Clause 223
Banking Bill
2:45 pm
Angela Eagle (Parliamentary Secretary, HM Treasury; Wallasey, Labour)
The clause removes the requirement, established in the 1844 Act, on the Bank of England to produce a weekly return of accounts. That requirement has since been overtaken by other elements of transparency, but it has remained and the Bank has always done it, with nobody realising that it might cause a problem until recent events, as the hon. Member for Fareham pointed out.
In removing the requirement, the clause removes the legal obligation that could give rise to unnecessary early disclosure of liquidity support. I want to reiterate that the Government have a strong commitment to transparency and believe that the free and effective flow of information is vital, both to a functioning market and to the trust placed in public institutions. In periods of high market stress, as we have been experiencing recently, there may be circumstances where immediate disclosure of liquidity support is in no one’s best interests. The clause allows the Bank to delay the disclosure of liquidity assistance.
The clause operates together with clause 230, “Registration of charges”, to remove provisions that may require premature disclosure of liquidity assistance by the Bank of England. Clause 223 addresses disclosure from the Bank, while clause 230 addresses disclosure from the recipient institution. The Bank of England weekly return is a short weekly statement of accounts. It has ceased to be needed as a record of the Bank’s activities since other instruments, including an annual statement of accounts, have superseded it. The Bank also remains subject to normal Office for National Statistics and Companies Act reporting requirements.
The publication of a weekly return is not only unnecessary, but potentially damaging. Analysts have been monitoring the return to detect changes in the Bank of England’s capital position that may indicate that liquidity assistance has been provided to a market participant. In the case of Northern Rock, for example, analysts studied the return in an attempt to determine the amount of liquidity support drawn down. Members will be aware that early disclosure of liquidity assistance of that kind can be deeply damaging, and can potentially lead to runs on a bank or a serious effect on market sentiment. The clause, therefore, addresses one avenue of such early disclosure, which is a reasonable and proportionate step.
Members will rightly wish to know for how long the Government expect the Bank of England to limit disclosure of liquidity assistance. The Government have been consistently of the view that it is neither right nor practicably possible to restrict disclosure over anything other than the short term; Members raised that point during the Second Reading debate. The Government do not expect the Bank to keep liquidity support covert permanently or for any substantial period. However, it is possible to delay disclosure, and that could make a significant difference to the effectiveness of liquidity assistance. The clause takes an important step in working to achieve that.
Members will understand that it is not possible for the Government to indicate any precise time frame for the period under which restriction of liquidity support will be kept covert—to do so in advance is necessarily arbitrary, and could also be counter-productive in that it would invite analysts to continue intensive scrutiny after whatever period the Government had announced.