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Banking Bill

I am saddened at my apparent mishandling of this section on the Financial Stability Committee. For the noble Baroness to suggest that this is linked to an act of stupidity of the greatest magnitude she has seen and for me to fail to convince my noble friend Lord Eatwell of the Government’s case is clearly a failure on my part. As regards my noble friend’s earlier observation about the speaking note, it may be prepared by a number of people, but I have checked it and, therefore, I take entire responsibility for what he regards as a mishmash of inconsistent observations. I will seek on Report, if necessary, to be more coherent than I appear to have been. The amendments in this group tabled by the noble Baroness, Lady Noakes, would establish the Financial Stability Committee in a way that mirrored the structure and appointment provisions of the Monetary Policy Committee. Of course, there are arguments to be made in favour of different governance models, and all have their merits. However, as I will explain, we have set out the right model in the Bill, one that reflects the Bank’s enhanced responsibilities for financial stability, alongside its other roles. As set out in the Bank of England Act 1998, the Court of Directors is responsible for the affairs of the Bank. It is essentially the Bank’s board and high-level governing body. Both the Bank’s executives—including the governor—and its committees ultimately report to the court, and it is from the court that responsibilities are delegated, other than those in the area of monetary policy. It is therefore entirely right that the Financial Stability Committee, which will advise on the development of the financial stability strategy and actions to be taken under the financial stability-related powers given to the Bank through the Bill, should be a sub-committee of the court and accountable to it. Financial stability strategy and its implementation will be central to the Bank’s operation and functions and will, on some occasions, affect its balance sheet and overall risk analysis, as recent events have demonstrated. It is therefore right and proper that there is a strong and direct relationship between the new committee and the court. Ultimately, both executive actions and the committee as a whole are rightly accountable to the court for their performance, but neither the governor nor the committee will take all decisions relating to financial stability. Some are bound to be matters for the court, and that is right. As I have said, financial stability is an integral part of the Bank’s responsibility, and, as the court is ultimately answerable—to Parliament, as well as others—for the actions of the Bank, it is right that it retains a direct line of responsibility in that area of work. This is not dissimilar to the situation in public companies, where responsibility for audit and remuneration may be delegated to a sub-group drawn from what the noble Lord, Lord Turnbull, might describe as a limited gene pool, namely the board of directors. It is, nevertheless, a sub-committee of the board: it is accountable to the board and takes its powers from the board. We want the committee to be at the heart of matters relating to financial stability in the Bank, not at the fringes, and to meet as frequently as it considers necessary to fulfil its functions and bring executives and non-executives together to maximise their respective expertise and knowledge and ensure that the Bank as a whole can fulfil its statutory responsibilities effectively. As I stated earlier, I respectfully recognise that there are arguments in favour of different governance models. Clearly, I have failed the Committee in not explaining those with conviction, but some of them have been eloquently elucidated by the noble Baroness. I hope that she and the Committee will consider satisfactory my explanation of why the Government’s model is appropriate for this committee. I shall answer some of the questions raised. This committee will effectively replace the Financial Stability Board. I speak from personal experience, having recently been a member of the court of the Bank of England, fighting hard to persuade the governor and the executive that the independent members of court should at least be able to attend if not speak at the Financial Stability Board. The Financial Stability Board was simply not empowered enough to do the role that is required to fit with the Bank of England’s new statutory responsibility for financial stability. I believe that I have answered the point that the noble Lord, Lord Turnbull, would have made here. We may be selecting from a limited gene pool, but there is no reason why non-voting members may not be co-opted to the Financial Stability Committee if that were the wish of the committee. The noble Lord, Lord Higgins, asks why this is in statute. The answer is that it underlines the statutory responsibility that the Bank of England and the Financial Stability Committee will now have for financial stability. Is the arrangement too prescriptive? It possibly is. As I said earlier, there is no perfect model for governance. My noble friend Lord Eatwell observed that there were arrangements for voting and that that was evidence that we had just taken the Monetary Policy Committee rules into the proposed Financial Stability Committee. I agree with him that most decisions by this committee will be made around debate and discussion, and conclusions will emerge. They will be qualitative rather than quantitative decisions. That also applies to a board of directors. Every company on whose board I have sat has, in the articles of association, spelt out the voting rights, should there ever be a situation in which a vote is required. This approach is a pragmatic one, drawing on the experience of other governance models but ensuring that we have a group at the heart of the Bank who are responsible for financial stability, drawing together appropriate skills from within the Bank and, if necessary, from outside, with a balance of executive and non-executive members. I urge the noble Baroness to withdraw her amendment, and I hope that, on this occasion, I have not appeared to be stupid.