Banking (No. 2) Bill [HL]

My Lords, at this stage in a Second Reading debate, when the debate has been about a loss of confidence, why it occurred, who has lost it and how in some principled and large way it might be restored, it may be difficult to return to detailed consideration of the Bill itself. It is really a housekeeping Bill, and has nothing much to do with the global banking or economic crisis. I turn first to the thought that prevention is better than cure. The Minister said that among the Bill’s objectives, which are set out in the regulatory impact assessment, is reducing the likelihood of individual banks facing difficulties. I cannot find anything much in the Bill that will achieve that, and, although I listened carefully, the Minister did not say much that would have the effect of reducing the chances of individual banks facing difficulties. The second objective is reducing the impact if, nevertheless, a bank gets into difficulties. I cannot really see that there is much effect on the impact of a failing bank. There are arrangements for what to do about it, but as to the impact, it would have to wait to see what sort of a bank it was. The third objective is providing effective compensation arrangements in which consumers have confidence. I do not think that consumers want compensation; it is a very second best. Indeed, if they have insurance policies, they can get compensation through a claim, but they are always aware that the chances are that the premiums will rise. I do not think that that is what people want; I think that people want continuity. The fourth objective is strengthening the Bank of England and ensuring effective, co-ordinated actions by the authorities. We would all have assumed right from the beginning that effective tripartite co-ordination was a given and did not have to be spelt out as a purpose of the new Bill. I find myself much in agreement with those noble Lords who have said that events have overtaken the Bill. Is the Bill really relevant in any significant way? It might have been relevant a year ago or more, at the start of the problems with Northern Rock, because Northern Rock might have been an exception, but now it does not have the same relevance. Anyway, another route has been chosen, of bank recapitalisation. That is and was necessary. After all, the foreign obligations of our banks have risen from £1,000 billion in 1997 to more than £4,000 billion in 2008. I thought that the purpose of bank recapitalisation was, at least in principle, that no more banks are to go bust. If it had not been for bank recapitalisation and the schemes, what would have happened to the Royal Bank of Scotland and to Halifax Bank of Scotland? The key to where we are—does the Bill achieve this?—is the recreation of confidence. In that regard, the continuity of the operations of banks is a great deal more important than any compensation scheme. One must hope that there will not be such a need in the near future. There has been a great deal of consultation about the Bill, but my impression is that as the consultation continues—we have another November consultation, for which I think the closing date is 9 January—there is less and less enthusiasm for the Bill in the industry as events unfold. What is the point of debating the difference between a Bank of England bridge bank and a Treasury temporary public ownership bank in present circumstances? What meaning can we give to ““temporary””? Taking the example of Northern Rock, we simply do not know. Taking the example of Bradford & Bingley, it seems that there will be nothing left at the end anyway, because the publicly-owned part of the bank is working off its book and there will not be anything to go back into the private sector at the end. In these circumstances, will there be another Northern Rock or Bradford & Bingley? The answer to that is no, there will not, given the bank recapitalisation. That takes me to the sunset clause in the Banking (Special Provisions) Act. I should be grateful if the Minister could add some greater substance to the claim that 20 February would create a serious public interest problem. What would that public interest problem be? Does he have any information that would lead us to think that there was not a way of dealing with a problem in a bank that did not need this Bill? The second thing about the Bill is that a better title, between ““Banking (No. 2)”” and ““[HL]””, would be to add ““Two’s company and three’s a crowd””. Here, I join the noble Lord, Lord Bilimoria, in saying that we cannot really get into this in this Bill. It has got too far down the road. All that we are being asked to do is tinker at the edges, giving a bit more responsibility to the Bank of England and, by implication, a little bit less to the FSA. The FSA is, frankly, a muddle. Its Act of Parliament makes it a muddle. Its objectives are market confidence, public awareness and the protection of consumers. They are pretty unattainable. They do not sound like the sort of things that, if I were the chief executive of the FSA, I would cheerfully say that I could do. As to public awareness, how could I make the public aware of all the investment possibilities that there are, having listened to my noble friend Lord Saatchi? The FSA does not understand them, so how on earth can it make the public aware of them? At the same time, all the way through, it must have regard to proportionality, innovation—it certainly has not hindered innovation—and our international position, and it must enhance and not damage competition. This is a mixture to be given to a regulator. A regulator is either a keeper of people’s conscience, or it is in the business of development, but it cannot be in both. There are two tests in the Bill, and we have frequently heard about one of them today. First, there is the financial stability test. We have also heard from the House of Commons Treasury Select Committee, which said in its report: "““There is no consensus about what financial stability means, how it should be measured and how the balance should be struck between the pursuit of a financial stability objective and other public policy objectives ... Above all, the Bank of England, while being endowed with certain financial stability functions and powers, is not being granted a coherent set of instruments in order to influence financial stability””." Financial stability is a totally subjective judgment at the moment. There are no objective criteria. It is almost as if the Treasury is being left in a position where it can say from time to time, ““We recognise it when we see it””. The second test is threshold conditions. Here, I cite the Bradford & Bingley example. Threshold conditions apply to deposit-takers. It has been asked in this House what the FSA’s determination was that threshold conditions were not being met, and we have been told that there is no way in which that could be made public. Schedule 6 to the 2000 Act is vague to the point of unhelpfulness. Paragraph 4 of Schedule 6 states: "““The resources of the person concerned must, in the opinion of the Authority, be adequate in relation to the regulated activities that he seeks to carry on, or carries on””." Paragraph 5 of Schedule 6 states: "““The person concerned must satisfy the Authority that he is a fit and proper person having regard to all the circumstances””." Although there is a little more in both paragraphs 4 and 5, it does not add much to the motherhood and pie statement of Schedule 6. There should be much more careful post-legislative scrutiny of the FSA, of the 2000 Act and of the effects of that legislation. I end with a quotation, which I think will show how far we have come. It is about banking stewardship: "““One sign of your stewardship is the unquestioning trust reposed in you by your clients. People pay in to you across the counter their money, about which they very reasonably care a great deal, with absolute confidence—not only without questioning but without giving the basic principle of the system, or its mechanism, a single thought. They just know that all will be well with their money… If this were not so, the consequences, material and psychological, would be immediate and grave; but it is so””." That is an address from 1955, made to Barclays Bank.