Clause 216
Banking Bill
9:45 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
This will be a long debate, as it includes a significant number of amendments and the clause stand part debate. I shall use the stand part debate on clause 216 to deal with the financial stability objectives set out in proposed new section 2A to the Bank of England Act 1998. This is an important area of the Bill because it deals with some of the changes to the institutional architecture in the tripartite arrangements, and in particular it deals with the scope of the Bank of England and how it carries out its duties.
The Bank has two functions under clause 216. First, it has a statutory objective of committing to protecting and enhancing financial stability, which is set out in proposed new section 2A. Secondly, proposed new section 2B establishes the financial stability committee, which will be a sub-committee of the court of the Bank of England, chaired by the Governor. I have tabled two groups of amendments to the clause. One group—amendments Nos. 56, 58, 59, 60, 61 and 62—would make the financial stability committee a wholly executive body within the Bank of England. The second group—amendments Nos. 68, 69, 70 and 71—would make it a wholly non-executive body. I have done that to stimulate debate within the Committee about the role of the financial stability committee, where it sits within the Bank, and what its powers and authorities are.
The Treasury Committee report on banking reform said:
“The House of Commons should not be invited to consider and approve arrangements for the Financial Stability Committee as they stand—with proposals of uncertain origin and with the purpose and composition of the Committee yet to be determined. This is because the committee is in danger of failing in both its executive and scrutinising functions as it is as drafted, a hybrid body”.
That is the concern that we have. I want to use this debate to tease out the hybrid nature of the committee.
With regard to those amendments that would make the financial stability committee an executive body, the model that I have used is the Monetary Policy Committee. For the financial stability committee to be as effective as the MPC, there would need to be two fundamental changes to the proposals set out in the Bill; one relates to the composition of the committee and the other to its function.
The strength of the MPC is that it brings together a group of experts, some from within the Bank and some from external appointments, with a wide range of views. One only has to listen to the views of David Blanchflower today to understand the breadth of opinion in the MPC. That provides the creative tension that any committee needs to get to the right answer, using a breadth of views. Bringing in outsiders gives a broader perspective, and the MPC is credible because of the calibre of the appointments and the mix of internal and external appointments.
Given the importance of financial stability decisions, if we are to have a committee with the responsibility to promote financial stability, it is important that there is a clear decision-making process, and that such decisions are made by a wider range of individuals than is currently the case. That is why there should be external members who can give a wider perspective. The amendment tabled by the hon. Member for South Derbyshire suggests the type of person who might become a member of the committee.
It is not only the Treasury Select Committee that suggested there should be expertise; the Chancellor of the Exchequer, speaking in the House of Commons on 5 June, said:
“We should learn from the example of the Monetary Policy Committee, and take a similar approach to financial stability, bringing in outside expertise to advise the Governor and the appropriate deputy governor”.—[Official Report, 5 June 2008; Vol. 476, c. 916.]