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Banking Bill (Money)

First, may I express my agreement with the Minister about the importance and sensitivity of this subject and acknowledge that the Government have sought to consult stakeholders widely? They have certainly involved us in the discussions. I pay tribute in particular to my noble Friend Baroness Noakes, who was heavily involved in discussions with the Treasury, the expert liaison group and various stakeholders. I acknowledge that the Government have granted us and my noble Friend that opportunity. It has been clear throughout that the Minister in this place has been aware of the difficulties with these subjects. He has been keen to listen to representations from outside groups as well as from Members of this place and the other place. It is perhaps worth reiterating briefly the particular issue that applies with partial property transfers, to which my right hon. Friend the Member for Wokingham (Mr. Redwood) alluded in some respects. When a bank is in difficulty and finds itself entering the special resolution regime, it might find that some properties and contracts are transferred to a bridge bank, for example, whereas others remain in the residual bank. The counterparty contracting with that bank might face considerable difficulty. Normally, that counterparty would be able to net or set off the various contracts with one party, but it would now find that it was contracting with two parties and that netting and setting off might not be available. That substantially increases the risks involved for that counterparty. In this field, that has considerable consequences on things such as regulatory capital. A regime that does not adequately address the issue will have an impact on the competitiveness of the UK banking sector at a time when that would be most disadvantageous. It is right that this matter has been closely scrutinised throughout the progress of the Bill. It is right that the other place considered the subject very closely and made a number of amendments, which are before us. Before I raise one or two questions about the amendments, I want to make one point about the scrutiny. The Government have done their best and have tried to consult widely, but the nature of the legislation and the desire to push forward with the Bill within a restricted time frame could mean that additional issues come up. As it happens, I was contacted yesterday by an expert in private international law who raised concerns about the definition of foreign property in clause 39. It would be inappropriate to raise those points at this stage, but I mention that merely to highlight that there might still be issues that need to be addressed. Of course, a great deal of the legislation is dependent on the secondary legislation, which might in some cases have been published but is yet to receive approval. I hope that the cross-party consensus and co-operation on the primary legislation will continue when we come to the secondary legislation. Let me turn to the specific issues. Amendments 7 to 10 and 21 to 24 relate to clauses 22 and 38, which are to do with the circumstances in which it might be necessary to disregard either a share transfer or a property transfer as an event of default. We accept that without these provisions it might be impossible for a bank to continue to operate when a counterparty—we are not necessarily talking about financial counterparties and could be talking about service providers, for example—might have the opportunity to walk away from their contract because an event of default would have been triggered by the share transfer or the property transfer. Yesterday, Lord Myners referred in the other place to ““wide counterparty flight””, and that is the issue here. The provisions have been expanded to address the question of conditions precedent and the concern about that that has arisen during the Bill's progress through the Parliament. Given that we are dealing with new wording that has not been debated in this House before, will the Minister say something about the thinking behind amendments 10 and 24, in particular? What are the circumstances that he is concerned about, and how was the problem drawn to his attention? I turn now to amendment 18 to clause 34, which states that a transfer may be conditional on a certain event or situation occurring. Will the Minister give the House a little more information about what sort of events or situations he thinks may trigger a transfer? I can see that the proposal has the advantage of flexibility: the case made for the clause as a whole is that it provides greater certainty to the transferee and protects those who have contracted with the original bank, and those are both worthy objectives. I also note that Lord Myners also remarked in the other place yesterday:"““The early indication from consultation with stakeholders is that this approach will be supported.””—[Official Report, House of Lords, 9 February 2009; Vol. 707, c. 966.]" I believe that that is right, and my noble Friend Baroness Noakes endorsed the observation, but some people might be a little concerned about the use of the phrase ““early indication””. How widely have the Government consulted on the approach set out in amendment 18? Are they satisfied that it enjoys widespread support? Finally, various essentially technical amendments are proposed to clause 48, which provides the power to protect certain interests. That is where the safeguards lie, and where the protections for counterparties exist. At many stages in the Bill's passage through Parliament, we have debated why more safeguards cannot be included on the face of the Bill. Why not go further and exclude financial contracts altogether? My understanding is that the financial collateral directive excludes the majority of financial contracts from this area, but not all of them. I should be grateful if the Minister would update the House about the Government's thinking on this matter, and provide a little more information about the progress that will be made on the relevant statutory instruments. The real substance of the legislation in this area will be set out in the statutory instruments, and it is not necessary to go once more through the whole debate about the balance between statutory instruments and primary legislation. No doubt the Minister will argue that there is a need for greater flexibility, but it would help the House if we had a little more information about what progress will be made. These are very technical matters, but they are hugely important. The Minister has acknowledged that throughout, and we welcome the real progress that has been made in the House of Lords. However, I hope that the Government will continue to review this area and communicate with the banking liaison panel even after the secondary legislation has been passed. If any difficulties arise, such as market uncertainty or a loss of confidence, I hope that the Government will be prepared to return to the issue as a matter of urgency.