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Banking Bill

My Lords, I assure the House that I have taken seriously the concerns expressed last week by several noble Lords about the interaction between the members of the tripartite in the area of financial stability. Before turning to the amendments in this group, I emphasise that the Government believe, as I have previously said, that the tripartite system remains fundamentally sound. The Treasury, the Bank of England and the Financial Services Authority all have roles to play in protecting financial stability, but these roles are different, defined and distinct. The tripartite Memorandum of Understanding shows how each must work with the others as appropriate. The Government, with this Banking Bill, are taking steps to further support and strengthen the tripartite system, extending the powers and responsibilities of the Treasury, the Bank of England and the FSA. We are responding in this way to the call from the noble Lord, Lord Turnbull, to evidence our commitment to making sure that the tripartite system works. These steps are being taken in line with each institution’s current mandate and responsibilities, to avoid overlap, to ensure that at each point it is clear which institution is in the lead and to enable each body to rely on and build on its existing expertise and experience. This must surely be the right approach to take, rather than creating overlap, duplication or uncertainty over the extent of an institution’s authority. For example, in establishing the special resolution regime, the Bill sets out resolution processes whereby each of the tripartite authorities has lead responsibility within those areas in which its expertise and authority lie. In addition, where appropriate, where one authority has lead responsibility, the Bill also requires appropriate levels of consultation with the other two authorities. As I have said in debate on several occasions, I entirely agree that full and effective co-operation between the tripartite authorities is both desirable and necessary. That is why the Memorandum of Understanding establishes mechanisms for the tripartite authorities to communicate and co-ordinate their actions in relation to their joint and individual responsibilities. This is especially important in safeguarding the UK’s financial stability, in which, as I said, each of the tripartite authorities has a distinct role to play. It is also vital that they meet regularly to co-ordinate action within their individual spheres of responsibility to address those issues. When addressing the financial stability objective in the other place, my honourable friend the Exchequer Secretary referred to the phrase ““to contribute to”” and said: "““That phrase reflects the fact that the Bank does not have a duty to ensure financial stability on its own, because that would ""be impossible. That responsibility is shared nationally with the FSA and HM Treasury and internationally with the European Union and other international bodies, which all have a major role to play, alongside market participants themselves””.—[Official Report, Commons, 30/10/08; col. 240.]" It is clear that the phrase ““to contribute to”” implies that the UK’s financial stability is not the sole responsibility of the Bank of England. On reflection, however, and having considered the concerns raised by noble Lords on this point in debate last week, we have decided to refer explicitly in the Bill to the fact that the Bank’s financial stability objective will be pursued in collaboration with other relevant bodies, including the other tripartite authorities. That is why Amendment 86, which appears in my name, inserts wording to the effect that the Bank should aim to work with the Treasury, the FSA and other relevant bodies to protect the UK’s financial stability. I recognise that Amendment 85, in the names of the noble Baroness, Lady Noakes, and the noble Lord, Lord Turnbull, has a similar intention, and I hope that they are content that the Government’s amendment has responded to their concerns.