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Banking Bill

This group comprises various amendments, which I will address in turn. The general thrust is to seek to give the Financial Stability Committee a more executive role. I shall first set out why it would be inappropriate for the FSC to be purely or even primarily an executive committee. It is entirely right that the executives of the Bank, headed by the governor, retain responsibility for operational decisions around the Bank’s financial stability responsibility. On a purely practical level, while I would expect the FSC to meet as often as it considers necessary, it would not be realistic to expect a committee of this sort to meet with the frequency required in a fast-moving emergency situation. The FSC will provide a key source of financial stability expertise, together with bank executives responsible for advising on and implementing the SRR. It will make recommendations to the Bank—which will take these seriously. The Government believe that the FSC will prove an invaluable sounding board and source of expert advice to the Bank, which will assist it in taking decisions which will contribute to achieving the Bank’s financial stability objectives. In my experience, this will be a significant improvement on the existing financial stability board arrangement. Amendment 186 would make it a function of the Financial Stability Committee—presumably rather than the Court of Directors—to decide how the Bank should implement its financial stability strategy. Amendments 188 and 189 would give the FSC ultimate responsibility for taking decisions related to the Bank’s use of the SRR stabilisation powers, including those in respect of individual institutions in the SRR. These changes would make the Financial Stability Committee the executive decision-maker, which for the reasons I have just given would be too direct an executive role for the committee as it has been designed. I recognise that the noble Baroness has almost certainly tabled these amendments with the example of the Monetary Policy Committee in mind. While the Government of course intend the new committee to be as successful as the Bank’s Monetary Policy Committee, there are a number of significant differences between the roles and functions of the committees. These explain why the approach to the FSC adopted in the Bill differs from that taken in respect of the MPC. The Monetary Policy Committee was set up as an independent committee of the Bank of England to ensure that decisions about interest rates were taken entirely independently of any political interest or influence. This operational independence is made possible by the fact that the MPC’s role, under the Bank of England Act 1998, is to take decisions over the use of one lever—control of the price of money, or interest rates—to achieve one main objective, the maintenance of price stability, while supporting the Government’s economic policies. The MPC therefore has a very clearly defined remit to undertake a very specific role, and it has the appropriate specialist expertise to do so. However, the situation regarding financial stability is entirely different. Operational decisions in relation to actions that the Bank may carry out to safeguard financial stability cannot, and should not, be taken in isolation from the Bank’s executive and court. It is essential that decisions in relation to, for example, the SRR and wider financial stability issues are taken having regard to a wide range of economic considerations within the tripartite framework. Implementation of the financial stability strategy involves many of the Bank’s functions and has implications for the Bank’s balance sheet and risk and control environment, as recent events amply demonstrate. It would not be appropriate for vital strategic decisions regarding an important part of the Bank’s activities to be delegated to a sub-committee of the Court of Directors while the full court remained responsible under the Bank of England Act 1998 for the ““affairs of the Bank””. I hope that noble Lords can see that a model in which a committee made executive decisions on the support of institutions, and on lending and collateral, in isolation from the court would be wholly incompatible with the Bank’s governance and accountability structure. Amendment 187 has almost the opposite effect of the previous amendments. It would entirely remove the FSC’s advisory role in the Bank’s decision-making in respect of the use of the stabilisation powers conferred on the Bank under the SRR. I do not understand how this outcome could be desirable, as it is precisely in the area of giving such expert advice that we consider the FSC can offer the most value. Amendment 190 would remove the FSC’s role in monitoring the use of the Bank’s stabilisation powers. Of course, if the committee were taking the decisions—as proposed by the noble Baroness with her Amendments 186, 188 and 189—this provision would not be needed, but omitting it highlights that the model proposed by the Government contains more appropriate checks and balances than this alternative executive committee model. It is not at all clear how the noble Baroness intends to ensure that the executive FSC that she proposes is held accountable for the decisions that it takes, nor what role the executive of the Bank would have in a world where responsibility for taking operational decisions in regard to financial stability was taken away from it. The noble Baroness’s amendments would simultaneously remove executive power from where it rightly belonged—with the governor and the rest of the Bank’s executive—while removing the ability of the Court of Directors to ensure adequate levels of accountability for any decisions taken. For these reasons, I invite her to withdraw the amendment.