Baroness, Lady Noakes, I do not believe that it is necessary to place these arrangements in the Bill. Amendment 191 would remove the Treasury’s ability to appoint a person to represent the Government on the Financial Stability Committee. I would like to reassure the House that the Government remain committed to the independence of the Bank of England, with this provision: it is not our intention to allow the Treasury to exert any undue influence on the Bank’s decision-making process. This is why the Treasury’s representative will be a non-voting member of the FSC. However, it is wholly appropriate for the Treasury to attend these meetings in the same way as a Treasury representative attends all meetings of the Monetary Policy Committee. The purpose will be to ensure that the FSC is fully briefed on all relevant aspects of the Government's economic and financial policies, and that the Chancellor is kept fully informed about the Bank’s actions to ensure financial stability. I hope that this explanation has served to reassure the noble Baroness and that she will feel able to withdraw her amendment. As we have heard, the amendments of my noble friend Lord Eatwell would make the Financial Stability Committee a joint committee of the Bank of England and the Financial Services Authority. While I can understand what my noble friend is trying to achieve, I respectfully suggest that the committee he envisages is unnecessary and inappropriate. In addition, a committee set up along the lines that my noble friend suggests would not be able to achieve the purpose for which we are creating the Financial Stability Committee; that is, supporting the Bank of England’s strengthened and extended financial stability remit. I note that Amendment 201A would insert wording into the FSMA to provide the Financial Services Authority with the same financial stability objective as we are giving the Bank of England under Clause 228. The FSA already has responsibility for supporting the stability of the financial system of the UK as part of its objective under Section 3 of the FSMA to maintain market confidence and its other statutory objectives. Therefore, we do not consider that an express objective relating to financial stability is appropriate.