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Banking Bill

Amendment 198 introduces a new clause after Clause 228, and deals with a problem that we see as having emerged following the removal of banking supervision from the Bank of England. Before that supervision went to the FSA, the Bank had an overview of the financial and banking system as well as responsibility for supervising individual institutions. That meant that the organisation could utilise the information gathered in its broader role for its more specific role. In particular—and this is the focus of my amendment—the Bank had an overview of debt in both the economy and the banking system. Had it had concerns about levels of debt, or leverage in the banking system, those could have been fed back via the institution’s specific activities. When the FSA took on banking supervision, that essential link between macro-analysis and micro-action disappeared. Despite not only the cross-membership between the boards of the Bank and the FSA, but the existence of the tripartite arrangements, the publication of the financial stability report, and so on, there was no linkage made between the Bank’s analysis of debt and leverage and the FSA’s determination of capital adequacy ratios. That was clear, inter alia, from the FSA’s handling of Northern Rock, whose regulatory capital requirement was reduced only weeks before its collapse. My party proposes filling this gap with a debt responsibility mechanism, under which the Bank would be required to write twice a year to the FSA setting out the Bank’s views and the FSA would respond. Both letters would be published. This is loosely based on the letter-writing connected to monetary policy, but it is not the same. I have adapted our concept for the Bill so that the Financial Stability Committee has to write to the FSA each year. The FSA then has to take it into account in determining the adequacy of resources for the threshold conditions. The Minister will be aware that both the Governor of the Bank of England and the deputy governor have called for new instruments to deal with the growth of debt. In a recent speech, the governor said: "““What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet””." Sir John Gieve told the BBC in December: "““We need to develop something which … prevents the financial cycle getting out of hand””." I had hoped that my new clause would be headed ““Debt responsibility mechanism”” but, while parliamentary counsel has, as we discussed earlier, been allowed to spin so that his headings do not line up with the text, I was not allowed to give my new clause such a memorable title. However, while my new clause is rather more soberly entitled, ““Debt: assessment of adequacy of resources””, it is about a debt responsibility mechanism. I hope that the Government will find this a helpful addition to the Bill, since it fills a real gap in the current arrangements. I beg to move.