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Banking Bill

We are in danger of confusing a number of separate issues. The Financial Stability Committee is a committee of the court of the Bank of England. We will come at a later stage in our debate to the role of the Financial Stability Committee and how it sits vis-à-vis the executive of the Bank, including the governor and the court. It is not a part of the tripartite arrangement, which is higher up in the structure which brings together the three tripartite authorities. Given that the Bill places on the Bank a statutory responsibility for financial stability, the Government believe that the effectiveness of that would be strengthened by the creation within the court of a committee bringing together executive and non-executive members of the court, and others who may be invited to serve, to focus attention on the issue of financial stability. We shall cover those issues in some detail later in the Committee’s work this evening. With considerable respect, I believe, as I said, that the proposals put forward by my noble friend Lord Eatwell are unworkable. I understand that the intention of his amendments is to facilitate and encourage co-ordination and co-operation between the Bank and the FSA in the area of financial stability. However, setting up a joint committee along these lines would in practice run the risk of blurring the lines of accountability of both governing bodies. In addition, the proposal that this joint committee should make recommendations to the Bank and the FSA on their financial stability strategies is inappropriate. Executives and non-executives of the Court of the Bank of England cannot be expected, any more than the board of any institution other than the FSA can be expected, to have the knowledge and understanding of the FSA’s role, strategy, culture and operations, which they would need to make recommendations on the FSA’s strategy. As I explained, there is already an appropriate forum where the FSA, the Bank and the Treasury can meet to discuss financial stability issues and co-ordinate action within the authorities’ spheres of responsibility in order to address those issues. I should also mention that the proposed balance of membership in my noble friend’s amendments is somewhat skewed towards the FSA. That would be inappropriate considering the Bank’s new statutory financial stability responsibilities. However, I make that observation in the knowledge that my noble friend suggested he was open to alternative suggestions on the membership of the Financial Stability Committee. My main reason for disagreeing with my noble friend’s amendments is that the committee he proposes would not fulfil the Government’s objectives in setting up the Financial Stability Committee. The Banking Bill will strengthen and enhance the Bank of England’s role in financial stability by providing it, first, with a new statutory objective for financial stability and, secondly, with additional policy levers in the shape of the special resolution regime and a statutory role in the oversight of inter-bank payment systems. These new tools will complement the Bank’s existing roles in this area, such as the provision of liquidity support. The new Financial Stability Committee will support the Bank in its pursuit of its new statutory objective and provide expert advice on the use of its tools, both new and existing, to assist the Bank in the fulfilment of its statutory responsibilities in respect of financial instability. That is why the committee will be set up as a sub-committee of the Bank of England which is fully integrated into its governance structure and with clear lines of accountability running back to the Court of Directors. We intend that the Financial Stability Committee, alongside the newly reformed Court of Directors, will underpin and support the Bank of England’s strengthened financial stability remit. If we accepted the amendments of my noble friend Lord Eatwell, the new joint committee that he plans to create would, by virtue of its nature and composition, not be able to fulfil that supporting role as effectively within the Bank of England. I am therefore unable to accept the premise of my noble friend’s amendments, and I respectfully ask him not to press them.