---

Banking Bill

Clause 235 removes the legal requirement that the Bank of England must produce weekly returns of accounts from its issuing and banking departments. This requirement was established in the Bank Charter Act 1844. The weekly return consists of a one-page summary, produced by each department, indicating the sum of assets and liabilities for that department for the week in question. As the noble Lord, Lord Saatchi, was kind enough to remind the House earlier, my previous career was as an investment analyst. I and just about most other people in that trade—and it is a trade, not a profession—were oblivious to this weekly report. Very little analytical work and very few conclusions were based on this report because of its limitations, referring, as it does, to the weekly returns from two departments of the Bank, rather than from the Bank as a whole. After the provision is revoked, the Bank of England will still be able to publish such or similar accounts if it so wishes, but it will not be compelled to do so. I am grateful to the noble Baroness for calling this debate. I hope to address what I believe respectfully to have been certain misconceptions as to its effect. Clause 235 is designed to prevent the Bank having to make what may be inappropriate disclosures under certain market conditions; for example, disclosures connected with any liquidity assistance that it might provide to the market or to a particular institution. The experience with regard to Northern Rock, when such a report first received significant attention from the analytical community, has shown the risks associated with the market becoming aware of the provision of liquidity assistance to an individual firm before there has been time for that assistance to be effective in helping the firm resolve its difficulties. In that case, analysts studied the weekly return of the Bank of England in an attempt to determine the amount of liquidity support drawn down. This contributed to the critical problems with market confidence that we saw over Northern Rock, as the Bank of England explained. If the Bank of England had not been legally required to produce a weekly return over this period, it is conceivable that some of these difficulties may have been avoided. It is for this reason that the Government intend to remove the legal requirement to publish on a weekly basis, allowing the Bank of England to judge what form of reporting is appropriate in given circumstances. The Government have a strong commitment to transparency and believe that the free and effective flow of information is vital both to a functioning market and to the trust placed in public institutions. However, in periods of high market stress, such as we have experienced recently, there may be circumstances where immediate disclosure of liquidity support is in no one’s interest. Some honourable Members in the other place rightly noted that it would be difficult to delay disclosure of major liquidity support operations for any significant time. I agree. It would not be practicable, and the Government do not intend for there to be delay in the disclosure of liquidity assistance for anything beyond the short term. However, in dealing with the sensitive issue of market sentiment, days and even hours matter, and the ability of the authorities to exercise a degree of choice over how information is disclosed is important. Clause 235 therefore addresses the issue by removing the legal requirement to report. It operates in conjunction with Clause 242—““Registration of charges””—and Clause 243—““Registration of Charges: Scotland””—in removing provisions that may require premature disclosure of liquidity assistance by the Bank of England. These are appropriate and proportionate measures, the need for which has been proven by events. The drafters of the Bank Charter Act 1844 would not have anticipated the impact that enforced disclosure could have in modern markets, and it is the Government’s view that the provision needs to be changed. I hope that I have given noble Lords a clear indication of why the Government are pursuing this clause. Concern has been expressed with regard to the transparency of the Bank of England. As I mentioned, the Government have no intention of reducing the overall level of transparency of the Bank’s activities. It is my firm belief that there will be no substantial overall impact on the Bank’s transparency as a result of the clause. In practice, the publication of the weekly return has ceased to be needed as a record of the Bank’s activities, since other instruments, including an annual statement of accounts, have superseded it. The Bank of England also remains subject to normal Office for National Statistics and Companies Act reporting requirements. Further, it is worth noting that the requirement for the Bank to publish a weekly return is not one to which the market has expressed any major attachment. The Bank of England is at present unusual among central banks in being required to report on a weekly basis. None the less, it is cognisant of the need for transparency in its activities. I can inform the House that the Bank intends to consult with interested parties on appropriate disclosure in the future. It already publishes extensive information under its commitment to international best practice in statistical reporting. I hope that I have reassured noble Lords on the intention behind this clause. It is an appropriate and proportionate step to enable the Bank of England to take proper control of its reporting processes and to avoid a serious failure of market confidence in periods when liquidity assistance has been offered. In reminding the Committee of the Bank of England’s indication of its intention to consult on disclosure and transparency, I trust that for now noble Lords will withdraw their objections and let Clause 235 stand part of the Bill.