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The clause removes the requirement established by the Bank Charter Act 1844 that the Bank of England must produce a weekly return of accounts. My understanding is that, following the passage of this change, the Bank will be able to determine whether, and in what form, it produces a return.
My understanding is that the genesis of this change was the debate that took place around Northern Rock last year. There was some debate about whether Northern Rock could have been saved if there had been a less transparent process. A great deal of that argument rested on the market abuse directive, whether a consortium of banks could pull together to buy Northern Rock, and a whole host of arguments around that. That is not necessarily germane to the amendment, but one argument made at the time was that the Bank of Englands weekly return would disclose financial assistance given to a bank, which might trigger awareness in the market of a bank receiving financial support. Hon. Members may recollect that it was the Governors announcement that Northern Rock was in receipt of support from the Bank of England as a lender of last resort that triggered the run on the bank.
The Government consultation response stated that there had been support for the change, but the summary of consultation responses suggests that very few people responded to the proposal to withdraw the weekly return. Can the Minister elaborate on what the alternative mechanism for reporting the Bank of Englands assets and liabilities might be? Is there widespread support for it? It appears to have generated relatively little interest in the consultation.
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 ones 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 Banks 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 Englands 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 covertto 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.
I understand the arguments why we should not disclose the level of covert support as it would not then be covert. However, there are systems such as the special liquidity scheme, which is not a covert mechanism for support and is currently disclosed on the weekly return. That is a legitimate form of liquidity support. If the weekly return is suspended and there is no commitment to regular publication of a similar summary, I am not sure how the Bank and Treasury can be held accountable by Parliament for the amounts that they deploy through the special liquidity scheme. Can the Minister tease out or separate the covert from the overt support that the Bank might offer?
It is difficult to be precise. If we were to move from a weekly to a fortnightly report, some of the problems that occurred with Northern Rock might reassert themselves. The Bank has to report, quite rightly, on an annual basis, and there is a bi-annual report on financial stability and monetary policy. Those are standard ONS reporting requirements and include issues of money supply and other areas for national statistics.
The difficulty, which I think the hon. Gentleman appreciated by the way that he asked the question, is that if the Government changed the weekly report to a fortnightly one, it still might not deal with a particular context. Liquidity support that was essential to prop up an institution in trouble might be revealed earlier in a way that did damage.
Is there not an alternative way of looking at the matter? In preparation for the debate, I had a quick look at a weekly report; in effect, it is the balance sheet of two notional departments in the Bank and a consolidation. It would be possible to produce a report that was not a balance sheet and did not require full disclosure, yet set out the normal forms of support that the Bank could offer an entity without having to reveal any covert support. By changing the published information, we could get round the issue of disclosing covert support, while still allowing the Bank to be accountable for the overt support it gives.
The hon. Gentleman is rightit is a balance sheet. I, too, had a look at one before attending the Committee. I understand his point. The clause abolishes a requirement to publish a weekly return that dates from 1844, when the consequences for Northern Rock of doing so were probably not in the minds of those who legislated. Everybody agrees that premature revelations about liquidity support are damaging to financial stability and should be avoided. Clause 223 will remove that absolute requirementdating from 160 years agoto produce a weekly report. That will no longer apply.
We still expect the Bank to publish such returns as it considers appropriate. It will decide how to shift from the old rigid system of doing so weeklyfor no reason other than that it has done so since 1844to another process that we hope will prevent premature revelations about liquidity support that might damage financial stability. That is the context for the switch that the Government suggest in this clause and clause 230.
The Minister and I are in agreement about the need to move away from where the Bank has been in the past. We are moving from a situation where data are transparent, to one where we do not know what the replacement for that obligation will be. Can the Minister say whether the Bank will have set out its alternative reporting arrangements by the time the Bill gets to the other place? I know that she does not speak for the Bank, but she can see the point I am trying to make.
I cannot speak for the Bank directly and make an operational decision, but I have made it clear that it is important that the Bank is transparent about its activities, except in the unusual circumstances when premature revelations about liquidity support would actually damage everyone. I have also made it clear that the usual reporting arrangements and expectations in respect of the annual report, the returns to the ONS for its often monthly statistics and the bi-annual financial stability report are still made public. It is for the Bank to decide how to move from an old rigid system to a new system, and avoid the potential offered in the weekly return for premature revelations about liquidity support that are damaging.
I understand what the hon. Gentleman is trying to get at. The Bill will make clear how it is intended to proceed in due course, but I cannot promisesince it is not in my giftthat the Bank will have made that decision by the time the House of Lords considers the Bill. I hope that he will accept that no attempt is being made to take away transparency or to hide things for any longer than is necessary to protect financial stability in a particular instance. He raised the issue that brought the problem to the attention of all the parties.