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Banking Bill

My Lords, we return to the matter of temporary public ownership and the extent to which it is necessary to signal in the Bill that this is a tool of last resort. During the Committee stage debate, the Government pointed out that the conditions for taking a bank into temporary public ownership are higher than those for other stabilisation options, which in itself signals that the tool is a last resort. As I promised during Committee, I have reflected on this matter and I should like to set out the Government’s position with respect to it. Clause 9 states that a bank can be taken into temporary public ownership only if the Treasury believes it is necessary to resolve or reduce a serious threat to the stability of the financial systems of the UK, or where financial assistance has been provided to prevent or reduce such a threat. As I said, the test is higher than that in Clause 8, referring as it does to a threat to financial stability. But there are a couple of further elements of this clause, to which I should like to draw the attention of the House. First, under Clause 9(4), the Treasury must consult the FSA and the Bank of England. Therefore, given that the Bank is the lead authority on exercising the other tools, it would have a say on whether they were more appropriate than temporary public ownership. Furthermore, Clause 9 sets out a test of necessity. That is to say, it provides that, notwithstanding the availability of the other stabilisation tools, taking a bank into temporary public ownership is necessary to meet the conditions. The combination of the higher test, the consultation requirement and the test of necessity more than signals that temporary public ownership is a tool only to be considered following consideration of the other tools. Let me be clear, however, that it is absolutely right that there should be a range of stabilisation tools under the special resolution regime and, in certain circumstances, taking a bank into temporary public ownership will be the right thing to do. For example, a transfer of shares to the Treasury provides for a swift resolution which may be optimal if immediate stabilisation of the whole of a complex bank is required. Temporary public ownership may also be appropriate if a significant amount of public money has been made available to a failing bank. During the Committee stage debate, I pointed to the code of practice as an area where we have and can provide more comfort by including more information on this matter. I know that the noble Baroness, Lady Noakes, questioned the legal force of the code, but we had that debate earlier and I hope that my points have persuaded her of this point, at least in part. Therefore, to signal that the code will include drafting on this precise issue, we have amended Clause 5 to include a reference to the code including information on the choice between the stabilisation options. The code is a far better way of meeting the noble Baroness’s concern on this matter, as it can set out in detail the factors that may make something more appropriate or practicable. I hope that this will be seen as a constructive response, and I invite the noble Baroness to withdraw her amendment.