Clause 4
Banking Bill
4:30 pm
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
Welcome to the 10th sitting, Mr. Gale. I had just taken an intervention from the hon. Member for South-East Cornwall before we adjourned; we were discussing my proposal to include a competition objective in the Bill, so that the issue is recognised and used when determining how the tools—the stabilisation powers, the bank insolvency procedure and the bank administration procedure—are used. We must think about the powers, not only in the context of the five objectives, but also the potential further objective of avoiding the competitive impact that a bank subject to those powers could have.
The hon. Member for South-East Cornwall alluded to the possible tension between a competition objective and a bank’s ability to repay taxpayers’ funds quickly. We talked about that in the context of Northern Rock earlier. Restricting the ability of a bank that is subject to one of the powers to compete could delay the repayment of any financial assistance that that bank had received from the taxpayer, because it would not be in a position to attract new funds from retail depositors, for example. Conversely, if the restriction was on offering mortgages and lending, that might hasten its ability to repay taxpayers’ money, depending on the dynamic and the particular competitive effect that we want to deal with. As we discussed before lunch, there are tensions within the objectives in the Bill and within some of the proposed objectives, but it is important to understand the role that the objectives will have and how they will shape decisions that the tripartite authorities will make about the stabilisation powers.
Two points emerge from the code in relation to the objectives. Paragraph 17 of the draft code states:
“Following actions taken under the SRR, the Authorities must make public statements explaining (a) how they have acted with regard to the SRR objectives; and (b) how they have balanced the objectives against each other”—
which refers to the tension that we have been debating.
“The form such an explanation will take will depend on the circumstances.”
Can the Minister say how long we shall have to wait for such a statement after the powers have been used? Will it accompany the exercise of the powers or will it appear a couple of months later, after the powers have been exercised? Obviously there is an issue about timing and the nature of the information that can be disclosed by such an explanation. Paragraph 18 of the code points that out:
“It should be noted that it will not be possible to divulge certain information, for example information the release of which would threaten financial stability or the confidence of the banking system.”
Clearly the longer that is left, the more information could be received, but it will also mean that market participants will be in the dark about why the authorities have taken the steps that they have. The sooner the information is released the more difficult it is to give a full explanation. Does the Minister see that tension being resolved?
Does the Minister feel that the Treasury statements released in the aftermath of the FSA’s triggering the threshold conditions for Kaupthing and Heritable constitute a template for what we should expect under clause 17? I hope that the answer is no, because the statements did not clearly explain why the Government were taking those actions. I shall return to that point in a little more detail on clause 7, which deals with the threshold conditions.
Secondly, I want to understand the interaction between the objectives of the FSA under clause 4 and the Financial Services and Markets Act 2000. The subject is raised in the code. Paragraph 16 states:
“The sole exception to this rule relates to a decision taken by the FSA, under section 7 of the [Act] that the general conditions for use of the SRR have been met. This decision will be taken in the context of FSA’s objectives under the Financial Services and Markets Act 2000”.
I appreciate that we could cover the subject in more detail when debating clause 7, but there seems to be a carve-out later in the Bill saying that the objectives in clause 4 will not be applied to the exercise of the powers under clause 7. It would be helpful if the Minister were to elaborate on the interaction between the objectives of clause 4 and the 2000 Act, and specifically why they are carved out in clause 7.
One of the challenges in trying to understand the objectives and their application is the lack of transparency in the Bill, the explanatory notes and the code on how they will interact, and on how they will return the powers that could be used under parts 1, 2 and 3 of the code. The code is meant to be a safeguard on the exercise of power. I would have expected it to say rather more about the interaction of objectives.
The amendments are probing; we seek to understand the scope of the objectives, how they work together and how they relate to other aspects of the Bill, including references to the protection of creditors and compensation that are not reflected in clause 4. I want to know how those objectives will work, why they are limited to five and why they do not include competition and the protection of creditors and shareholders. We would be comfortable if the Minister were to give a fairly full explanation on those points. We look forward to his doing so.