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Banking Bill

Amendments 176, 177 and 178 are seeking to do similar things in slightly different ways. The intention behind them appears to be for the Treasury to provide the Bank of England with a single, definitive meaning of financial stability on which the Bank must rely when formulating strategy it intends to follow in pursuit of its new financial stability objective. As my noble friend Lord Davies of Oldham explained in an earlier debate, it is not possible to set out in a statute an exhaustive definition of financial stability. I believe that the noble Baroness, Lady Noakes, accepted this during a previous debate and I refer the Committee to the Official Report of 13 January at col. 1171. I note that in formulating Amendment 176, which requires the Treasury to set out in writing what the stability of the financial system is to be taken to consist of, the noble Baroness has borrowed sections from the Bank of England Act relating to monetary policy. It is not possible, however, to set an exhaustive definition or target for financial stability in the same way as we do for inflation. The requirements for financial stability are context-specific and liable to vary as the operation of global financial markets changes. As my noble friend Lord Eatwell said a moment ago, much of the discussion and decision making of the Financial Stability Committee will be nuanced. The approach taken in this Bill provides the necessary flexibility so that the strategy and policy measures adopted by the Bank to achieve its objective can change over time to respond to changing market circumstances and situations. The Bill also provides for the Bank, through its court, to consult with the Treasury on the setting of its financial stability strategy. I believe this addresses the point that the noble Lord, Lord Higgins, made a few moments ago. This mechanism, which Amendment 177 seeks to remove, will help to ensure that the Bank’s approach has a coherent fit with the work of the other authorities in the UK responsible for maintaining financial stability. Amendment 178 would require the Bank to have regard to the guidance on financial stability contained in the code of practice described in Clause 5. As my noble friend Lord Davies described last week, the code of practice, while containing a useful elucidation of what is meant by the term financial stability, is in no way intended to give a single, exhaustive definition of financial stability. Rather, the code seeks to give guidance on the meaning of financial stability, guidance that is designed to be used to facilitate decisions relating to whether the general and specific conditions in the SRR have been met. I would, of course, expect the Bank to consult a wide variety of sources of information while formulating its financial stability strategy and consider as many different definitions of financial stability as possible, including that in the code of practice. But I believe that it would be inappropriate to include in the Bill a requirement for the Bank to have regard to one individual source—moreover, one that is designed for use in a very specific and limited context. I hope that this explanation of the Government’s thinking around financial stability and the Bank’s financial stability strategy has helped to clarify the situation, and I hope that the noble Baroness will feel able to withdraw her amendment.