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Banking Bill (Money)

Lords amendment 1 invites us to modify special resolution objective 1, as set out in clause 4. The Bill invites us to approve five objectives. That seems rather a lot to me. When I examine the objectives carefully, I see that objectives 1 and 2 are similar. Objective 1 is"““to protect and enhance the stability of the financial systems of the United Kingdom.””" Objective 2 is"““to protect and enhance public confidence in the stability of the banking systems of the United Kingdom.””" That is a sort of spin-age version of objective 1. I put it to Ministers that the spin would take care of itself if there were stable, confident and inspiring financial systems—that would indeed inspire public confidence. No spin strategy will inspire confidence if the systems are rotten. Perhaps objectives 1 and 2 amount to the same thing and could be merged, and could then take the added strain of Lords amendment 1. It states that"““the reference to the stability of the financial systems of the United Kingdom includes…a reference to the continuity of banking services.””" As my hon. Friend said that that proposal emerged from an idea of his, I shall be careful in what I say about it, but I seek clarification on the Government's phrasing. I am happy if the provision refers to the need to carry on lending to people and companies, particularly those in the United Kingdom. I do not wish too much of that business to be interrupted by whatever changes need to take place in the banking system because of the imaginary crisis that we are hypothesising. I am obviously happy if this is just another way of saying that we want deposit protection; indeed, one of the objectives is, rightly, to protect depositors—that would be the main purpose for which one would undertake these interventions. However, the provision may refer to the continuity of the banking services as supplied by the failing bank, and that is not what we should be providing for at all. Perhaps the provision needs tweaking to make that clear, as I am sure that my hon. Friend did not want to see that type of continuity. If a bank starts to get into trouble, we need a change, and perhaps a dramatic change. One of my worries about this process, as teased out by the amendments, is that that might not be achieved in the most obvious or cheapest way. The three stabilisation options are: transfer to a private sector purchaser, transfer to a bridge bank or transfer to temporary public ownership. There should be a fourth option, which should be tried first, in which the central bank would act as the banker to the failing bank and make short-term loans, with many strings attached, including management change, cost reductions and adoption of a different business model—all the things that would normally be tried before deciding that a bank was finished. The problem is clearly bad management, and the first thing to do, before lending the bank more money, is to demand a strengthening of, or a change in, the management. My worry is that the system laid out in amendments 1 to 6, buttressing and changing the special resolution regime, will be soft on bankers and soft on bankers' bonuses. We should not be soft on those things when top bankers run banks badly and then seek some form of public assistance or intervention. We need a system that will allow us to remodel failing banks and take tough action to tackle failing management—obviously by agreement with the shareholders, as they are private sector banks. That would be a better approach than moving immediately to one of the three stabilisation options.