Committee (1st Day)

Part of the debate – in the House of Lords at 3:10 pm on 13th January 2009.

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Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury 3:10 pm, 13th January 2009

I start by noting the political good will to which the noble Baroness, Lady Noakes, referred. I am very grateful to noble Lords on the Benches opposite and to opposition Members from all parties in another place for the constructive spirit in which they have approached the Bill.

The main effect of this group of amendments and additions to the Bill proposed by the noble Baroness, Lady Noakes, concerns the provision of asset-freezing powers in relation to foreign banks. I will endeavour for the benefit of the noble Lord, Lord Stewartby, to define a UK institution by reference to defining what is a foreign institution. Let me therefore start by giving a practicable and workable definition of what a foreign bank is for the purpose of the Bill and the amendments.

I will assume that a foreign bank is one incorporated under the law of another jurisdiction, but which operates in the UK through branches established here. I will argue in a moment that we already have the powers we need to freeze the assets of such banks and that new powers are not needed, but there is a more fundamental practical difficulty that I bring to your Lordships' attention. Even if I agreed in principle with the noble Baroness that additional powers were needed for the purpose of freezing the assets of foreign banks operating in the UK, there would be serious practical limits to the applicability of such powers. As I said, a foreign bank is a bank that is incorporated under the laws of another jurisdiction but which operates in the UK through branches established here. This means that the UK branch of a foreign bank is not a UK entity. In fact, it is not an entity at all; it is only part of an entity—a foreign entity—and it has none of the legal personality that the entity has. A branch therefore owns no property, and it cannot enter into any contracts in its own name. It is therefore really only a convenient label for the foreign bank's operations in the UK and for its staff who happen to work here.

There may be significant operations and lots of staff, the bank may operate from large and impressive buildings, the staff may be responsible for controlling and moving huge sums of money, and they may operate accounts that hold billions of pounds of deposits from people in the UK, but none of that means that there are necessarily any assets in the UK that could be frozen. The assets of a foreign company, of which the branch is the physical presence, may be held in the UK, but equally they may be held outside the UK; and, of course, the introduction of these asset freezing powers in the Banking Bill would make it much more likely that assets would not be held in the UK in the future.

The second problem with the amendments is that even if there were substantial assets in the UK, which were controlled by a foreign bank with a branch here and which we wanted to freeze, they might not belong to the foreign bank. It would be very easy to set up a group structure in which the UK assets of the group were not the property of the foreign bank to which the freezing orders could be applied.

This brings me to a third point. The noble Baroness referred to the concern about the use of powers in anti-terrorism legislation to freeze the assets of foreign banks. I see the difficulty, but it is about presentation not substance. Asset freezing powers on the statute book must be justified on their merits, and the statute in which they appear is not the issue. Such powers would be no more or less acceptable in a banking Bill than they would be elsewhere to those who find them unacceptable. The powers that are now proposed are intended to be targeted on and limited to foreign banks. For the reasons that I have just indicated, to make these powers effective one would also need to be able to apply them to the assets that belong to persons, companies or other legal entities connected with a foreign bank.

This brings me to the scope of the power compared with that of the existing power in the Anti-terrorism, Crime and Security Act 2001. That power is available where the Treasury reasonably believes that a person or persons, being the resident or Government of a foreign country, have taken or are likely to take,

"action to the detriment of the United Kingdom's economy (or part of it)".

I hear with interest, as I have heard in previous debates, the great credit that has been given to the work done by the noble Lord, Lord Newton, in respect of this legislation, but I beg to suggest to noble Lords that this is not the moment to discuss that issue; this is the Banking Bill.

The amendments tabled by the noble Baroness, Lady Noakes, would introduce conditions based on financial stability, the maintenance of public confidence, the protection of the depositors in the United Kingdom, and the fact that the foreign bank was unable or unwilling to pay its debts in relation to depositors in the United Kingdom. The existing power is in one sense broader, but in another sense it imposes a higher threshold before action is taken. There may be circumstances surrounding a bank failure in which the Treasury needs to consider its existing asset freezing power, and the conditions which noble Lords have identified in their suggested provisions are some of the factors that may be relevant to such a decision. Given that we already have freezing powers under the Anti-terrorism, Crime and Security Act that enable us to address threats to the UK economy, it would be confusing and unhelpful to create a further set of freezing powers.

In a debate in this House on the Counter-Terrorism Bill, the noble Baroness, Lady Neville-Jones, the opposition Front-Bench spokesperson on security issues, said in relation to the asset freezing powers:

"Part of the problem of legislation being brought forward in amendments to successive Bills is that we ultimately get—no doubt unintended—inconsistency, and duplication with minor variations of language. It becomes difficult for those who must obey the law. Consolidation would therefore be good for ease of reference and the avoidance of unintended inconsistency".—[Hansard, 11/11/08; col. 585.]

I agree with the noble Baroness that it is preferable for anti-freezing legislation to be consolidated where appropriate. These amendments to establish a further set of freezing powers would create just the problem of overlap, uncertainty and potential inconsistency to which the noble Baroness, Lady Neville-Jones, referred.

Finally, we have to recognise that the circumstances in which we would need to use such a power will be wholly exceptional. The recent case of the Icelandic bank, Landsbanki, to which the noble Baroness, Lady Noakes, referred, demonstrates this. Furthermore, while we certainly do not intend to use, or expect to need, the powers in the Banking Bill to deal with UK banks on a regular basis, we have to recognise that UK banks may sometimes get into difficulties. It will be the UK's responsibility to resolve them. But we would not normally expect to have to resolve foreign banks even if they had branches here. To put a power to freeze their assets in the Bill implies that it may be considered normal, rather than exceptional, for us to intervene when foreign banks are involved. That would seem to send quite the wrong signal. We have a power which we have used in exceptional circumstances. We do not need another one. I would suggest to Members of the Committee that UK banks operating in a foreign jurisdiction that took upon itself the powers to intervene as suggested by this amendment might question whether they wished to conduct business in that jurisdiction. That would not be an unreasonable question for foreign banks which currently and prospectively will continue to operate in the United Kingdom.

The proposed amendments will not strengthen financial stability because we already have powers to apply asset freezes to protect financial stability under the economic aspects of the Anti-terrorism, Crime and Security Act. That was demonstrated in the case of Landsbanki. It is surely important that this Bill is focused on measures that will strengthen financial stability and not overlap with existing powers. The noble Baroness, Lady Noakes, chided that there is little in this Bill to deal with the causes of the current banking crisis. I would suggest that this Bill is less about current crises than about crises which may occur in the future and would have to be dealt with by this Government or by future Governments. It is a Bill about establishing a special regime to deal with the resolution of failed banks, rather than a Bill which attempts to speculate on the causes of the current problems. I therefore hope that the noble Baroness will agree to withdraw the amendments in her name.