I shall speak also to Amendment 23 in this group. Both amendments concern consultation on the code of practice required by Clause 6 before that code is issued.

Amendment 22 requires the Treasury to consult the Banking Liaison Panel, which is constituted by Clause 10. The Minister will be aware that the panel has been welcomed by the financial community. Early feedback from the meetings of the panel’s forerunner, the expert liaison group, indicates that it is fulfilling a useful function. However, Clause 10 confines the role of the panel to advising on matters contained in secondary legislation.

Although we shall debate the issue in the next amendment, no parliamentary approval is attached to the code of practice and, hence, there is no involvement of the panel. The Banking Liaison Panel was not in the Bill when it was introduced in another place. The Government introduced the panel by way of an amendment moved on the last day of Committee in another place. I suggest to the Minister that the exclusion of the panel from the Clause 6 consultation process was an oversight, and I invite him to agree to the panel’s inclusion by way of the amendment.

While the involvement of the panel would be a wise addition to the development of the code of practice, it is incumbent on the Treasury to consult more widely than its inner circle—whether or not that circle includes the panel. Hence, Amendment 23 requires the Treasury to consult persons who have relevant knowledge of the matters contained in the code of practice.

The Minister may well say that of course the Treasury will consult, as all good government departments do this in accordance with Cabinet Office guidance. However, we do not believe that it is wise to rely on informal and non-binding guidance where something is involved that is as important as the code will be for the banking industry. I freely acknowledge that the availability of the draft code during Committee in another place has meant that it has had wide exposure but good practice today cannot frank all future issues or revisions of the code, and those, not the current draft code in circulation, are the main focus of my amendment. I hope that the Minister will agree. I beg to move.

I reassure the noble Baroness that this part of the Bill and the areas that relate to the stabilisation powers and secondary legislation on safeguards are the subject of ongoing consultations. We are interested in developing the Bill in a way that interested parties should continue to welcome. The noble Baroness has already indicated that the expert panel, which has been subject to consultation, has done good work. It is a precursor of the Banking Liaison Panel and we are sure that it will continue that excellent process.

The process of consultation has not been set out in the Bill and nor, as a general rule, do we think that it should be because it is already covered by the relevant Cabinet Office and better regulation guidelines on the development of secondary legislation. The process of consultation, which all government departments observe, follows well established guidelines which largely meet the noble Baroness’s objectives, which we share—namely, that on certain aspects of the Bill, particularly with regard to secondary legislation, adequate consultation should be a precursor to the instruments being refined and then laid.

Throughout the process of producing the Bill and its supporting documents, we have engaged very fully with interested parties. We intend to continue to follow Cabinet Office guidelines in producing and consulting on the new secondary legislation and other documentation supporting the special resolution regime.

I recognise that there is interest in the code, as testified to during our earlier debates. That is why we published a draft for consultation and sent a prior version to the expert liaison group. As I said, I am pleased that the noble Baroness felt able to express approval for the panel’s work. I assure her that the consultation will continue in future on the code’s development. Therefore, in terms of the way in which we have handled this process—not only in relation to the Bill but also through the guidelines on the development of secondary legislation that now obtain—we do not think her amendment necessary. However, we entirely agree with her objective of ensuring that appropriate consultation takes place before such instruments are presented to the Houses.

As I anticipated, the Government are relying on the Cabinet Office and, indeed, better regulation guidelines that there should be consultation. That may well deal with the second of the two amendments that I have tabled. Amendment 22, which refers specifically to the Banking Liaison Panel, is an important issue. We have hard-wired that body into the Bill, which is an unusual but welcome process, but have given it rather narrow terms of reference. The issue is not about the current drafts but the future.

It is unfortunate if the Government are seeking to narrow the ongoing scope of the Banking Liaison Panel because the expert liaison group has been used in a much broader way. That is why the comment has been made to us that wider powers are required for the Banking Liaison Panel. A later amendment deals with that specific aspect, so I shall not pursue the issue today. I am not sure that we have entirely given the right role to the Banking Liaison Panel, and it would be a comfort to those involved in the financial services industry to see it with a better role, and a good thing for the Treasury to have people involved who are outside the magic circle of the tripartite authorities in the future development of codes. As I said, I shall not pursue that today but I do not preclude returning to it later. I beg leave to withdraw the amendment.

This amendment concerns the parliamentary process for the code of practice. As Clauses 5 and 6 are currently drafted the Treasury issues the code of practice after the minimal consultation set out in Clause 6. There is no requirement for more general consultation because the Government rejected the amendments in the previous group, nor is there any role for Parliament. That is what Amendment 24 focuses on; it requires a draft code to be approved by each House before it comes into force.

It is perfectly normal for statutory codes to be approved by Parliament; this is not an innovative procedure. When the amendment was debated in another place, the Minister said that the FSA’s handbook was not approved by Parliament so it was not necessary for the code to be approved. I believe that the Government have chosen not to understand the difference between the FSA’s handbook and the related powers in the Financial Services and Markets Act and this Bill and its code. The FSMA inter alia sets out the basis on which regulated activities can be undertaken and gives the FSA the related powers, and the handbook sets out how the FSA will use those powers. On the other hand this Bill gives relevant authorities some sweeping and intrusive powers that go way beyond anything that we found in the FSMA. It is one thing to say how a regulatory body will apply its regulatory constraints but quite another to say how public bodies will use powers to grab property that belongs to other people. That is why we believe that it is important that Parliament is involved in all stages of the implementation of this Bill, including the extremely important code of practice, which will be the main route of communication between the relevant authorities and the businesses that could be subject to the powers in the Bill.

In addition, as a purely practical matter, the FSA’s handbook was reputed at one stage to have reached nine feet had it been printed out in total. That did not reflect particularly well on the FSA but for present purposes tends to indicate a level of detail with which Parliament ought not to get involved. The code of practice, a draft of which we have seen, is commendably short and very amenable to parliamentary scrutiny.

On the previous amendment, the Minister referred to the code of practice of the Cabinet Office in relation to statutory instruments. I do not see why we should be bound by that when it is important that it should be obligatory for the Government to carry out widespread consultation in regard to these matters. In any case, we are not considering the code as a statutory instrument. My noble friend’s amendment makes it a statutory instrument. Clause 6 makes no provision for Parliament to have a role in or to comment on the code of practice. It will be laid before Parliament but—the Minister will correct me if I am wrong—there is no provision for Parliament to debate it. Still less is there provision for it to be compulsory for Parliament to have a chance to debate it. That being so, there is a great deal to be said for the amendment.

This code of practice is very important and is subject to substantial, or even complete, rewriting without any obvious input from consultation or Parliament. I hope that the Government will look again at this. Amendment 24 suggests that a positive resolution of each House of Parliament should be built into the Bill. If that is not done, the code, which governs in large measure how the Bill is going to be put into practice, will not get the scrutiny that it needs and deserves.

One of the problems with the code is that it raises a lot of controversial issues and does not have any clear direction. For example, paragraph 92 was cited earlier. It applies to banks in temporary public ownership and states:

“Immediately following the transfer of securities”—

that means that the bank is 100 per cent in public ownership—

“and for the period of stabilisation, the Treasury may take a ‘hands on’ role in managing the affairs of the bank. However, once stabilised, the Treasury shall seek to introduce corporate governance arrangements in line with best practice as soon as is reasonably practicable. The nature of these arrangements will depend on how likely the bank is to remain in public ownership”.

We could probably have an exciting two-hour debate on what that paragraph means in certain circumstances. My noble friend’s proposal that this code of practice should be subject to parliamentary scrutiny and debate has got to be right.

I would be the last person to deny the opportunity for the noble Viscount, Lord Eccles, to participate in an exciting debate and I assure him that he will get that opportunity. The code will be laid before Parliament and those who are excited by it and want to organise a debate on it either in the other place or here will be more than entitled to do so. The issue is whether it should be mandatory that it be laid before the House.

First, let us be grateful for the progress represented by the code under the Bill. I look around me and see enough noble Lords present who have sat through the passage of Bills during which they have bemoaned the fact that a code of practice or conduct will be involved when they have not seen sight nor sound of the code because it has not been drafted until after the legislation has been produced—sometimes a considerable time after. Constant have been the complaints about the process that that situation has created.

Here we have the noble Baroness freely congratulating the Government on the fact that considerable progress has been made on the draft code in both the consultation that led up to it and the draft code itself. We have had the benefit of that in informing debate on the Bill. We also intend the code to be published very soon after the Bill becomes an Act and for it to be laid before Parliament in order to provide opportunities of which Parliament may want to take advantage. That seems to indicate that the Government have taken the issue of consultation on the code and its importance in an exemplary way. I was rather hoping for plaudits from the opposition Benches, rather than criticism of the process.

I understand the enormous advantages of secondary legislation by affirmative resolution. We all know that if every call on every piece of legislation was incorporated in Bills, Parliament would be submerged by those instruments which often—even when they are affirmative and therefore have extra status and significance attached to them because the Government are obliged to lay them—give rise to limited debates with limited participants, even on the most significant issues.

I will make the Minister an offer. How about the negative procedure?

I will not hear any offer proffered from the opposition Front Benches without saying that I will consider it very seriously, because no doubt it is presented in that constructive pose that we all welcome. That is not what the amendment states. It states: approved by a resolution of the House. The noble Baroness is such a stickler for the precise terms of legislation that she will know that I will be a stickler for the precise terms of the amendment, and I therefore hope that she will withdraw it.

The Minister's response surprised me not at all. I was grateful for the support from my noble friends for the need for parliamentary process. He wanted more praise for the draft being available. I have already given him as much praise as I am ever likely to give him on that subject. It is asking a lot to ask for even more praise. The most important thing is that the Bill says only that it will be laid before Parliament, which initiates no process of any recognisable substance whatever. The only thing that would lead to any recognisable process would be the requirement for either the affirmative or the negative procedure. The Minister may tempt me to return at the next stage with at least the negative procedure, which it would be churlish of the Government to refuse because it is churlish of them to disregard the need for parliamentary involvement. However, I will think about that further, and I beg leave to withdraw the amendment.

Amendment 25 would amend Clause 7(3), which contains the second condition that must be met before the FSA can fire the starting gun that will allow the stabilisation powers to be exercised. This is one of the more important amendments that we shall consider today and one about which the banking industry feels strongly.

Condition 1, which is set out in subsection (2), is that the bank is failing or likely to fail the threshold conditions—we alluded to that in earlier amendments—but condition 2, which, as I said, is set out in subsection (3), is as follows:

“Condition 2 is that having regard to timing and other relevant circumstances it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the bank that will enable the bank to satisfy the threshold conditions”.

Amendment 25, to which I am glad to see the noble Lords, Lord Newby and Lord Oakeshott, have added their names, would change “not reasonably likely” to “highly unlikely”. It would thus make the FSA’s judgment based on positively rejecting whatever plans a bank has in place to meet its threshold conditions rather than simply saying that it is not convinced by them. There is a world of difference between these two tests and the evidence that will need to be amassed to deal with them.

Let me give an example: a three-horse race. Assuming perfect betting markets, the odds are 5:2 on for horse A, 3:1 for horse B, and 25:1 for horse C. It is highly unlikely that horse C will win. It is also not reasonably likely. It is not impossible, but with two much higher rated horses in the race, horse C would be both not reasonably likely and highly unlikely to win. I was in that position this afternoon with a horse that was at 25:1 and duly did not win.

It is highly likely that horse A will win; that is where the money is. It is not reasonably likely that horse B will win, given the form of and betting support for horse A, but it is certainly not highly unlikely that it would win, as it has a 3:1 chance, which is relatively short odds. Under these rules, horses B and C would both be taken off to the FSA’s knackers’ yard, while only horse A would survive for another day. If we changed the test, as in my amendment, only horse C would fail.

The powers in the Bill are, as we have said, very extensive and should not be capable of being triggered lightly. The hurdle which the Bill sets must be sufficiently high to ensure that banks that are capable of getting their houses in order and meeting the threshold conditions must be given that opportunity. There are no appeal provisions in the Bill and no provision for challenging the tripartite authorities’ actions other than judicial review, which is not a serious mainstream option when dealing with the kinds of powers in the Bill, which, inter alia, can alter contractual rights and deprive owners of their property. There is also no parliamentary process to act as a counterweight. That is why the nature of the test is particularly important. It is important to the current providers of capital to banks and to any future providers of capital.

If we set up a regime that makes it too easy for the state in its various guises to disrupt a banking business, that will make the UK a less attractive place for banking businesses to make their home. As the cost of capital may rise for UK banks, we may lose our appeal as a good location for global capital, which of course owes no country allegiance. For an economy that has been heavily dependent on financial services that is not a good thing.

I asked the Minister to reflect on the unintended consequences of Sarbanes-Oxley, about which I spoke at Second Reading. I urge him not simply to read out his speaking note which will tell him to resist this amendment. I ask him in particular to consider the ramifications of this condition 2 test and whether it is a proper test in all the circumstances. I beg to move.

In any legislation of this complexity one always reaches a point where one believes that the parliamentary draftsman has had a nervous breakdown. Any draftsman who comes up with the expression,

“is not reasonably likely … (ignoring the stabilisation powers)”

has probably reached that point. Clearly that expression, and the one put forward by my noble friend, seeks to assess in some way the probability that something is going to happen. While I do not suggest that we should write odds into the Bill as my noble friend seemed to suggest, it might be helpful to have from the Minister a view on what he thinks the odds are on the expression “not reasonably likely” as against the odds for the expression in my noble friend’s amendment. We will not be writing into the Bill the travaux préparatoires of our discussions, but should the matter be disputed it will provide some evidence for the court about what the Government’s view really was. These two expressions are so vague as to require some clarification.

It is very much a matter of timing. Correctly, the clause says that timing needs to be considered. However, as we know from the circumstances of the Northern Rock affair and questions about whether it might be rescued by this or that party, a situation can be extremely fluid at that point. As my noble friend said, this is an important part of the Bill as regards whether the trigger should be pulled. I hope we can have some indication of what the Government think this expression means. Alternatively, my noble friend’s expression seems a rather better indication of the probabilities of action being justified and taken.

Given the reluctance with which the Government have exercised the powers under the banking special provisions legislation, it might be thought that a debate about this kind of wording was completely unnecessary because the Government have consistently and obviously tried to avoid having to get involved in dealing with banks if they possibly can. They have reluctantly got involved because they have been persuaded that the banks were going to collapse and there was systemic risk. So why are we arguing about two forms of words, either of which one could spend quite a long time deconstructing? I am sure that you could end up proving that they both mean exactly the same.

As we discussed earlier, and as the Government accepted, language matters. When we had the debate about whether the word “temporary” should be in the Bill, there was a consensus—although there was a difference about what “temporary” might mean—that the reason it was there was that the Government and everyone wanted anyone reading the Bill, whether from this country or outside it, to realise that public ownership was not seen as a course of early resort or something that anyone across the parties wished to see as a positive object of public policy, but that it was being forced on the state and would be remitted as soon as possible.

Therefore, taking that analogy, there is a good argument for having the words “highly unlikely” in the Bill rather than the words “not reasonably likely”, just because to any reasonable person it sets a higher bar. I suppose it could be said that if we decided to define “not reasonably likely” as being that no reasonable person would think it likely, it is not all that different from “highly unlikely”. But that is not the way it will be seen by most people who read the Bill and is not the impression the Bill makes. Given that, I am sure that the Government will accept that the term means “highly unlikely” in layman’s language, so the logical thing is to use it in the Bill and be done with it.

The noble Baroness has added yet another talent to the many she has and will thus increase the admiration of the House. We will now be able to discuss betting odds with her, and I am sure that the book she would have run would have been profitable regardless of the outcome of the race. Clause 7 requires two general conditions to be met before the stabilisation powers can be exercised. The purpose of the clause is to make it absolutely clear that the authorities will not, and indeed cannot, use the stabilisation powers until it is clear both that a bank is failing and that voluntary and regulatory action is no longer appropriate to resolve it. To that end, the Bill requires the FSA to be satisfied that two conditions have been met before the stabilisation powers can be exercised. These conditions are that a bank is failing or likely to fail its regulatory threshold conditions as provided under the Financial Services and Markets Act 2000, and that having regard to timing and other relevant circumstances, it is not reasonably likely that, ignoring the stabilisation powers, action will be taken by or in respect of the bank that will enable it to satisfy the threshold conditions.

The conditions are designed to ensure that a bank is put into the SRR only when it is appropriate to do so, and I believe that, taken together, these two conditions achieve that, requiring as they do both a decision on the current situation of a bank with regard to quantitative and qualitative conditions, and a further decision that a turnaround is unlikely. However, I should point out that these conditions are designed to ensure that the SRR powers can be exercised before a bank has entered insolvency. One of the reasons for this, as I discussed when debating an earlier amendment, is to preserve whatever residual value there may be in a failing bank. Acting at this stage therefore increases the chance of a private sector solution or a swift resolution through a bridge bank. I hesitate to suggest to the noble Lord, Lord Newby, that there may be an inconsistency in supporting this amendment with his earlier view in connection with enterprise value; that is, the earlier amendment might have tilted one in the direction of holding off an intervention and going into resolution in the hope that this might protect enterprise value, whereas the risk—if there is one—in the wording here is that it may encourage the authorities to move a little earlier.

The noble Lord, Lord Higgins, asked about the definition. As the noble Lord, Lord Newby, pointed out, language matters in this respect as it did earlier in connection with our discussion of the term “temporary”. The noble Lord, Lord Higgins, has reminded me of the importance of what Ministers say in debates in that the courts may come to rely on it in some respects. So with some trepidation I shall say that the authorities, having regard to their experience and their judgment of the circumstances, would reason that the balance of probabilities is that a bank would not be able to satisfy the threshold conditions. This would be a conclusion based on experience and their knowledge of the circumstances. It is a matter of judgment.

Am I wrong in thinking that the expression the Minister used—“balance of probability”— effectively implies “more likely than not”?

It would be unwise for me to go further in that regard. Should it ever become necessary for the courts to give that degree of precision, the word “reasonably” would certainly take one in the direction in which the noble Lord is encouraging me to go—but I would rather not go any further than I have. Given that a test of reasonable likelihood for the second test provides the right level of reassurance to interested parties that voluntary or regulatory action can no longer be relied upon to resolve matters, while increasing the prospect of a substantial resolution, I therefore hope that this explanation will be sufficient to induce the noble Baroness to withdraw her amendment.

The Minister has demonstrated the point that I made at the beginning of my intervention. His definition of “reasonably” is not the common person’s definition. The common definition of “reasonably” is that it is reasonable—it is moderately likely. It is not that “by using one’s reason one can come to only one conclusion”. That strengthens the argument for this amendment.

I thank the noble Lord, Lord Newby, and my noble friend Lord Higgins for taking part in this important debate. The Minister will have gathered that we are not entirely convinced by what he is saying. There is an issue of what is meant by the phrase that is found in Clause 7 and the Minister has given some elucidation. That elucidation has taken us towards it being something like a balance of probability, but without him positively confirming that. The question is whether that is the right approach, or whether we should leave it completely vague and hope it will never be tested in the courts.

The problem that I think lies behind the Minister’s attitude is that the judgment is all for the authorities—that nanny knows best. The authorities would be taking their view on whether they should accept whatever plans were being put forward for recovery for the bank or whether they should pull the trigger, take the bank away from its owners and split it up, sell it on or do whatever. Our position is that the authorities need to be very sure before they get to that position, not just on the balance of probabilities, 50:50 or something similar, which is far too low a test.

That is why bodies such as the BBA and LIBA have consistently said to us that they are extremely unhappy with this test. Of course everyone is unhappy with the lack of articulation about precisely what the test means, but in addition the problem is that it is seen as a judgment that will be made in a way that will be harmful to the owners of the business. That is what people fear. There are those who will talk about the problem of the FSA, and indeed the authorities generally, becoming trigger-happy if this legislation goes through. I hope that will not be the case, but this particular formulation leads one to believe that it would be easy for the FSA to become trigger-happy in the context of this legislation.

The noble Baroness makes her points very well, as have other noble Lords. If she withdraws her amendment, I will go away and carefully reflect on this and see if we can find a form of words that will be satisfactory to the whole House on Report.

I must learn to fight back more often. With such a gracious offer from the Minister I am of course prepared to withdraw my amendment. He has said more than I could have hoped for, and I am grateful to him. I am sure that those outside this Chamber will be anxious to engage in discussions with the Treasury on that, as will I and, I am sure, the Liberal Democrat Benches. I beg leave to withdraw the amendment.

Let us see if I have a continuing run of luck, although I think that the odds are strongly against it. In moving Amendment 26, I shall speak to Amendment 27 as well. Both amendments concern Clause 7(4).

Subsection (4) requires the FSA to treat conditions 1 and 2 as met if they would be met but for the financial assistance provided by the Treasury or the Bank of England. In the latter case, this disregards ordinary market assistance offered by the Bank on its usual terms. Amendment 26 would amend subsection (4) so that the FSA can substitute its own judgment about the role of financial assistance. For example, a bank may currently need financial assistance and may even need a small amount of financial assistance to supplement a bank recapitalisation package being put in place. The current drafting of subsection (4) would compel the FSA to say that both conditions 1 and 2 were met because it had to ignore the financial assistance which had been provided to date and was needed in future, even if that was of a relatively small, possibly even a de minimis, amount. The FSA might otherwise be satisfied that the best solution would be for the bank to proceed on this basis but could not arrive at a sensible judgment if it were forced to take a particular view of financial assistance. What public purpose is served by eliminating the FSA’s judgment in such a situation?

Amendment 27 deletes subsection (4), largely on the same grounds—namely, that there should be no compulsory judgment forced on the FSA. If that case is accepted, there is no need for subsection (4) because condition 2 allows the FSA to take account of all “other relevant circumstances”, a term which is so wide as to encompass anything that is important in the matter. My point is that the FSA should not be required to take the stance set out in subsection (4), in which case we would not need subsection (4) because subsection (3) is perfectly wide enough. I beg to move.

Would loan guarantees count as financial assistance? If so, we are moving into a period when there will not be a bank that is not open to having some loan guarantees on its book.

The noble Viscount, Lord Eccles, raises a question which I shall deal with in a moment. Amendments 26 and 27 make changes to the subsection of Clause 7 that refers to the requirement for the FSA to disregard financial assistance provided to the bank by the Treasury or the Bank of England in determining whether the bank meets the general conditions. I believe that this requirement is essential to protect taxpayers.

As members of the Committee will know, one of the objectives of the SRR is to protect public funds. This subsection is important in a situation in which public funds have been invested in a failing bank. In such cases, the bank could be technically meeting its threshold conditions, purely and entirely due to financial support that has been provided to the firm by the Treasury on an exceptional basis. To protect such funds invested in the bank in such circumstances in line with the objectives of the SRR, it is right that the Bank of England and the Treasury have the ability to take action in relation to the failing bank through the SRR measures, subject, of course, to the specific conditions also being met.

However, in the circumstances that I have just described, this could not happen without the provisions contained in this subsection. The bank would technically be meeting its threshold conditions and, therefore, the general condition in Clause 7 could not be met.

I reassure noble Lords that it is not our intention to treat all such assistance in this way, which I hope answers the point raised by the noble Viscount, Lord Eccles. We recognise that it may not be appropriate in some cases to require the FSA to disregard the provision of financial assistance. Clause 7(4) does not therefore apply to ordinary market assistance provided by the Bank of England. The Government consider that such assistance should not necessarily be disregarded by the FSA.

Clause 247 allows the Treasury by order to specify which activities or transactions are to be treated as financial assistance in the Bill, including in this subsection of Clause 7. This will allow the Treasury to provide that other forms of financial assistance should not necessarily be disregarded by the FSA. The power gives us the flexibility to ensure that the FSA is required only to disregard financial assistance in appropriate cases. I hope that this reassures noble Lords if their concern was that all forms of financial assistance would have to be disregarded by the FSA in making its determination on the general conditions. I can quite see how that could create a disincentive for banks to participate in financial assistance schemes available to the general market, which is why the Bill provides flexibility on this point.

I address the second of the amendments on this matter, which would have the effect that, even if subsection (4) were not omitted completely, the FSA would have discretion as to whether financial assistance should be disregarded for the purposes of meeting the general conditions in Clause 7. Again, if the amendment is aimed at the concern that I outlined earlier, the approach that I have set out better meets it. In particular, I believe that it is for Ministers to determine what forms of transactions are treated as financial assistance for the purpose of the Bill and, in this case, what form should be disregarded so as to make best use of taxpayers’ funds. This approach also gives greater certainty to the market. Market participants will know whether a particular form of assistance is to be disregarded by the FSA in considering whether the general conditions are met. I hope that my explanation has been helpful and has reassured noble Lords. I therefore beg the noble Baroness, Lady Noakes, not to press her amendments.

Clause 247 is dependent on the Treasury laying an order subject to negative resolution and there is a consultation period. Would an unexpected event which needed a rapid response give proper time for Clause 247 to be triggered in order to exclude it from “shall” in Clause 7(4), applying to the FSA?

I am advised that the authorities and those who would be involved in implementing and making judgments do not believe that that would be a problem.

I apologise to the Minister for being slightly more preoccupied with what our “target amendment” on the grouping list, which is about to finish, meant, so I did not concentrate entirely on what the Minister said, although I gathered that he was not going to accept my amendment. I think that I can understand part of the reason, but I am not entirely convinced that all of what he said was correct. In particular, he did not take the point that the FSA should have some judgment—I think that some other people have some judgment, but not the FSA, in respect of this matter. I shall read carefully in Hansard what the Minister said before deciding whether I wish to return to the matter at a later stage. For this evening, I beg leave to withdraw the amendment.

This amendment seeks to ensure that Parliament is kept informed about two things—the use of the stabilisation powers and that they have not been unnecessarily used. This will be achieved as set out in the amendment by asking the FSA why it used the stabilisation powers and what steps it took to avoid taking such draconian action, and by asking the Treasury how it used the stabilisation powers to achieve the objectives of the special resolution regime.

The stabilisation powers give authorities great and very wide powers, including discretion to change priorities at will. It is only right that, having such powers, there should be transparency as to how they are used. For reasons of stability, it may be necessary to be opaque for a period of time; this is reflected in subsection (2) of the amendment, which allows for a delay of six months before information has to be disclosed. However, to allow powers in this legislation to be used in total obscurity would be quite wrong and would, over time, create the temptation to be freer with the power than might be desirable, if not the temptation actually to abuse the power.

The code of practice gives guidance but, without being told how and why the powers have been used, it would not be possible to make a judgment on what has taken place or how effective the code has been. This Government have made much of the need for transparency, and it is more important than ever that there is transparency when such wide powers as this Bill is seeking are used. Seeing how the powers have been used will give insight into how the authorities have used the powers that they have been given and their way of thinking, as well as providing valuable lessons on how powers may be used in the future.

This amendment raises the tricky question of what the Government say when they are exercising this regime, and when they say it. When we discussed the Banking (Special Provisions) Bill, we agreed that the negative resolution procedure was a sensible way in which to go forward, because we foresaw—as was the case with Northern Rock—the need to move quickly at times. Also, it was easier to deal with an issue when Parliament was not sitting. In practice what we had, which none of us envisaged at the time, was a second use of the legislation in the case of Bradford & Bingley. There was a general view that on the annulment procedure, despite the noble Lord’s attempts to get a debate on it—which we had—we did not get a sensible explanation of why the Government had acted quite in the way they had, and they were not geared up to provide one.

This amendment is a way of squaring the circle. It enables the Government to take action quickly, when they feel it is necessary—or enables the tripartite authority to take action quickly when it feels it is necessary—without significant prior parliamentary debate. Equally, after the event, it gives Parliament and the nation a substantial explanation of what has been done.

The Government may want to tinker with the precise form in which the procedure is set out in the amendment, but the principles that the amendment embodies are extremely sensible—and are, frankly, to the benefit of the Government, who are given an opportunity to explain formally what they have done and why they have done it.

Amendment No. 29 would require the Treasury to lay a report before Parliament addressing various aspects of the use of the stabilisation options. While I agree that it is important to provide information to Parliament and the public over such actions, let me set out why I believe that the amendment is not necessary.

Following the recent resolutions under the Banking (Special Provisions) Act, the Chancellor made a Statement to Parliament on his actions. It included the reason for the action and the steps taken to resolve the failing banks. These statements were also accompanied by a press notice from the Treasury website. I would be the first to acknowledge that they did not go as far as the noble Viscount, Lord Eccles, would have wished. Nevertheless, I think that they provided good and proper explanation as to why actions have been taken.

Therefore, I believe that in each case to date the authorities have demonstrated the appropriate level of transparency, and that Parliament has had sufficient power to call the authorities to account for their actions. We touched on that issue earlier in Committee.

However, I accept that some further reassurance is needed that this and future Administrations will continue to provide sufficient information to Parliament on their actions. For that reason, the code of practice will place an obligation on the Treasury or the Bank of England to provide a public statement on why the specific conditions for the use of stabilisation options were determined to have been met.

As noble Lords will know, the authorities must have regard to the code of practice. This approach is appropriate as it allows the lead authority in any resolution to provide a public explanation of its actions. The code notes, as does the proposed new clause in Amendment 29, that it will not be possible to divulge certain information—for example, the release of information that could threaten stability or confidence in the banking system. It again demonstrates our commitment to transparency on these matters.

This is all in addition to the fact that Parliament can call a debate or request information on any action of the authorities under the SRR at any time. Therefore, I believe that there are sufficient mechanisms to call Ministers and the other authorities to account over their actions.

The proposed new clause makes two specific proposals with regard to the action of the FSA. I should like to address these points directly. The proposed new clause requires that any report should include, in particular, information from the FSA on how they concluded that conditions in Clause 7 were met and what regulatory actions were taken to avoid the use of the SRR. Again, I do not believe that such a report should be needed. In addition to the statements made by the Chancellor, the FSA has published information on its actions with regard to recent resolution when it used the variation of permission powers under the Financial Services and Markets Act 2000. For example, the FSA has published statements on its actions with regard to Heritable and London Scottish. In these statements, the FSA provided detail of the powers used under the FSMA and its reasons for action. This shows that the FSA produces relevant information on the use of its regulatory powers, and, of course, it can be called to the Treasury Select Committee at any time to explain its actions further, should that be necessary.

Further, under paragraph 10(1) of Schedule 1 to the FSMA, the FSA is required to produce an annual report, which the Treasury can direct to include certain information should it think that is necessary. Again, I believe that there are already a number of mechanisms for the FSA to produce information on the use of its powers and for Parliament to question and to call to account the actions taken.

Before concluding, I should like to point out that I am not comfortable with one phrase in the new clause. The new clause, if accepted, would require any report to include information on action taken by the FSA to avoid the use of the SRR. Let me be clear, the FSA takes action to meet its requirements under the Financial Services and Markets Act 2000 and the objectives contained within that Act. It does not take action to avoid the use of powers under another piece of legislation, and it would therefore not be appropriate for the FSA to provide information in such a manner. Further, this phrase focuses to an inappropriate degree on the role of the regulator rather than that of the bank itself. As I said earlier, if a bank fails, the primary responsibility must lie with the bank’s management, not the authorities, a point with which I think the noble Lord, Lord Newby, is in considerable agreement.

I understand that information provided by the authorities to Parliament would naturally focus on the conduct of the authorities themselves. If accepted, however, the proposed new clause would convey the wrong impression about the role of the FSA and ignore the role of the failing bank itself. For this reason, with the greatest respect, I cannot agree with the amendment. I hope that I have provided reassurances to the Committee that Parliament has many ways to call the authorities to account, and that recent actions by the Chancellor and the FSA have shown their willingness to share information on these important matters. I also hope that I have demonstrated my concerns with one of the provisions of the proposed new clause and its treatment of the role of the FSA prior to the SRR. For this reason, I urge the noble Baroness to withdraw the amendment.

You’re not a Baroness, are you?

Well, I was rather looking forward to the sex change; I have never tried it. The Minister has floored me.

I hope that it will help the noble Lord to regain his composure if I express my apologies.

The Minister should not worry about it.

The FSA may have published information in the past but that is no guarantee that it will do so in the future. I am sure that it will, but if there is a requirement for it to do so that will be absolutely certain. There is also a question of the quantity of information that the FSA makes available. I have not seen the documents to which the Minister has referred, so I cannot make a judgment on that, but I would certainly like to look at them and see if the sort of reports the FSA is making would be of use.

I am not sure that the Minister is correct in saying that the FSA is unable to take steps to avoid the special resolution regime having to be implemented. If it cannot take those steps, why on earth is it involved? Presumably one of its regulatory roles is to try to implement conditions to avoid this sort of thing happening. Anyway, when I have fully recovered from being a Baroness, I shall look at Hansard and consider the Minister’s remarks carefully. In the mean time, I beg leave to withdraw the amendment.

The amendment deals with the powers of the Treasury to take a bank into temporary public ownership. It will be well known that my party does not much like the public ownership option, whether or not it carries the tag “temporary”. Although, as I have already said today, we accept that it may be necessary in some circumstances and is an appropriate power to be contained in this Bill, we believe that temporary public ownership should be a last resort. In that we are at one with the Government.

The Government’s January 2008 White Paper contained only two paragraphs on temporary public ownership, but made it clear that it was a last-resort option. The July White Paper did not make quite that distinction. However, in Committee in another place, the Minister, Mr Ian Pearson, was very clear. He said:

“The temporary public ownership tool should be seen very much as one of last resort”.

As I have indicated, we agree with that but the Bill does not say it. The Minister went on to say that,

“it is not appropriate to use the term ‘last resort’ in the Bill”.—[Official Report, Commons, Banking Bill Committee, 6/11/08; cols. 355, 361.]

We agree with that also. My amendment does not use the term “last resort” but seeks to achieve the same effect. The Minister in another place argued that the nature of the conditions in Clause 9 was higher than those in Clause 8 and that made it automatically a weapon of last resort. It is true that the hurdles for using Clause 9 are higher than those for Clause 8, but that does not convert temporary public ownership into a last resort. If the Clause 9 conditions were fulfilled, the Treasury could move directly to temporary public ownership even if the Bank was of the opinion that a private sector purchaser or a bridge bank was a viable solution. Hence my amendment requires the Treasury to satisfy itself that neither of the other stabilisation options is appropriate or practical before considering whether conditions 1 or 2 in Clause 9 are met. This genuinely would turn temporary public ownership into a last resort option. I beg to move.

I can see why my noble friend feels the inclusion of “last resort” in the Bill is not desirable since it savours of absolute desperation should the clause be put into operation. However, her amendment, which would suggest that the measure would be resorted to only if the other two options had failed or were not appropriate, seems a sensible thing to include in the Bill. It would make the situation clearer and seems to have no great disadvantage. I am a little puzzled by subsection (3), which seems to suggest that temporary public ownership would be considered only after the Treasury had provided financial assistance. I am not clear how that gels with the order in which these actions should be taken. But presumably, if one had failed on the first two possibilities, and assistance had already been provided, it would not be inappropriate to go all the way in terms of public ownership, unfortunate though that may be.

I am not sure that we are being entirely realistic about temporary public ownership. If we go by experience, we have the examples of Northern Rock and Bradford & Bingley, and those stories are not yet played out. But as I think the noble Lord, Lord Turnbull, said earlier, there are many ways in which these matters can turn out. In the case of Bradford & Bingley, it seems likely as a business judgment—we seem very much caught up with people such as the FSA or whoever having to make judgments in these varying circumstances—that the run-off of the mortgage book will leave nothing to go back into the private sector except possibly a bundle of assets which would probably be sold off at a rather speculative price. Indeed, in the case of Northern Rock, it seems quite possible, although not so likely, that something similar will happen. Although we have debated the word “temporary” we have nevertheless not really faced up to whether this is a matter of last resort, even if it is not so expressed in the Bill. When we say temporary public ownership, are we not actually looking at circumstances in which there is no realistic private sector recovery?

Not for the first time the noble Viscount, Lord Eccles, has brought us down with a bump to the reality of the situation. In our consideration of the legislation there is a danger that we might forget the dire, crisis circumstances we are seeking to tackle. We need to consider carefully the nature of the problem facing the authorities.

Let me put a simple question to the Minister. If the FSA has satisfied itself that the stabilisation powers can be exercised because conditions 1 and 2 have been met under Clause 7, there is not then a sequential run through Clauses 8 and 9. It is the case, is it not, that either Clause 8 or Clause 9 could be used, or both could be used? That is, the circumstances could be such that both conditions A or B were satisfied in relation to Clause 9 and the conditions set out in Clause 8 could be met. If it were the case that the bank thought that it could find a private sector purchaser, or through a bridge bank arrangement could transfer on the bank in one or more parts, it could be trumped by the Treasury taking a bank into public ownership.

My point is that the Bill does not make temporary public ownership a last resort, which is what the Minister and his honourable friend in another place were trying to suggest, because of the nature of the tests. The Minister in another place said that it was a test of last resort, but that is clearly not the case in the statute. Can the Minister confirm that if the Clause 7 conditions are met, the Treasury can operate temporary public ownership, even if the Bank could, in the same circumstances, produce either a private sector purchaser or a bridge bank?

Perhaps I may add to that, because I am looking more carefully at Clause 9. Is the effect of condition B that the bank could be taken into public ownership only if the Treasury had provided financial assistance already?

The point that I wanted to make to the noble Lord was that that was only one of the conditions. It certainly could occur if financial assistance had already been provided, but that is only one of the conditions. We are debating the more substantial issue that the noble Baroness is pressing me on, which is whether the Treasury is carrying out a temporary nationalisation as a last resort. It is a last resort in the sense that although the FSA can act within a limited framework, the Treasury can only act if the nature of the crisis is such that it sees a threat to the financial system. Consequently, we are seeking to identify that question of last resort, because we are looking at a more serious circumstance than might have been the case when the FSA has acted in more limited circumstances.

I hope that the noble Baroness will recognise that the way in which the clauses are drafted is an indication of that. If she remains dissatisfied with that, I will certainly look at the matter further, because I recognise how significant this issue is, and it is a little late in the night for us to get involved in extensive debates on this. I will look at the matter further before Report. I hope that I have reassured her that we have the terms of these clauses right. However, the argument from my initial response to her holds, and I hope that she will be content with that answer.

I thank the Minister for those remarks. I think that we are at one in saying that temporary public ownership should be a last resort. That is part of what I am trying to tease out, it is certainly what the Minister in another place said quite clearly and it is what government White Papers have said. If we are clear about that, the only issue is whether that is lived out in this Bill. My question was: if, in a situation where the FSA has said that the conditions in Clause 7 are met, and both conditions in Clause 8 and 9 are met—because it would be perfectly possible for a single situation to satisfy the requirements for both the Bank and the Treasury to Act; although there might be cases where only the Bank, not the Treasury, could act, there would be cases where both could act—how do we ascertain that it is the action of last resort? That is my only question.

I am grateful to the noble Baroness. I think that we have got the Bill right and I shall defend what I said about Clauses 8 and 9, but I recognise that the point she identified may need to be spelt out more clearly. I shall bring this back to her if she will withdraw her amendment; we would probably need to put that additional information in the code and we would seek to solve the issue in that way, because, for reasons that we identified earlier, there are certain rigidities regarding this situation that we wish to avoid. However, she has made a sufficient case for us to consider that a response will be necessary on Report, and we will probably seek to give further information with regard to the code. With that, I hope that the noble Baroness will withdraw the amendment.

Without wishing to prejudge any debates that we might have on Report, I say for the Minister’s benefit that he will not expect us to regard a code that does not have parliamentary approval or any legal enforceability as an adequate substitute for something placed in the Bill. However, let us leave that discussion for another day. I am grateful that the Minister will look at this issue again and I beg leave to withdraw the amendment.