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Banking Bill

My Lords, the amendment, and the issues to which it draws attention, was debated in Committee. I regret that I could not sufficiently comfort the noble Baroness, and other noble Lords who supported her at that stage, that her amendment is not necessary or desirable. Let me remind noble Lords of the arguments that I put forward. The Bill sets out resolution processes whereby each of the tripartite authorities has lead responsibilities in the areas in which its expertise and authority lie. Thus the FSA—the independent regulator—will be responsible for taking the regulatory decisions about whether a bank should enter the SRR and for the ongoing supervision of any bank while it continues to operate in the SRR. The Bank of England will be responsible for the operation of the SRR and the tools in it, other than temporary public ownership, as well as for its traditional functions as a central bank, such as providing liquidity assistance. Finally, the Treasury will either take, or have the final say in, those decisions that would have a significant impact on public finances or on matters relating to the broader public interest; for example, in matters relating to the UK’s international obligations. This position has been consulted on and is supported by stakeholders. As the noble Lord, Lord Newby, pointed out in Committee while explaining why he could not support the noble Baroness’s amendment, requirements are imposed on the authorities throughout the Bill to consult one another before discharging their various responsibilities. These requirements are explicitly provided for in the Bill to underline the importance of tripartite co-operation and consultation. Of course, proper mechanisms—I am thinking, in particular, of the standing committee—already exist by which the authorities are able to consult one another closely in dealing with any potential threat to financial stability, the banking system or depositors. The noble Baroness chides me with evidencing a less-than-ringing endorsement. I hope that I will always exhibit moderation in this Chamber and decline hyperbole but, for the avoidance of doubt, I have observed the tripartite system in operation from close quarters as a director of a regulated entity, through my membership of the Court of the Bank of England and, more recently, through my involvement in Her Majesty’s Treasury, and I think that it works well. I do not think that it is necessary for the Bill to go further than this and to specify that one authority would always have the final say. It would be counterproductive and damaging; for example, it would mean that our system of independent financial regulation would be compromised. If the Treasury were to disagree with the FSA’s judgment that a bank remained in compliance with its regulatory threshold conditions, under the noble Baroness’s amendment the Treasury would be able to override the FSA’s decision. On what basis could the Treasury take such a decision? On what grounds could it claim to have better regulatory and supervisory understanding of the bank than the regulator? At the very least, the Treasury would have to develop a significant shadow supervisory function to analyse regulatory information. It would have to gather such information itself, which would create duplication, confusion and dilution of responsibility. It would also send a strong signal that the SRR could be triggered for reasons of political expedience rather than because there was a genuine risk that a bank might fail and damage financial stability. This charge was laid against the Government—wholly irresponsibly and without the least foundation, I might add—in respect of their actions in nationalising Northern Rock. The Government believe that the permanent regime for dealing with bank failures should not allow even a scintilla of doubt over whether political motivations will override judgments taken by the independent regulator or the central bank within their respective spheres of authority and competence. I could labour the point further, but it is straightforward. I believe that I have said enough and that my answer has addressed the point raised by the noble Lord, Lord Stewartby. It would be wrong to opt for an overly simplistic approach of determining who is in charge. We should recognise that these three bodies work together and that each has an area of specific responsibly. It would be wrong for the Bill to give primus inter pares status to the Treasury. Therefore, I invite the noble Baroness to withdraw her amendment.