---

Banking Bill

This proposed new clause would place obligations on the FSA to have regard to the views of the Bank of England when taking decisions about whether individual firms have met threshold conditions. I emphasise that the Government entirely support the principle that the Bank of England’s experience and expertise should be made available regularly, nay continuously, to the FSA and, indeed, to the Treasury. Yet I am far from convinced that the proposed clause is an effective or appropriate mechanism for achieving that. I entirely agree with the noble Baroness, Lady Noakes, that full and effective co-operation with the tripartite authorities is both desirable and necessary, but I would go further. I assure noble Lords that an effective, co-operative and collaborative working relationship is already in place, with the authorities working closely together in taking steps to secure financial stability. In working with other authorities, the FSA of course pays due attention to their views with regard to the financial stability of the United Kingdom. A clear process of consultation and information-sharing is in place, with regular meetings of the tripartite standing committee at principal and deputy level, allowing for a full exchange of views on any outstanding issues of concern, which any member of the tripartite authority wishes to raise. The Bill builds on this co-operative model, providing for improved co-operation and information-sharing across the tripartite in the interests of financial stability. Ultimately, it is for the FSA, independent of Government or the Bank of England, to determine how to exercise its powers with regard to the oversight of individual firms. The proposed new clause would risk undermining this principle. It is not clear from the new clause what mechanism there would be for linking the Bank’s macro-level assessment of financial stability with the firm level or micro-assessments made by the FSA with respect to the continued compliance with regulatory threshold conditions. I am sure that noble Lords will agree that in planning for the future all firms need a degree of certainty as to the resources they need to hold in order to comply with their threshold conditions. The amendment would remove this certainty. The FSA would be forced under the provision to take the Bank’s assessment of financial stability into account while deciding whether firms hold adequate resources. Therefore, the firm in question would have no way of knowing the amount of resources the FSA would judge to be adequate or whether this could change at any time. Furthermore, the amendment proposes that the consultation exercise should be conducted by public correspondence. As we have discussed in relation to the publication of the minutes of the FSC, the consideration of what information may or may not be made available to the public at any particular time is extremely sensitive, particularly as regards firm-specific information. The Bank of England already produces a financial stability report twice a year, which is publicly available. It is not clear what type of information would be included in the proposed letter from the Bank to the FSA that is not already published in the financial stability report, with the exception of that which is firm-specific. I have serious concerns that any response from the FSA would be likely to contain highly market-sensitive, firm-specific information and consequently should not be made public. I hope that this explanation of the Government’s position about this amendment has been helpful, and that the noble Baroness will be charitable enough to withdraw the amendment.