I beg to move, That the Bill be now read the Third time.
We had an interesting debate on Report last month, and I am grateful to everyone who took part in it and to the Members of all parties who have contributed to the debate as the Bill has passed through this House. We very much appreciate the continuing cross-party support for this crucial legislation, and I am grateful for the help and co-operation from all parts of the House in achieving the challenging timetable imposed on this Bill by the sunsetting of the Banking (Special Provisions) Act 2008 in February of next year. In particular, I thank those Members who served on the Public Bill Committee, and I am grateful for the good spirit and constructive approach that all sides took to those sittings. The Government have listened to a number of the arguments made, and I believe the Bill has been improved as a result.
These are challenging times for financial markets and economies across the world, and I believe that the Bill is a timely package of reforms to improve the UK's framework for ensuring financial stability and protecting depositors. The Government have taken decisive action to protect the UK's financial stability during this turbulent period, including measures to recapitalise and strengthen the UK's banking sector and provide support to institutions facing difficulties, but the need for a permanent strengthening of the legislative framework in this area has been clear.
As we have debated at length during the past few months, this legislation will provide the authorities with the tools they need to resolve effectively failing banks while protecting financial stability, depositors and taxpayers, and minimising the disruption to the wider economy. Other measures in the Bill will enable the Financial Services Compensation Scheme to make faster and more efficient compensation payments and will strengthen the Bank of England's role in financial stability, with a new objective for financial stability and enhanced tools for pursuing it.
The Minister refers to the bank rescue package. When the Chancellor came before the House, he said that the implications on the public finances of that package were mostly temporary. Could the Minister set out for us which of those arrangements will have a non-temporary—a more permanent—impact on the public finances, so that the House is clear on that?
I agree entirely with what the Chancellor said to the House. The hon. Gentleman will be aware of the statement that the Chancellor made and the information that is available in government, which, if he looks at it, he will find provides him with the answers he seeks to the question he raises.
At this point, I should briefly mention the two additions to the Bill that my right hon. Friend the Chancellor signalled in his recent pre-Budget report. They will increase the legislation's effectiveness in allowing the authorities to deal with risks to financial stability and to safeguard London's competitiveness as a global financial centre. First, they will extend the Treasury's powers under the special resolution regime to allow it to take bank holding companies into temporary public ownership in cases where the resolution of only the deposit taker or deposit takers within a banking group would not, by itself, be sufficient to prevent a serious risk to financial stability, public funds, or both.
The second addition is a response to the experience of the administration of the UK subsidiary of the failed US investment bank, Lehman Brothers—Lehman Brothers International (Europe). The Government propose to take a power in the Banking Bill to introduce, by secondary legislation and after a formal review, a new special insolvency procedure for investment firms that hold client assets or client money. The expert liaison group, which I set up earlier this year, will help the Government in this area. Lord Myners, the Financial Services Secretary, intends to table these amendments for discussion in Committee in the other place.
As the House will be aware, the Banking Bill was carried over to the current Session and, if hon. Members consent today, it will complete its passage in this House and go to the other place tomorrow. At that point, the No. 2 Bill will be dropped and all further consideration in the other place will be on the Bill sent from this House today.
Although the aims of the Bill are laudable, I wonder whether the Minister is sure that it will do enough. He may not have had the chance to listen to Sir Victor Blank on the radio this lunchtime talking about the Government bail-out. He said that the recapitalisation scheme was highly necessary—and we all support it—but he also pointed out the problem that the banks now have with regard to lending because of the Government's new capital requirements. Does the Minister agree that those requirements are preventing the banks from lending the money that businesses need?
I was in meetings so I was not able to hear what Victor Blank said. He is obviously a serious figure in the business community and we will want to take due account of his views. We meet him on a regular basis, and Ministers and officials are well aware of his and his company's position on these issues. From what the hon. Lady says, his comments would not appear to refer directly to legislation appropriate under the long title of the Bill, but she raises an important point.
The whole House has appreciated the action taken by the Government to recapitalise the banks to avoid the potential systemic risk to the financial services in this country. We need to continue to do all that we sensibly can in these difficult times, and that is one of the reasons why we have been considering whether further action is needed. I indicated the two areas in the pre-Budget report that suggested how the Bill could be strengthened in the other place, and I think that we have broad support from both sides of the House for those sensible measures. However, they will of course need to be thoroughly scrutinised in this House and in the other place.
I am aware that there are some areas where Opposition Members may still have some concerns, but we went some way towards resolving those in Committee and in amendments on Report. I would like to take this opportunity to provide an update on progress in some of those areas.
As hon. Members will be aware, clause 75—the power to change law—attracted significant interest in Committee and on Report. It will provide the Treasury with a power to amend legislation to enable the powers of the special resolution regime to be used more effectively. As we discussed in Committee, this is not a general power to amend legislation; it is targeted and limited. It may only be used in order to facilitate a resolution and, in using it, the Treasury must have regard to the special resolution objectives set out in clause 4.
In Committee, I agreed that I would ask the expert liaison group to consider whether the amendments brought forward on Report—particularly the explicit exclusion from the scope of the power of the provisions of the Bill and underlying secondary legislation—would help to reduce the possible impact of the existence of this power on legal certainty in relation to financial contracts. The hon. Members for Fareham (Mr. Hoban) and for South-East Cornwall (Mr. Breed) and I are at one in recognising the importance of legal certainty in relation to contracts. I am pleased to report that when the expert liaison group met earlier this week, it agreed that this amendment would indeed do this. We are continuing to engage with the group on this issue, and of course the power will also be scrutinised carefully in the other place, not least by the Committee on Delegated Powers and Regulatory Reform.
I appreciate the need for flexibility in these difficult financial times. Will that clause or any other give the Government the power to set up a bank in an emergency that can take over bad debts from other banks to provide a possible solution to a financial crisis?
I know that the hon. Gentleman has raised that issue before on several occasions. Clause 75 would not do what he suggests. As I say, the clause provides a targeted and limited use of power to change law to make the special resolution regime work as effectively as possible. He will be aware, from the special resolution regime detailed in part 1 of the Bill, of the exact procedures necessary—who pulls the trigger, who operates the special resolution regime, and how the parties work together. We believe strongly that the range of measures that we have in place are a substantial improvement on the Banking (Special Provisions) Act 2008, and that is one of the reasons why we want to ensure that they reach the statute book in a timely manner, given the fact that the Act is sunsetted in February.
The Minister may remember new clause 2, which I tabled on Report, with the support of my hon. Friends the Members for Stroud (Mr. Drew) and for West Bromwich, West (Mr. Bailey). It addressed the remutualisation of failed former building societies. Every building society that was privatised in the 1980s and 1990s has failed in the past few months of this crisis. When I was asked by the Minister not to press the new clause to a Division, he said that the existing legislation would provide sufficient powers for financial institutions that emerge from the present crisis to become mutually oriented if that was desired at the time. Will he meet us to discuss that point, because mutualism provides a robustness and responsiveness that other financial structures do not, as we have seen in the past nine months?
It certainly remains my understanding that the legislation is sufficient to take into account those issues, but I would be more than happy to meet my hon. Friends to discuss that in more detail.
I now turn to the issue of partial transfers and the safeguards that the Government will put in place to protect creditors, and particularly to reduce disruption to set-off and netting agreements and security interests. I know this issue was of great interest to members of the Committee, and rightly so. Again, I can report that, when the expert liaison group met earlier this week with officials from the Treasury, the Bank and the Financial Services Authority, they continued to make good progress towards providing for safeguards that will maintain the right balance between ensuring that the authorities have the necessary flexibility to ensure an effective resolution, while protecting creditors' and counterparties' interests.
We are continuing to work closely with the group on refining the safeguards and, of course, we are conducting a wider public consultation. We aim to be in a position to report back, including on the results of the consultation, early in the new year. I repeat the commitment that I have made on previous occasions—I see the process of producing the secondary legislation as being one of co-production. We want to work in detail with the industry to ensure that we get the secondary legislation absolutely right and that there are sufficient safeguards to protect creditors' and counterparties' interests. We understand the importance of that for the industry.
The Bill represents the Government's considered response to some of the key lessons learned during this period of financial instability. It provides a permanent addition to the country's system for financial stability and depositor protection, and these arrangements will provide the UK authorities with a refined and proportionate set of tools to deal with difficulties in the banking sector that can affect depositors and the wider economy. It is vital to get the proposals right and to ensure that the UK's framework is sufficiently robust to deal with future as well as current challenges. So I am grateful for the thoughtful and constructive scrutiny that the House has given to the Bill, especially in the Public Bill Committee but also on Second Reading and on Report. I am sure that that constructive spirit will continue during this debate.
The Bill is a vital piece of legislation that will enhance the ability of the authorities to secure the financial stability of the UK both now and in the future, and I commend it to the House.
I am grateful to the Minister for his explanation of the Banking (No.2) Bill procedure, as it seemed rather odd to be giving this Bill a Third Reading when a Bill that was identical to it except for the title was given a Second Reading in the other place yesterday. That was a sign of the way in which we have sought to co-operate with the Government to ensure that the Bill reaches the statute book before the Banking (Special Provisions) Act 2008 expires in February next year. As the Minister said, we have sought to engage constructively as the Bill has passed through the House. We have not always agreed on some of its provisions, but we have sought to ensure a full discussion and full scrutiny.
I am grateful to my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke), for Braintree (Mr. Newmark), for Gosport (Sir Peter Viggers) and for Wellingborough (Mr. Bone) for their contributions in Committee. My hon. Friend the Member for Gosport was one of four members of the Select Committee on Treasury who served on the Public Bill Committee, along with Mr. Breed. The deliberations of the Treasury Committee in the aftermath of Northern Rock and financial instability contributed a great deal to our consideration of the Bill in the Public Bill Committee.
We supported the Bill on Second Reading and we do not intend to oppose it on Third Reading. That does not mean that it is perfect, and, as the Minister said, there are and have been some significant concerns about it. Those concerns were particularly evident when it was first published. We welcome the fact that the Government listened not just to the concerns that we expressed in Committee but to the wider concerns of the financial services sector. We teased out some of the sector's concerns in Committee, particularly when its representatives gave evidence to the Committee. The Minister has sought to respond to those concerns. We welcome the amendments to the Henry VIII powers in clause 75, as well as the establishment on a statutory footing of the banking liaison panel in clause 10. The Minister referred to the work of the panel.
We also welcome the fact that the Minister sought to consult widely on the secondary legislation and the code of practice. The Bill gives the tripartite authorities—the Treasury, the Bank of England and the FSA—quite extensive powers. Safeguards over the use of the powers are included in the secondary legislation that flows from the Bill and in the code of practice. Only when the legislation is seen as that package will outside bodies take comfort from the shape it is in.
It is worth remembering that the Bill has a very narrow focus. In the context of the current financial crisis, it deals principally with measures to tackle the problems associated with a failing bank. Its provisions do not address the re-opening of credit facilities to bank customers. Although it gives the Bank of England new statutory responsibilities for financial stability and gives it oversight of the payments system, it does not address issues such as the macro-prudential regulation of the banking system, a topic that has provoked considerable debate both in Parliament and outside.
Even on the issue of which banks are included, the Bill is narrowly focused. Clause 2 describes a bank as
"a UK institution which has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on the regulated activity of accepting deposits".
That means that bodies such as Icesave are excluded. Icesave was a branch of an Icelandic bank, and branches are excluded from the Bill. None of the provisions in the Bill would have helped the depositors of Icesave who, in some respects, are still waiting for compensation following the collapse of the Icelandic banking system.
A point that we raised in Committee, which the Minister sought to address, was that the Bill covers only deposit takers and does not take into account institutions that are fundamental to the stability of the banking system and do not accept deposits. We therefore welcome the amendments that the Government propose to table in the other place to deal with institutions that accept client assets and trade. In Committee, we discussed Lehman Brothers, where there have been significant problems with the administration arrangements because the tools are not in place to do the job. We welcome the move to amend the Bill, but I am sure that my noble Friends in the Lords will look very carefully at the amendments that the Government propose to table.
At the heart of the Bill are the increased powers being given to the tripartite authorities to intervene when a bank is failing and powers through the special resolution regime to enable them to resolve the problems of a failing bank. Part 1 sets out the special resolution regime and establishes the framework for putting a bank in the special resolution regime and the powers that can be used by the Bank of England or, where appropriate, the Treasury to deal with a failing bank. We talked extensively in Committee about the objectives of the special resolution regime. I do not particularly want to dwell on those subjects at this point, although I want to come back to the issue of financial stability later on.
Although the Bill does not rank the objectives given, it has been clear from our debates that one of the most important objectives is the protection of depositors and particularly of retail depositors. Effective arrangements to protect deposits are important if we are to ensure confidence in the banking system. We saw in the context of Northern Rock the close relationship between confidence in the banking system and the moves by depositors to withdraw their funds.
The decision to put a bank into the special resolution regime rests with the FSA, as set out in clause 7. The Bill states that a bank will be subject to the special resolution regime when it has breached the FSA's threshold conditions, which are defined in the Financial Services and Markets Act 2000 and defined more closely in the FSA's rule book. As currently drafted, the threshold conditions are quite broad. The Minister and I discussed the location of the head office, for example, as a threshold condition, and there are other conditions that apply to insurance companies, for example. I was grateful for the Minister's assurance in Committee that the FSA is considering the threshold conditions.
We need to see increased clarity about what will constitute a breach of the threshold conditions. The FSA determined that the recent bank failures at Bradford & Bingley, Heritable and Kaupthing had breached the threshold conditions but, two and a half months later, we are no clearer about how they breached those conditions.
We did not make as much progress in Committee as I had hoped on the question of ensuring transparency about the use to which the Bill's powers will be put. That transparency also applies to the threshold conditions, and I hope that the FSA will bear that in mind when it looks at the issue.
The special resolution regime established three stabilisation options—a private-sector purchaser, a bridge bank and temporary public ownership. They will be implemented through the stabilisation powers and the transfer of shares and property. The most controversial aspect of the stabilisation regime is the bridge bank, which is the vehicle that permits the partial transfer of assets and liabilities. That proposal caused the most contention between the Bill as originally drafted and as it stands now.
We have seen a form of the bridge bank in operation already, with the dismemberment of Bradford & Bingley. Its depositors and other assets were sold to Banco Santander, while the rump of the business has effectively been nationalised by being left to the taxpayer.
Some hon. Members present today did not attend the Committee stage of the Bill, so it is worth pointing out that the controversy stems from the fact that the partial transfers were regarded as a way to allow creditors' traditional rights to be unpicked by Government action. The rights included the arrangements governing how transactions are settled in the City. Certain types of transactions are covered by agreements that enable deals to be settled on a net basis, according to their balance at the end of the day, rather than on a gross basis.
Regulatory capital is determined on the same basis, so there was widespread concern that the lack of proper safeguards could mean that there was no legal certainty that in-default transactions could be netted off. That legal uncertainty would have made London a more expensive place to do business and undermined our competitive position. That was one source of the comments made by the financial services sector when the Bill received its Second Reading.
The Government have taken on board those comments, and their moves in respect of netting off are very helpful. In principle, they are saying that we should follow the path of netting off and then considering exceptions, rather than setting out the qualifying financial contracts at the start. That change has been greeted positively by the financial services sector, and we look forward to the outcome of the consultation process in January.
Investors have also been reassured by clause 60, which provides mandatory compensation to third parties where there has been a partial transfer. It adopts the principle that no creditors should be worse off than they would have been if the bank had gone into administration or liquidation. Although that is relatively easy to say, it may be difficult to implement in practice, as the process involves a great deal of judgment by the valuer, but it gives creditors some reassurance that their rights will be properly valued.
We have touched already on the banking liaison panel set out in clause 10, which will include representatives from the tripartite authorities, the FSCS and the financial services sector, as well as people with a particular knowledge of insolvency and financial services law. I have spoken to people in the City over recent weeks and my sense is that they welcome the panel as an effective way to look at the secondary legislation that will be introduced.
As I said, the Bill is a package: in addition to the secondary legislation that will follow, it sets out in clause 5 a code of practice that will give guidance on the exercise of stabilisation powers and the bank administration and insolvency procedures set out in parts 2 and 3. We saw an early draft of the code while the Bill was in Committee, and I am sure that a further draft will be available to Members in the other place once the consultation process is completed next month.
The code is important because it sets out the circumstances in which the powers will be used. The greater the clarity about how the powers will be used, the more confidence there will be in the operation of the overall regime, but that also means that there should be much greater transparency about why powers have been exercised.
I repeat that two and a half months have passed since Bradford & Bingley was subject to a bridge-bank type process, while Kaupthing and Heritable were put into administration at the beginning of October. However, there has not been that much in the way of greater transparency about the process through which the FSA and the Government went to get to that outcome. The financial services sector will learn a great deal from the explanation that is given about the exercise of those powers at that time, and that will enable it to predict more carefully how the powers in this Bill will be used in the future.
We have touched already on the Henry VIII clause in clause 75, and the feedback that the Minister gave on the comments from the banking liaison group was very helpful. Clearly, however, those in the other place will look at those powers, as that is an area about which they are especially concerned.
Another part of the Bill that is important in terms of the overall structure of protection for depositors deals with the changes to the FSCS. The scheme is one of the principal means by which we can protect depositors, as it gives them confidence that they will be compensated if their bank goes into administration. That needs to be thought about very carefully as the Bill proceeds through the other place, but part of the problem is that some of the detail about how deposits are to be protected will be dealt with in reforms introduced by the FSA. That is more work in progress, and it shows how difficult these matters are.
I have spent some time looking at this Bill over the past few months, and I could talk for hours about it. On this occasion, however, I shall desist from going into more detail, although I will say that more work will be done in the other place to streamline and strengthen it. The Bill is important because it should strengthen people's confidence in the banking sector and in London as a place to do business, but it is only one of the measures needed in that regard. Other moves need to be made to restore confidence in the banking sector as a whole.
I shall be brief, as I know that other hon. Members want to contribute to this relatively short debate.
It seems a long time since we were in the midst of the Northern Rock debacle, but there has been a very considerable amount of water under the bridge and to some extent the Bill's provisions have been overtaken recently by other events. Nevertheless, the Bill is important and the Minister knows that we support it.
I do not want to say much on that, save that there are some very welcome aspects. The banking liaison group is a very positive innovation that will be helpful both now and in the future. It also cements the sort of relationship that we need with the City in respect of matters that at times can be very delicate. If we do not get our response right, the consequences could be very profound, and it is important that we bear that in mind.
The Bill does not cover important issues such as bank liquidity and capital, the appointment and qualification of directors, risk committees and so on, but they will have to be considered fairly soon. Therefore, to a certain extent this Banking Bill is just the first chapter of a continuing work in progress that we will have to keep looking at over the next few months. However, because there is a sunset clause in the Banking (Special Provisions) Act 2008, we have to put something on the stocks and the Bill can do that.
Inevitably, there are still some concerns about exactly how the provisions will work, and Mr. Hoban has outlined them. We must hope that many of the provisions will not actually be required. If they are, we could be in a lot more difficulty. The Bill is a bit like bolting the stable door after the horse has gone, but it is extremely important nevertheless that it is on the stocks, although if we have to use some of its provisions we shall be looking at some stark situations.
We debated the amount for the Financial Services Compensation Fund in Committee and there was some disagreement about whether there should be pre-funding, which is, rightly, not on the agenda at present—clearly, the banks need all the capital they can get. One element that we did not much explore was public opinion. We have to recognise that public opinion is not particularly disposed to the provision of significantly more bail-out money. Although there are some objections to pre-funding, and even about its practicality, the industry has to realise that the idea that it can regularly come back for public bail-outs at much cost will not be sympathetically considered.
The Bill sets out protection for depositors, which is important. That security, with timely payouts, is right. It was a great shame that the vast majority of the depositors in the Northern Rock queues were already protected under the deposit fund so they did not actually need to worry. They did not know that, because the fund was not particularly well known or advertised, so we need to do some real education following the Bill to make depositors aware of their protections and of what they can expect to happen. We need to give them confidence, so that if there are some ripples they will have a clearer understanding that they are protected, and that they do not have to whiz-round suddenly and take out a few thousand pounds of their hard-earned savings.
Banks are undoubtedly one of the most capital-hungry businesses—they are always seeking capital. I have concerns that the provisions may set up some hurdles to the capital-raising exercises that will be important. Even if there are no hurdles, the process will be much more expensive than in the past, which will have an effect on the cost of money generally. We need to recognise that there will be genuine costs if banks are unable to amass or attract the capital they will need both for their own stability and also to operate effectively for themselves and for the economy.
Mention has been made of the significant powers that have been given to the FSA and the Treasury, and there are inevitably concerns about them. The Minister has given us some reassurance, at least in respect of the Treasury powers, which is helpful, although there will always be concern about whether the FSA will use its triggers appropriately. We shall have to see. Overall, the situation is satisfactory. The thresholds for the safeguards may be a little low, but all such assessments are subjective, so it is difficult to prove one thing or the other.
Our debates on Report were truncated because of the need to prorogue. If we had had the full time, we might have reached the amendment that my hon. Friends and I tabled to deal with the necessity for a sunset clause. Just as the Banking (Special Provisions) Act was sunsetted, we shall need to revisit some of the Banking Bill's provisions in more peaceful times, given that we have been considering it during a crisis-type situation. I hope that at some stage the Government will give our proposal some thought.
I thank the Minister and other members of the Committee. The Minister was courteous and good humoured in sometimes difficult circumstances. Overall, we support the Bill. We hope that it will be further scrutinised in the other place and that it will reach the statute book before the previous measure expires.
I remind the House of my business interest recorded in the register.
I, too, welcome the Bill, and I do so for two reasons. First, it begins to put the Bank of England back at the centre of our financial system, which the Treasury Committee recommended in its major report on the Northern Rock crisis. Some of the Committee's recommendations have found their way into the Bill; for example, streamlining the court of directors and giving the Bank more explicit power over financial stability. I hope that the Government will follow up those changes by giving the new deputy governor, Paul Tucker—whose appointment I welcome—the resources he needs to rebuild the Bank's ability to understand what is happening in the banking markets and to monitor the financial system much more thoroughly. That is an important and long overdue change. Those powers and that ability should never have been taken away from the Bank of England.
Secondly, the Bill makes improvements to depositor protection, as Mr. Breed said. I am not quite clear how the arrangements that the Economic Secretary proposes will be superseded by what was agreed in Brussels earlier this month. Perhaps the hon. Gentleman could clarify that. If he does not have time to answer me today, perhaps he could write to me. I understand that there will be an overarching European Union framework for the number of days before depositors are fully refunded, which may be even more leisurely than the arrangements canvassed in the UK. I should be grateful for some clarity.
We hear constant references to temporary public ownership. What is missing from the Bill is any understanding that the arrangements being made for the ownership or part-ownership of five of our major banks will not be temporary; they will be with us for a very long time. Further legislation may be required, but I should have liked the Government to make an attempt in the Bill to set out some rules about how those public stakes are to be managed—my hon. Friend Mr. Hoban referred to that point. We have heard that the shareholding is to be directed by UK Financial Investments, which is to be set up as an arm's length body, but it is not clear whether the company will require statutory approval. It is not clear how UKFI will be accountable, although I certainly hope that it will be accountable to the Select Committee. We should all understand that, although the Government keep calling this stuff temporary, it is likely to be with us for a long time, so issues such as competition policy—suspended for the nationalisation of the two Scottish banks—will need to be readdressed if we are ever again to have sufficient and proper competition in the banking system.
I have now twice said—on
That said, I welcome the Bill and hope that it makes it to the statute book in reasonable time, although even if it gets there in February, it will still be 18 months after the collapse of Northern Rock, which is fairly leisurely progress for a legislature that should have responded much more quickly and an Executive who are constantly behind the curve. However, I welcome the passage of the Bill today.
I, too, will keep my remarks brief. As the Economic Secretary knows, Opposition Members wholeheartedly support the Bill's aims and have been calling on the Government to produce such a Bill for some time, and we therefore wish it a very fair and speedy passage. Of course, we want it on the statute book by February, but in the light of the Governor of the Bank of England's remarks earlier this week, when he set out a rather worrying picture for the future of our banking industry, the best option would be for that to happen as soon as possible. It was somewhat surprising for someone in his position to make things quite so worryingly clear.
I want to make a few remarks about the Bill. As my hon. Friend Mr. Hoban said, we should remember how all this started, with Northern Rock some 18 months ago, when our banking system began teetering on the edge, as it has continued to do ever since. One of the reasons why the Northern Rock fiasco—crisis—came about was that, under the old rules of banking legislation, when the Bank of England offered emergency liquidity, it had to make that known. That was, in itself, a recipe for the disaster that followed.
In future, under the Bill's miscellaneous provisions, which seems a minor section in which to put an important provision, such emergency liquidity offered by the Bank of England can remain secret. Clearly, although transparency is something to be desired, in a situation that can cause a run on a bank, as happened with Northern Rock, the new rules are much better, and I am glad that the Government have learned the error of their ways, inasmuch as a rescue will be attempted before the public take fright and start to queue around the block at various branches of whichever bank might be in trouble. I welcome that important provision.
I agree with my hon. Friend Mr. Fallon that, although it is nice to see the Bank of England taking more of the centre stage in the regulation of our banking industry, there is more to be done in that respect. There are still problems with regard to the powers of the FSA and the Bank of England. Clarity of decision making is very important in what we now know to be such a crucial part of our economy. We are not letting banks fail—they are just too important—and someone therefore needs to be exclusively in charge. I hope that that role will be considered in future banking legislation.
Finally, my hon. Friend the Member for Fareham, who speaks from the Front Bench, has played a much bigger role in considering the Bill than I have, and I am very glad about that because he has clearly gone into the detail. I was encouraged when he said that there is now broad agreement that the Government have got largely right their provisions for the SRR and that there is much more happiness in the banking industry and among Conservative Members about how that would take place. If I have one concern about this crisis, it is that when it is over—it will be over, eventually—the City of London remains an important institution for UK plc. Although we are very angry with the banking industry for the trouble that it has led us into, we must be careful in any future legislation to ensure that it remains an important part of our economy in future. We must ensure that the City is open for business and is the most attractive place to do so. It is very tempting to penalise the banking industry for how it has behaved and for what it has done, but, although we obviously have to put right what has gone wrong in our banking industry and give people confidence in it in the future, we must keep sight of the broader picture for the UK. We have a lot of jobs in the financial sector, and we want to continue to attract banks to London with fair and rational provisions that govern how any such similar situation will be dealt with.
These are, as the Economic Secretary pointed out, momentous times for this country's banking and financial services industry, which has, as my hon. Friend Miss Kirkbride has just said, become an increasingly important element of the UK economy over the past two decades. It had importance before, but its status, and, indeed, the knock-on effect of any problems for other important commercial cities and towns in this country, let alone the City of London, should not be underestimated.
I believe that in an ideal world—perhaps it is fair to say that we are not living in an entirely ideal world—it is important that any legislation is not over-rushed. I appreciate that there have been tumultuous events in the financial markets, and I suspect that that will be so for some months to come. However, in so far as anything is foreseeable—I accept that some eventualities are not—we should avoid putting our banking industry into too much of a straitjacket.
I am also the first to accept, however, that the days in which both I and, indeed, my hon. Friend Mr. Hoban perhaps talked easily about the idea of light-touch regulation are done—at least, for now. I confess that even relatively sophisticated high-net-worth individuals—we have seen what has happened to such investors in one of the world's largest hedge funds in recent days—have to concede that those days will, I fear, come to an end.
As my hon. Friend the Member for Bromsgrove pointed out, the future for London's financial centre will not be enhanced by low-regulation arbitrage, vis-à-vis other financial centres going forward. Clearly, that will not be the spirit of the age for some time to come. I must confess that I am also concerned about the City of London's future role as a world financial capital. We must be entirely candid about the fact that some permanent damage has been done by recent events—indeed, the same applies to Wall street—and the whole Anglo-American model of financial services will need to be shaken up.
Clearly, the Bill plays an important part in that process, but we must regard this as work in progress in the weeks, months and, indeed, years ahead. That can only be further undermined by some of the unfolding scandals, and I am sure, I fear, that we have not heard the last of them. Nevertheless, I hope that the Government will take some heed of the quiet concerns of many people in the banking world. Many representations have been made to the Government during the consideration of the Bill, but although they broadly express support for the workings of the Bill, there are some concerns about how the compensation system will work.
I should like to reiterate the concerns of my hon. Friend Mr. Fallon, who hit the nail on the head. We must look at the whole issue of competition law. Above all, as we have seen with the banking mergers that have taken place and the lack of independence for some banks, there is concern that competition considerations have been flung aside. We are living in tumultuous and difficult times that are bewildering for the public and for policy makers as well; but equally, we must remember that competition law is enacted not as an added layer of regulation but to protect the consumer.
The bigger concern of many people is that smaller banking organisations and small organisations in the financial services world run the risk not only of perhaps over-contributing to a compensation fund, but of exiting from a lot of markets in the financial services world, simply because of those competition concerns. All too often, enhanced and enlarged regulation is a big barrier to entry for new competitors in what should be a vibrant field, full of innovation and flair.
My hon. Friend the Member for Fareham rightly pointed out that some specifics will be considered in another place in January in relation to netting and set-off in the context of clause 48, but I should like to say finally that, although this is billed as temporary legislation, there is no doubt that, as my hon. Friend the Member for Sevenoaks said in his contribution, many of these measures will stay in place for quite some time. That means two things: first, we clearly need to give very great consideration to what we put on to the statute book at this stage—that has happened here and will happen in another place in the next few weeks of the parliamentary Session—but, more importantly, we recognise that this must be work in progress. I hope that the Government will pay great attention to what is being said in the banking and related industries to ensure that, where unforeseen problems arise in relation to the legislation, they are fully and properly dealt with.
I am grateful for the opportunity to speak in the debate on the Third Reading of this important Bill, which comes at an important time in this country's financial history. I, too, am delighted that the Bill will put the Bank of England back at the centre of regulation. There is further to go, but I must confine my remarks to the contents of the Bill.
I note that the Bill proposes an increased regulatory role for the Financial Services Authority. There are still huge concerns among Conservative Members—and, I am sure, among Labour Members—about the suitability of the FSA to deliver on that enhanced role. The FSA seems to have missed all the warning signs leading up to the banking crisis and all the warning signs in the mortgage market, and there has been a simple loss of confidence in its ability to deliver on its important role. A few moments ago, I was talking to my hon. Friend Mr. Fallon about the need to restore confidence in the regulatory regime. What happened at Northern Rock must not be allowed to happen again, and the Bill goes some way towards ensuring that it will not. My hon. Friend pointed out that the run on the bank happened because, despite assurances from the Government, the FSA and the Bank of England that there was nothing to fear about losing deposits and that those deposits were safe, the public quickly worked out that no one was in charge. As we move forward, we need someone who is seen to be in charge of regulation, so that the buck stops with him or her. I hope that the Bill sets those wheels in motion; if it does not, I am sure that we will revisit the subject in the very near future.
I wish to declare some of my interests. I hope that NatWest will continue to provide me with its overdraft. I am a Royal Bank of Scotland pensioner, prospectively, and I hope that it will be able to pay out on that pension. More importantly, I have an interest in the City, working for Tokai Tokyo Securities, which covers some borrowers in the markets, including, now, some of the UK banks.
When one sits down here in solitary at the end of the Chamber, there is a danger of having over-profound thoughts, but I want first to make some more fundamental remarks about the implications of the Bill. Over time, the Government undertook an excellent preparation for the Bill as regards the consultation that went with it. That was a useful process that means that it will be robust in terms of dealing with the crises that will come next year. We would all hope that it will not be necessary to employ this legislation, but it is inevitable that there will be further nationalisations with the oncoming second leg of the financial crisis after Christmas.
The Bill gives additional powers to the Bank of England. It has to be asked, bearing in mind the significant failures in recent years, whether that is the right route to take. I appreciate that we have to work with the institutions that we have, and that there is only so much progress to be made by criticising the Bank and the FSA. However, the Bill represented an opportunity to give the Bank responsibilities for asset prices; obviously, that concern will now be on the downward side rather than on the upward side. The Bill should also have given more support to maintaining the banking department of the Bank of England, which is being wound down, rather extraordinarily at this time of a banking crisis. An opportunity should have been taken—
I think that I will take this opportunity to desist, Madam Deputy Speaker, because colleagues look keen to move on to the next business of the House.
In conclusion, good work has been done in the Bill to provide the basis of speedy intervention in any future banking crisis. However, I hope that the Government will consider the introduction of the means to set up a bad bank—a solution that could deal with the crises that will be upcoming in the next two months.
Question put and agreed to.
Bill accordingly read the Third time and passed.
On a point of order, Madam Deputy Speaker. I do not want to try the patience of the Chair, but over the past few weeks I have received many cards from people saying "Season's Greetings". Can you confirm that this House is rising for the Christmas recess, not a seasonal recess, and will you join me in wishing all hon. Members a very happy Christmas, as we would wish them happy Diwali, happy Hanukkah, or happy Eid?