Banking (Special Provisions) Bill

moved Amendment No. 16: 16: Clause 13, page 12, line 22, at end insert— ““(2A) A statutory instrument which contains an order under section 5, 7, 8(6) or 11 (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament. (2B) If a statutory instrument to which subsection (2A) applies would, apart from this subsection, be treated as a hybrid instrument for the purposes of the Standing Orders of either House of Parliament, it is to proceed in that House as if it were not such an instrument.”” The noble Lord said: In speaking to Amendment No. 16, I shall consider other amendments in this group. Again, these amendments deal with issues raised by the report of the Delegated Powers and Regulatory Reform Committee. In my earlier contribution, it was remiss of me not to thank the chairman and the committee members for the very assiduous work which they discharged at very short notice to the great advantage of the House. We very much applaud that work. At Second Reading, I said that the Government would take the committee’s recommendations seriously. Its thoughtful scrutiny of delegated powers provides an important resource for this House and, I might add, for the other place where its views are equally rightly respected. I have tabled Amendments Nos. 16 and 18 in response to the committee’s important recommendations and one of the most important issues. They provide for the orders under the Bill which concerns compensation in Clauses 5, 7 and 8(6) and the use of the Bill’s powers in relation to a building society in Clause 11 should be made under the draft affirmative procedure. We have responded to the committee’s recommendations through other amendments that narrowed the scope of the power in Clause 7 in the manner advised in the report. Amendments Nos. 17 and 19 seek to go further, ensuring that all orders made under the Bill are subject to the affirmative procedure. That builds on the committee’s report, which also advises that transfer orders under Clauses 3 and 6 together with orders under Clause 4 and 12 switching off subscription rights and consequential and supplementary provisions should be made under the draft affirmative procedure. We considered that argument carefully. We understand the concerns expressed about the scope and significance of the powers set out in the clauses. We have also considered carefully what the committee said about the speed with which, should the occasion warrant it, a draft affirmative order can be passed, and about the certainty such approval can bring. We have also noted the possibility of a dehybridisation provision and the possibility of an urgency procedure whereby in urgent cases an order can be made subject to confirmation later. In the kind of grave and exceptional circumstances where the powers may be exercised in the future, carefully circumscribed in Clause 2—a recurring theme of my comments from this Dispatch Box is the significance of Clause 2 and the circumscription on the powers reflected in the clause—we would be faced with a serious threat to the stability of the financial system. Let us be clear: a failing bank or building society collapse would create systemic damage to other financial institutions and the UK financial system before there would be any question at all of these powers being used. We may be faced with this problem at a weekend, in the middle of August or at any time when the House is not sitting. Something may need to be done before markets open the next day and queues form at branches. I have heard it argued on several occasions that other emergency provisions have not sought the exemption that we are seeking today. There is a difference in the industry that we are considering with regard to the legislation. The Committee recognises the significance of confidence in the banking system. Maintenance of financial confidence is of the greatest significance. That is why we have to conceive of action in circumstances such as an emergency is one where we need to act before others in the markets are able to take account of a developing crisis. I realise that the Delegated Powers and Regulatory Reform Committee did not fully endorse that argument and I find some difficulty in disagreeing with its position. And I accept its proposition in every other set of circumstances that I can think of. But these powers in Clause 2, which are at the absolute heart of the Bill, are all about responding to an issue of the greatest financial crisis and the necessity for action prior to markets being able to respond. We may need to complete the transfer of the whole bank to another institution because it is sound and able to absorb the troubled bank, or transfer the deposit book to a sound bank. If we could do so only after the draft order had been debated and approved by both Houses, the damage to the financial system could already have been done. I hope that the Committee will not consider me to be overly dramatic about this issue, but I am obliged to emphasise the difference between the particular circumstances of the industry which is the subject of this regulation and any other. We saw with Northern Rock last September how quickly events can unfold. The matter would be especially acute if the problem were to arise in the Recess. To recall Parliament is no answer as that would only heighten the drama and increase the level of the crisis. Enabling an order to be made immediately, subject to later confirmation by resolution of both Houses, is not an answer to this point. In the case of a transfer of the deposit book, how would depositors have any certainty that their money would remain with the new sound bank rather than being sent back to the failing one? The answer is that they would not. They would want to withdraw their money to a safer haven, and we would have another run. I put it to the Committee that we cannot contemplate that. It is because we are dealing with banks and building societies, not something like British Leyland, that we are doing this. We all recall the implications for the British economy as a result of the significant problems at British Leyland, as well as the challenges for the workforce and the community where it was located. I do not decry the significance of British Leyland, but I want to emphasise how very different this legislation is, dealing as it does with banks and building societies. That is why we think it is right for this Bill to use what would otherwise not be appropriate. We ask noble Lords, in considering the report of the Delegated Powers and Regulatory Reform Committee, to balance the clear legal concerns which have been expressed against the real issue of financial stability which is at the heart of this Bill, and the particular importance of confidence as much as legal certainty to the sound operation of the banking system. We continue to maintain our respect for the committee, and of course we have sought to respond as positively as we can in other areas of its work, but I hope it will be understood that in this particular respect, the Government must dissent from the recommendations of its report. Given that, I hope that the noble Lord will feel able not to press his amendments when the time comes, and instead will support the government amendments. I beg to move.