We now turn to the second debate on investment banks. This concerns three new government clauses which provide for the specifics of the enabling power of the Government to make regulations to change the insolvency regime for investment banks. This power would only be exercised if the Treasury review concludes that a new procedure is needed. The first amendment in this debate introduces the second of four new clauses that will make up the enabling power. This new clause sets out the broad principles that would shape such a modified regime. The Government would be able to modify existing insolvency law in its application to investment banks or establish a new procedure for insolvent investment banks. In line with existing insolvency law, this new regime would apply when an investment bank is either unable or likely to be unable to pay its debts or where its winding-up would be fair.

When drafting regulations to change the insolvency regime for investment banks the Treasury must have regard to balancing the following needs and issues: first, identifying, protecting and facilitating the return of client assets; secondly, protecting the rights of creditors; thirdly, ensuring certainty for investment banks, creditors, clients, liquidators and administrators; fourthly, minimising the disruption of business and markets; and, finally, maximising the efficiency and effectiveness of the financial services industry in the UK. Noble Lords will appreciate that this list further confirms that the Government are contemplating regulations that could fundamentally affect the priority of claims in an administration. As a result, any order to bring in regulations that modify the insolvency regime for investment banks will be subject to parliamentary scrutiny. I will come back to that point in a moment.

The third new clause provides the detail about what the regulations must provide for and how they will work. It includes provision—if it is decided to establish a new procedure—for the regulations to set up those persons who can initiate the special procedure or who can make an application to the court for the procedure to be initiated by court order. Under current legislation there are different ways for a company to enter liquidation or administration, and this provision ensures that, should it be decided to create a standalone procedure, we can select the most appropriate way for the new procedure.

Under the new clause, the regulations may also include provision for new objectives for a new procedure and functions for an insolvency office holder. This would allow, for example, the new regime to give priority to the return of client moneys, if the review so recommended. The regulations may also include provision regarding the conditions that would need to be fulfilled before an investment bank could be put into the new regime or have any special provisions applied. Furthermore, if a new standalone regime is introduced, the regulations may provide for how this new regime would sit with existing insolvency and administration regimes, including bank insolvency and bank administration, in which the investment bank in question also runs a deposit-taking business. Additionally, the regulations may include provision for temporary or permanent moratoriums to be imposed at the onset of the new regime and provision to amend existing enactments for the purposes of the new regime. In addition, the regulations may make specific provision to deal with a number of specific issues, as provided for in subsection (6) of the new clause.

I have Amendment 174GA in this group, which is a response to the second report of this Session from the Delegated Powers and Regulatory Reform Committee, which came out only late last week.

The committee made it clear in paragraph 20 that this sort of regulation-making power is inappropriate in normal circumstances and that more should appear in primary legislation. It pointed out in particular that the Government themselves concede that banking insolvency law is highly complex and that a significant shift in insolvency law was likely. In those circumstances, the committee believed that secondary legislation was an inappropriate mechanism and said that it was for the Government to justify to the House the exceptional circumstances that resulted in departure from this normal practice. I do not think that the Minister even tried to set out the exceptional circumstances that led to taking this power.

The Delegated Powers Committee went on to recommend that, even if the Government persuaded the House, the power to make regulations and any regulations made should cease two years after Royal Assent. As the committee said, that would cover any emergency situation, if the Government genuinely needed emergency legislation; it would also give the Government sufficient flexibility to bring forward primary legislation for proper parliamentary scrutiny, if they so wished. Amendment 174GA deals with that recommendation, including the saving for bank insolvency procedures already entered into before the end of the two years.

The Minister said several times that there was proper opportunity for parliamentary scrutiny. The affirmative procedure simply does not provide that. I have told the Committee more times than I care to remember that there is no opportunity to amend secondary legislation. The kind of legislation which the Government contemplate making by order is very extensive and is exactly the sort that both Houses of Parliament ought to consider on a line-by-line basis.

The secondary legislation procedure is inadequate, and by a long margin. That is why—although we see that the Government might need to move quickly—there has to be a case for considering, on a proper time scale, whichever permanent solution is put forward to deal with this matter. I am not denying that there is an issue, and for the first time today I am not even challenging what the solutions might be. It is simply that there has to be a proper mechanism at some stage for Parliament to play its full part in the making of such complex, far-reaching law.

I support the amendment tabled by the noble Baroness. If the Bill as a whole is being done in a rush, these amendments have clearly been done, if not in panic—because the Government fear something terrible happening in the very near future that they cannot necessarily predict—then with us being asked to adopt measures that we would normally throw out. They do not come within a mile of what would normally be acceptable to the Committee or, indeed, to Parliament.

It seems to me that the Delegated Powers and Regulatory Reform Committee proposal makes the best of a bad job, and it is difficult to see why the Government should not accept that. Two years, whether the powers have been adopted or not, should be long enough for the Government to get their act in order, decide exactly what they want to do and bring forward substantive legislation. I strongly urge the Minister to take this amendment seriously and to accept it.

I support the amendment tabled by my noble friend Lady Noakes, and I repeat what the Delegated Powers Committee said in paragraph 20:

“Under normal circumstances we would recommend outright that such broad and significant powers are inappropriate, and that substantially more provision should be set out in primary legislation. In the current situation it is for the Government to satisfy the House that exceptional circumstances justify this departure from the balance between primary and subordinate legislation which the House would usually expect”.

Since 1997, there have been too many circumstances in which the Government have left so much to secondary legislation. In this new clause, they are asking for powers that are too broad.

I am aware that the Delegated Powers Committee has stated that it believes these powers, if permitted, should be limited by stronger time-limiting provisions. I understand that Amendment 174GA would implement that approach. Under my amendment, however, as I have said, the Government have provided that the power to introduce new regulations will lapse after two years if not used. That is to avoid the market uncertainty that might be caused if the potential to make a new insolvency regulation at short notice existed, unused, over a longer period.

Noble Lords will appreciate, however, that, if new regulations are made under the affirmative procedure, it will be necessary to keep the enabling powers in the Act to keep the regulations in operation and to allow any necessary further amendments to be made. The Government intend that any new regulations would be permanent, and I emphasise that we would consult widely to ensure an effective long-term solution, although the regulations could, if necessary, be subject to further modification in time, subject to the affirmative procedure.

The limitation that the Delegated Powers Committee has recommended, which would involve both the enabling power and any regulations made under it being guillotined after two years, would breed serious market uncertainty about the insolvency regime that the market would operate under in the near future. Furthermore, there is no guarantee that in the early part of 2011 parliamentary conditions would be such as to allow the Bill to go through Parliament. Therefore, the two-year deadline would mean that, in order to have a Bill ready for an available parliamentary slot, the Government would have to draw one up in parallel with drafting the regulations under the enabling power. There would be no time to test the new regulations out and to learn lessons from how the new insolvency regime was operating before making the new Bill.

I realise that the Delegated Powers Committee’s concerns are significant. The noble Baroness, Lady Noakes, and the noble Lords, Lord Newby and Lord Northbrook, have spoken with strength of conviction on this point. Therefore, I can commit to considering this again and returning to the issue. I hope, on that basis, that the noble Baroness will not press her amendment.

I am grateful that the Minister will consider the matter again. He said in definite terms that the Government intended to introduce permanent legislation under the power. He must think again about that. He proposes to introduce significant legislation by statutory instrument in a way that I cannot contemplate ever having happened in the past. The Minister made some excuse about market conditions affecting legislation going through Parliament. We simply do not understand that. We have demonstrated on more than one occasion that it is perfectly possible to get emergency legislation through quickly but with proper scrutiny. The Minister should be in no doubt that this is one of the most important things that we have discussed because, as the Minister is aware, we regard the recommendations—this is a very clear recommendation—from the Delegated Powers Committee as having a special status in the House.

Amendment 174H in the name of my noble friend Lord Myners provides for an amendment to the Banking (Special Provisions) Act 2008. The proposed amendment clarifies the provisions of that Act with respect to the ability to make provision, by order, to give information-gathering powers to the independent valuer.

The Northern Rock valuer has recently written to the Treasury requesting powers to allow him to obtain information from third parties, where such information is necessary for him to be able to determine the amount of any compensation due to former shareholders. As much of the information the valuer might request could be considered confidential by third parties, those third parties may be unwilling to provide that information in the absence of legislative powers to require such information from them.

Given the independent valuer’s experience to date in this regard, the Government now believe it is appropriate to grant him additional powers to obtain information relevant to his valuation work.

An amendment is needed because the Banking (Special Provisions) Act 2008 does not—unlike this Bill—give the Treasury express powers to provide for the independent valuer to have information powers of this kind. The Treasury of course would provide for this under an order under the affirmative procedure. That will ensure that an appropriate level of compensation, if any, can be determined in a timely fashion.

Without these additional powers, there is a risk that it may not be possible for the independent valuer to arrive at an accurate valuation of Northern Rock. The same situation would be likely to arise with the independent valuer to be appointed in respect of Bradford & Bingley. I hope, therefore, the Committee will agree that this amendment is essential to ensuring the necessary legislative basis for the provision of powers to the independent valuers of banks resolved under the Banking (Special Provisions) Act. These powers are necessary to the conduct of their work, thus ensuring a swift response to former shareholders and that any compensation due is determined without unnecessary delay. I beg to move.

We understand that this amendment is necessary because the Northern Rock valuer is unable to obtain the information that he requires to carry out a valuation. One’s first thought is that perhaps he should have thought of that before signing up for the job. More seriously, giving retrospective powers is a bit unusual. I hope that the Minister can explain a little more what this is about.

Can the Minister assist the Committee by outlining in what areas the valuer has sought information which is essential to his valuation, in the case of Northern Rock, but which has been denied to him? What persons or types of person have refused to co-operate with the valuer? There is usually a good reason for people refusing to give information. Can the Minister enlighten the Committee on what has been going on and can he also say what this might mean for the timetable for the Northern Rock valuation? I emphasise that we do not normally give retrospective powers of this nature. The Minister justified this on some wide and unspecific grounds of needing to line up this legislation with last year’s legislation. That is not good enough; there has to be some specific cause.

In moving his amendment, the Minister used the phrases “swift response” and “timely evaluation”. My understanding is that it took the Government the best part of eight months to appoint a valuer in this case. This seems extraordinary, given the general view that there is nothing to be valued anyway. Can the Minister explain the timetable? Why did it take so long to appoint a valuer in the first place? I do not think a valuer was appointed until November or possibly October, but certainly very late. Also, what are the Government’s current expectations about the process going forward?

On that latter point, the Northern Rock valuer was appointed in September 2008. We are as keen as anyone that the valuer should carry out his duties expeditiously. As I indicated, two months after his appointment, he wrote to the Government indicating that he would need additional powers with regard to information. I understand the point that the noble Baroness makes that people always have good reason for withholding information. He did not identify the need for additional information-gathering powers until he wrote to the Treasury at the end of November 2008, so he had had several months seeking to do the work and then identified that he had limitations. We gave careful consideration to his request for additional powers to compel the production of information and to interview witnesses where he deemed it necessary to conduct his valuation exercise. There has been evidence of parties, such as previous bidders and Northern Rock auditors, who have been reluctant to provide the information necessary to the valuer’s work. In those circumstances, the Government had no alternative but to recognise that the valuer was operating under constraints which would make the job extremely difficult, if not impossible, and would certainly provide for very considerable delay in circumstances where we want this issue resolved as rapidly as possible.

I was asked why it took so long to appoint the valuer. It was a competitive process during which value for money was a key consideration. The Treasury will pay the valuer a fixed fee for carrying out the valuation. The terms of the appointment are on the Treasury website.

The Government have not been tardy about these matters. The noble Lord will recall when Northern Rock was taken into public ownership. It has become clear that these powers are necessary, hence Amendment 174H.

The Minister has not answered my noble friend Lady Noakes’s question. What information was denied to the valuer? Can we have something a bit more specific on that?

I was quite specific. I indicated the valuer’s problems. He said that he was unable to get the information that he required. It is understandable that those who were interested in bidding for Northern Rock might not be too enthusiastic about disclosing information involving them.

I hasten to add that the valuer is not a government nominee; he is an independent valuer. Of course, he is appointed through due process, but that happens with clear criteria for him to be an independent valuer. If he says that he is having difficulties with access to information, it is only right that the Treasury examine the matter. When he indicated that he could not get the information that he required, and that previous bidders and auditors were not as forthcoming as he had hoped, he asked for these additional powers. It is right that we grant them as expeditiously as we can.

I am somewhat confused by the Minister’s response. As I recall, the Northern Rock valuation order made two specific assumptions: first, a common assumption of no financial assistance from the Government; and, secondly, that Northern Rock was not a going concern. I am therefore not quite clear what all this information from previous bidders or auditors will add to a valuation in that context. Is the Minister clear that the valuer needs this information? It is clearly not right to confer powers to interrogate witnesses and the like if the valuer does not need them. The valuation constraints in the Northern Rock order are so narrow that it is jolly difficult to see what questions he would want to ask anybody.

We set up the valuer in an independent role to carry out this important exercise. In making that arrangement, we indicated that if he found that he had inadequate powers to fulfil the task, he could quite reasonably come back to us. He, in turn, identified where he was having difficulty with the information that he sought. Within that framework, we thought that we might be able to give him sufficient powers under the Special Powers Act. It was made fairly clear to us that an order under that Act would not necessarily be acceptable to the House. We are therefore using the Bill for consideration of the matter and to put it on a statutory footing.

I emphasise the obvious fact that this is a response to a request from a person seeking to do his job, who has been appointed to act independently and to reach those judgments. It is not for the Government to second-guess him.

Can I make absolutely sure that, when auditors are mentioned, we are not talking about the auditors of Northern Rock?

I think that we are. I do not see why we should not be.

That would raise a serious issue of the auditors’ duty. I would have thought that the valuer would have been able to sort out the duty of Northern Rock’s auditors himself.

I beg to differ with the noble Viscount. The valuer clearly thought this was an important source of information. He has an important job to do. We have created him within the framework of independence with a clear undertaking that if there prove to be barriers to his effectiveness because of limited powers we will seek to solve that problem. We have addressed ourselves to this within the framework of the Bill.

As I said in my opening remarks, any additional information-gathering powers provided to the valuers would be by Treasury order laid before both Houses of Parliament and subject to the draft affirmative procedure. Once granted to the valuer, the powers would of course be governed by a court or tribunal to judge how he exercises them. We cannot set up the independent position and then say that the whole operation is going to be run from the Treasury. The valuer who has taken this on has indicated to us where limitations on his power give him doubts about the successful fulfilment of his role. Accordingly, he has come to the Treasury and we sought to act within that framework.

I wish to pursue the question of this auditor. The auditor is an officer of the company. Auditors will recognise that he has a duty both to the directors of the company and to the shareholders. I urge the Minister to check whether, in a question of compensation, the reference to auditors encompasses the auditors of Northern Rock or is referring to the auditors of, for example, the bidders, which is a different matter. I entirely agree with my noble friend on the Front Bench; I cannot see why the bidders should provide anybody with any information. They failed in their bids and there is nothing they can say that will be of any value to the valuer.

It is not the Government forming these judgments but the independent valuer on the information he needs. If I have made a mistake and we are not talking about Northern Rock auditors I will write to the noble Viscount correcting that position. I have acted in good faith and understand that to be the position. That is as far as I can go at this moment with the information I have.

As auditors are being discussed, would an order made in accordance with this amendment allow the valuer to go on a fishing expedition through the auditors’ papers to see whether a claim for professional negligence could be sustained against the auditors, thereby building a case that value in Northern Rock included an amount that could be recovered from the auditors? Is that something that can be done under Clause 55 and so also under government Amendment 174H?

I hasten to add that the valuer is not an authority. He has not got the authority to carry out a fishing expedition for potential legal action. He is trying to solve the problem of valuation, working in that framework. It is somewhat inappropriate to say that the individual who has taken on the role in those terms would independently take upon himself a fishing expedition to see if he could bring a charge of negligence. Negligence in those terms is nothing to do with him; what is to do with him is the accurate valuation of the bank.

I also speak to Amendment 180, Amendment 183 and Amendment 191. With these amendments I return to the theme that the Bill should reflect as far as possible the workings of the tripartite authorities.

Since the FSA was set up, there has been cross-membership between it and the Bank of England, although one would not find it mentioned anywhere in either of the relevant governing Acts. The chairman of the FSA has been a member of the Court of Directors of the Bank of England, and one of the deputy governors of the Bank of England has been on the FSA board.

The purpose of my amendment is to ensure transparency and clarity in relation to the membership of the bodies, and, if it is the custom to achieve cross-membership, that should be laid out for all to see. Given the ever closer working that we are promised by the tripartite authorities, it seems right and proper that what might have been an experiment in the late 1990s is now reflected in the appropriate statutes. Therefore, I hope that this amendment simply reflects the practice but, if the Government intend to change that practice, I am sure that the Committee will welcome hearing from the Minister.

The other amendments in this group relate to the Financial Stability Committee, which we will continue to deal with in detail in later amendments. For the purposes of this group, I have tabled Amendment 180 to ensure that the court member who comes from the Financial Services Authority sits on the Financial Stability Committee. The Financial Stability Committee has a Treasury quasi-member by virtue of subsection (3) of the new Section 2B inserted by Clause 228. It seems odd at the very least that, if the Treasury is to be at the table, the FSA will have no role in the Financial Stability Committee. Amendment 183 is consequential, reducing the balance of the directors on the FSC to allow for the place taken by the FSA.

I have also tabled Amendment 191, which proposes the deletion of subsection (3) of new Section 2B on a probing basis. I had assumed that the Treasury would want one of its men sitting on the Financial Stability Committee to ensure proper Treasury involvement in financial stability matters. However, the absence of the FSA from the FSC has made me doubt this. Perhaps the Treasury is there to oversee the Bank. We may need a clearer understanding of what new subsection (3) does in giving the Treasury a quasi-seat.

If the Government do not want an FSA man on the Financial Stability Committee, I hope that the Minister will explain how the FSA is to be involved in the work of the FSC. If it does not have a formal seat, perhaps it should have a quasi-member in the same way as the Treasury has; alternatively, perhaps neither of them should be there.

The noble Lord, Lord Eatwell, has some more radical proposals about the role of the FSA in his amendments in this group, and I look forward to him speaking to them. I know that the noble Lord, Lord Turnbull, wished to be with us for this group of amendments and he has passed a copy of his speaking notes to me and to the noble Lords, Lord Myners and Lord Eatwell. Suffice it to say that the noble Lord, Lord Turnbull, is strongly in favour of the amendments in the name of the noble Lord, Lord Eatwell, which bring together more formally the Bank and the FSA in the context of these new financial stability arrangements. I beg to move.

The Bill will create major powers for the management of financial instability. However, the powers in the Bill will only be as effective as the system that is to implement them. That is why the current debate on the role of the Financial Stability Committee is so important.

If the Financial Stability Committee is to be an efficient means of translating those powers into action, I believe that it must pass three tests. First, it must be consistent with the structure and character of financial services—in particular, with the origins and location of financial instability. Secondly, it must be consistent with the structure of powers as defined in the Bill. Thirdly, it must be constituted in such a way that it will be flexible and responsive to the new problems that will inevitably assail financial services and the British economy in the future.

What lies behind those three tests? The first is consistency with the structure and character of financial services. As noble Lords may recall, at Second Reading I argued that in the past three decades the structure of financial services in this country has changed fundamentally and that this change has been an important source of our current woes. The risks to the stability of the financial system are not, as they may have been in the past, located solely in the deposit-taking banks. The disintermediation of the financial system, the creation of long chains of counterparty risk by investment banks and hedge funds and the associated shadow banking system, and the integration of previously distinct markets and institutions into a relatively barrier-free financial system, has extended the potential for financial contagion far beyond deposit-taking banks. After all, in the United States the major institutional failures have occurred outside the banking system—in investment banks, notably Lehman Brothers, and in AIG, an insurance company.

If the Financial Stability Committee is to be consistent with the actual structure of the financial services industry today, it must have the information, analysis and stature to measure up to the challenges of a disintermediated financial system. In the current division of regulatory responsibility, the Bank of England has no direct knowledge of the behaviour of firms or the changing structure of markets. That detailed knowledge of markets and firms rests in the Financial Services Authority. The Bank of England simply does not have the detailed supervisory knowledge that it needs to manage financial stability—not just of the banks but of the structure of financial institutions in general. Therefore, by creating the Financial Stability Committee as a sub-committee solely of the Court of the Bank of England as currently proposed, the Bill fails the first test—the test of consistency with the structure of financial services as they really are.

Secondly, is the structure of the Financial Stability Committee operationally consistent with the powers in the Bill? During this Committee stage several noble Lords have commented on the awkward dichotomy of powers as between the Financial Services Authority and the Bank of England. The FSA has the trigger power in Clause 7 and the FSA must be consulted at stage after stage. It will be evident from what I have said already that the operations and information systems of the FSA are vital to the coherence of this legislation. If we are to have a distinct FSA and Bank with clearly demarcated responsibilities it is vital for the consistency of the Bill that they are united in the Financial Stability Committee to deal with what must be a joint responsibility. The Bill fails that second test.

Thirdly, on flexibility for the future, it must be obvious to all that the structure of the financial services industry must change. It is therefore important that the Financial Stability Committee has the flexibility and breadth of vision, and hence the wide range of experience and opinion needed to deal with these changes. Confining the Financial Stability Committee to the staff and court of the Bank is excessively introverted and restrictive. Thus, the Bill, as drafted, fails the third test.

Starting from the position that the proposals, as presented in Clause 228, fail the three tests, I have proposed Amendments 178A, 179A to 179D, 182A, 186A, 186B, 188A, 190A, 192A, 192B, 194A, and consequential Amendment 201A to Clause 239. These amendments will enable the Bill to meet the three tests which I believe the structure of the Financial Stability Committee should meet. The essence of the amendments, which I hope the Minister will accept even if he does not like their particular form, is to make the Financial Stability Committee a joint committee of the court of the Bank and of the board of the Financial Services Authority. This seemingly simple change would transform the role, scope and influence of the Financial Stability Committee for the better.

Today the FSA has no direct responsibility for systemic risk. That responsibility rests with the Bank of England but then neither agency has a statutory responsibility for financial stability. The Bill imposes the responsibility for financial stability on the Bank by amending the Bank of England Act 1998. Amendment 201A would perform the same task with respect to the FSA by amending the Financial Services and Markets Act 2000. While a current statutory objective of the FSA is the maintenance of market confidence, it has had, until now, no specific objective of financial stability. It should have such an objective. On the other hand, in the Bill, the management of financial stability becomes a statutory objective of the Bank. However, it does not have the market information to carry out the task it has been given. The FSA has the information, but not the powers, and the Bank has the powers, but not the information.

This dangerous dichotomy, already too evident in recent events, can be overcome by making the Financial Stability Committee to be established by Clause 228 a combined committee of the Bank and the FSA jointly and severally responsible for financial stability. This would have the dual advantage of informing the Bank’s stability analysis about the actual operations of firms in disintermediated markets and, at the same time, ensuring that financial stability became a basic tenet of the FSA’s operational philosophy. In other words, the Financial Stability Committee would be an operational bridge between the FSA and the Bank of England, the bridge that has been so conspicuously lacking in recent months. This tackles the first test.

The joint committee would also overcome the awkwardness in the allocation of responsibilities in the Bill and answer the question raised by a number of noble Lords about who is in charge. If my amendments are accepted, not only are the respective agencies in charge of areas falling within their particular competence, but they are jointly and severally responsible for financial stability, with that joint responsibility being expressed through the joint Financial Stability Committee. That passes the second test.

I now turn to the composition of the Financial Stability Committee proposed in my amendments. I have attempted to keep the committee small, roughly the same size as originally proposed, yet incorporating the key decision-makers in both organisations and retaining the Government’s objective of a significant role for non-executive directors, in this case, of both organisations. The joint chairmen of the committee will be the governor of the Bank and the chairman of the FSA. The two deputy governors of the Bank will be joined by the chief executive of the FSA and one other managing director, probably the managing director responsible for wholesale and institutional markets. There will be a non-executive director from the Bank and one from the FSA. In addition, I propose that there be two independent members appointed by the Treasury. My hope is that they will be informed, sceptical and contrarian. They should not be yet more mutually reinforcing City grandees. Such independent members have been a considerable success on the Monetary Policy Committee, whose collective embarrassments at its actions over the past year would have been all the greater if it had not included that splendid, talented contrarian Professor David Blanchflower, who is sadly leaving the MPC. The possibility of including independent members in addition to the non-execs will greatly increase the flexibility of the committee, and hence the composition of my proposed joint committee passes the third test of flexibility.

I hope that the Minister will understand and accept the spirit of these amendments. I will certainly understand if he wishes to modify my proposals on the composition of the committee—it might benefit from a couple more non-execs, for example—but I would find it difficult to believe that he would reject the underlying logic of the proposals, and I am sure that he will want to consider that logic prior to Report.

I have great sympathy with the case made by noble Lords who have spoken and, in particular, with the proposals made by the noble Lord, Lord Eatwell. The Bank’s objective of protecting and enhancing the stability of the financial system of the United Kingdom—the formula in the Bill—is impossible to do with the resources at its disposal and with its functions and those of the FSA. The FSA knows—or should know—what is going on in individual institutions to a far greater extent on a day-to-day basis than the Bank does, and the FSA needs to be in day-to-day touch with the Bank about that information on a rolling basis. The proposal of the noble Lord, Lord Eatwell, sets up a mechanism that enables that to happen.

The failure of one bank can lead to a failure in stability of the entire financial system, as we have seen in recent months. Surely it makes sense for the people who should and do know what is happening in any bank to inform the Bank of England in an orderly, structured way through this committee, rather than having the Bank looking down and telling them what constitutes the stability of the system, when, almost by definition, it cannot have the information at its fingertips that will enable it to do its job. I hope that the Minister will accept the spirit, if not the letter, of these amendments.

Amendment 175 would place on to statute the requirement that a representative of the Bank of England should sit on the governing body of the Financial Services Authority, and that a member of the FSA’s board should serve as a director of the Bank of England’s court.

Noble Lords will be aware that it is already possible under current legislation for such cross-memberships to exist. Nothing in law prevents such arrangements. In fact, it is established practice that a deputy governor of the Bank—currently Sir John Gieve—sits on the FSA’s board, and that the chairman of the FSA serves as a non-executive director of the Bank. This long-standing and mutually beneficial arrangement has been important over the years in enhancing communication and co-ordination between the two authorities’ strategies and activities. I have no reason to suppose that it will cease in the foreseeable future. As former members of the court, the noble Baroness and I have seen this successful arrangement in action. Consequently, I have considerable sympathy with the spirit of her amendment. However, I do not agree that it is appropriate to place this arrangement on a statutory footing.

First, it is unnecessary, as cross-membership of the FSA and Bank’s governing bodies is already allowed. Secondly, as I have said, I see no reason for this or any subsequent Government not to continue the current practice of cross-appointing a member of court to the FSA board and vice versa, unless it were inappropriate or impossible to do so. I accept that this would occur only in exceptional circumstances. However, in order to allow for this possibility, we do not think it is appropriate for the arrangement to be a statutory requirement.

Amendments 180 and 183 seek to appoint the FSA’s representative on the Bank of England’s court as a member of the Financial Stability Committee established by the clause. We will discuss the form and function of the Financial Stability Committee when considering later amendments, and I do not wish to pre-empt that debate. However, in relation to these amendments, I emphasise that one of the Government’s priorities in establishing the Financial Stability Committee is to provide the Bank of England with as much relevant expertise as possible to support it in its enhanced financial stability role under the Bill. That is why we are undertaking a recruitment process to put in place a new Court of Directors. As part of the recruitment, we are ensuring that members of the court will have the right mix of knowledge and expertise to manage the Bank’s affairs effectively. They will include non-executive directors with financial and banking backgrounds who are also, as my noble friend urged, challenging, engaged and occasionally contrary. This relevant expertise in the area of financial stability, which I believe will be important for a number of members of the court, will be particularly crucial for the four directors who will form part of the new Financial Stability Committee. Depending on circumstances, it may be appropriate for a member of the FSA’s governing body who is also a member of the court to be present at meetings of the FSC.

However, we believe that it is important that members of the Financial Stability Committee can secure input and expertise from outside the Court of Directors if they wish. This is why proposed new Section 2B(4) of the Bank of England Act 1998 will allow the committee to co-opt other non-voting members to the committee. These could include a representative from the Financial Services Authority or elsewhere. Therefore, although in principle I agree with many of the sentiments behind the amendment proposed by the noble Baroness, Lady Noakes, I do not believe that it is necessary to place these arrangements in the Bill.

Amendment 191 would remove the Treasury’s ability to appoint a person to represent the Government on the Financial Stability Committee. I would like to reassure the House that the Government remain committed to the independence of the Bank of England, with this provision: it is not our intention to allow the Treasury to exert any undue influence on the Bank’s decision-making process. This is why the Treasury’s representative will be a non-voting member of the FSC. However, it is wholly appropriate for the Treasury to attend these meetings in the same way as a Treasury representative attends all meetings of the Monetary Policy Committee. The purpose will be to ensure that the FSC is fully briefed on all relevant aspects of the Government's economic and financial policies, and that the Chancellor is kept fully informed about the Bank’s actions to ensure financial stability. I hope that this explanation has served to reassure the noble Baroness and that she will feel able to withdraw her amendment.

As we have heard, the amendments of my noble friend Lord Eatwell would make the Financial Stability Committee a joint committee of the Bank of England and the Financial Services Authority. While I can understand what my noble friend is trying to achieve, I respectfully suggest that the committee he envisages is unnecessary and inappropriate. In addition, a committee set up along the lines that my noble friend suggests would not be able to achieve the purpose for which we are creating the Financial Stability Committee; that is, supporting the Bank of England’s strengthened and extended financial stability remit.

I note that Amendment 201A would insert wording into the FSMA to provide the Financial Services Authority with the same financial stability objective as we are giving the Bank of England under Clause 228. The FSA already has responsibility for supporting the stability of the financial system of the UK as part of its objective under Section 3 of the FSMA to maintain market confidence and its other statutory objectives. Therefore, we do not consider that an express objective relating to financial stability is appropriate.

The words “financial stability” do not appear in the objectives of the FSA. The words “market confidence” appear, to which I referred in my speech. Financial stability is not referred to in the FSMA.

I thank my noble friend for his intervention. I said that the Financial Services Authority already has responsibility for supporting the stability of the financial system. I do not believe I said that the words “financial stability” appear in the FSMA.

I should like to support what the noble Lord, Lord Eatwell has said. If the Minister read the early provisions of the FSMA, I think he would struggle to find support for what he has just asserted it contains. There is no reference to “financial stability”. There are an awful lot of things such as consumers and market confidence, but not financial stability. The Minister is constructing an argument on no basis whatever.

For the benefit of the noble Baroness, I repeat the reply that I gave my noble friend Lord Eatwell. The Financial Services Authority has a responsibility for supporting the stability of the financial system of the UK as part of its objective under Section 3 of the FSMA; namely, to maintain market confidence. Market confidence is critical to financial stability; it is an important precondition to, and indeed a feature of, financial stability. I suggest therefore that the Financial Services Authority has a nexus with financial stability.

Before my noble friend’s intervention I was dealing with his amendments which seek to establish a joint Financial Stability Committee of the Bank and the FSA. I should like to set out why, respectfully, I disagree with the purpose of those amendments. First, it is entirely unnecessary to establish a new committee whose aim is to allow the tripartite authorities, or any two members thereof, to discuss financial stability. There are clearly well established mechanisms for the tripartite authorities to communicate and to co-ordinate their actions in relation to their joint and individual responsibilities, including that of safeguarding the UK’s financial stability. The three authorities meet at a number of levels on a regular basis under the auspices of the memorandum of understanding. The standing committee meets at least monthly—during recent times it has been meeting weekly and even daily to discuss financial stability issues—and it can convene at any time when necessary.

These arrangements have proven successful. Recent actions taken to safeguard and strengthen the UK’s banking system and wider financial stability have demonstrated the tripartite arrangement at its best, with the authorities working together in an effective and timely manner to stabilise UK banks and support the long-term strength of the economy. An additional forum for the entire tripartite to convene to consider issues of financial stability is therefore unnecessary.

Secondly, the arrangements that my noble friend Lord Eatwell seeks to put in place are, with respect, unworkable. His amendments would create a joint committee—

I got the impression a moment ago that the noble Lord said that an additional forum between the tripartite authorities to discuss financial stability was unnecessary. Is that not what this committee is doing?

No. An additional forum for the entire tripartite to gather is unnecessary. This is not a forum where the tripartite authorities are gathering for the purpose of bringing together the thinking of the Financial Services Authority, the Bank of England and the Treasury; it is a sub-committee of the court of the Bank of England.

We are all struggling with the concept of why the tripartite authorities do not need something like a Financial Stability Committee. If the Bank of England needs one, why do not either each of the tripartite authorities—which would seem unnecessarily duplicative—or, more properly, the tripartite authorities overall? I cannot understand why the Government are concentrating on the Bank, which has a committee with the Treasury on it but not the FSA. The whole arrangement seems designed to unbalance the tripartite working arrangements when it should be bringing them closer together. The tripartite arrangements were put in place to remedy the deficiencies that arise when you have fragmentation among different institutions.

We are in danger of confusing a number of separate issues. The Financial Stability Committee is a committee of the court of the Bank of England. We will come at a later stage in our debate to the role of the Financial Stability Committee and how it sits vis-à-vis the executive of the Bank, including the governor and the court. It is not a part of the tripartite arrangement, which is higher up in the structure which brings together the three tripartite authorities.

My noble friend’s brief must have been written by several hands, such is the number of inconsistencies and confusion within it. I shall point out a number of them. We were told that the committee would be unworkable because it would blur the arrangements between the Bank and the FSA, yet we were told at the same time that the tripartite committee, which is so important and influential, somehow manages not to blur these responsibilities between the Bank and the FSA. However, this tripartite committee will do just the things that I have suggested for the proposed committee. The tripartite committee must therefore be doing a blurring good job, as indeed it would seem to have been doing over the past three years, such has been its ineffectiveness until its more recent and much more successful endeavours.

I was also told that the non-executive members would not understand the culture and nature of the different institutions. However, in reply to the noble Baroness, Lady Noakes, the Minister said that it was tremendously important to have directors shared between the two institutions so that they understood their culture and effectiveness. Do we want that understanding, or do we not? Perhaps the noble Lord could let us know.

The Minister started by saying that a joint committee could not support the Bank of England in its tasks. Surely what we have here is a sub-committee of the Court of the Bank of England itself. It is an internal, restrictive, introverted organisation, rather than one which reaches out to the information set that it needs to operate, which is in the hands of the Financial Services Authority. On the contrary, I suggest that it is the joint committee which I have proposed that would indeed support the Bank of England with the information that it needs to achieve its goals.

My noble friend also referred tangentially to the Financial Services Authority and the Financial Services and Markets Act. He was not a Member of your Lordships’ House when that Act was passed. If he had been, he would have heard me moving amendments that required incorporation of the phrase “financial stability” into the objectives of the Financial Services Authority, amendments which the Government rejected because financial stability was the task not of the Financial Services Authority but of the Bank of England.

There are also some peculiar points in the Government’s proposals which should have some attention if, perhaps, there is redrafting to be done for Report stage. For example, there is this reference to voting. This is clearly a cut-and-paste job from the Monetary Policy Committee. The Monetary Policy Committee has a clear objective, a defined role and a specific decision to make, on which it must vote. However, the committee, if this is to be a truly effective financial stability committee, will be involved in far more wide-ranging and far more nuanced discussions on the nature of legislation that has to be brought forward. The notion of voting is rather outside any of the likely processes of operations of such a committee.

Finally, the Minister said that the committee would not fulfil the Government’s objectives. The Government’s objectives are so confused and obscure that I am not surprised that my proposed committee would not meet them. I hope my committee has some clarity with respect to its objectives. Indeed, I finish simply by asking: why is this clause here at all? It would be perfectly possible for the Court of the Bank of England to create this sub-committee under its own rules of operation. Why do we need primary legislation to establish this sub-committee? Surely, if this sub-committee is to be really effective, and if we are going to take financial stability seriously, financial stability has to be incorporated into the operating ethics of the Financial Services Authority, and the information systems of the Financial Services Authority have to be incorporated into the financial stability decision-making of the Bank of England. That is what my amendments were designed to do.

I am very disappointed by the Minister’s response, since it seemed not even to take seriously the issues that I put forward, which are entirely relevant to the financial stability objectives of the Bill. I reserve my position to consider what I want to do.

The noble Lord has expressed the frustration that I felt to some extent at the response to my more modest amendments, which tried to reflect partly what happens in practice in respect of cross-membership, and partly the need for the FSA to be properly involved in the consideration of financial stability within the Bank. What is the point of having tripartite authorities if you then go away into your own bunkers and pretend that the other authorities do not exist, except of course that the Treasury is always to be found one way or another overseeing things?

I am disappointed that the Minister has shown no understanding that the clause is wrongly conceived. I do not know whether the right answer lies in my rather minimalist solution or in the rather more fundamental rewriting of the provisions in relation to the FSA and the Bank of England of the noble Lord, Lord Eatwell. I am clear that some changes should be made to the Bill before we return it to the other place. We have a lot of thinking to do before Report, which will be upon us in no time at all. I see little point in asking the Minister to repeat ideas that we found incomprehensible, so I beg leave to withdraw the amendment.

I shall speak also to Amendments 177 and 178. Amendment 176 would add three new subsections to new Section 2A of the Bank of England Act 1998, with the aim of providing the Bank of England with clarity about its financial stability objective.

My three amendments draw on the mechanism used by the Government to inform the Bank of England what price stability is to be taken to be in relation to the monetary policy objective. This is set out in Section 12 of the Bank of England Act 1998. The main difference is that the price stability objective is set annually. I have drafted the amendment so that the financial stability objective stays in place until formally changed.

It would be an open and transparent way forward, and avoid ambiguity. It is important because when the Bank articulated its view of financial stability in another place, both in evidence to the Treasury Select Committee and the Public Bill Committee on this Bill, it gave a narrower definition of financial stability than is contained in the draft code of practice. The Bank’s definition was process-driven and focused on the payments systems. Others who gave evidence to those committees gave a broader definition, and the Government use a broader definition in the code of practice.

If the Treasury set out what it meant, it would be clear that the Bank was working to the right objectives, and not some narrower ones. That would be preferable to the proposal in new Section 2A(2) that the court sets the Bank’s strategy in relation to its financial stability objective in consultation with the Treasury.

Amendment 177 would delete the need to consult the Treasury as to the Bank’s strategy for financial stability, which would be consistent with the way that the Bank works in relation to all its other functions. There is no mention of the Treasury in any aspects of the Bank’s strategy and objectives set out in Section 2 of the 1998 Act.

Finally, Amendment 178 would provide an alternative to the Treasury specifying what it means by financial stability and require the Bank to use whatever definition is in the code of practice. As I have mentioned, the definition given by the Bank of England in another place was narrower than that in the draft code. If the Government cannot accept the letter-writing solution specific to the Bank’s objective proposed in my amendments, I suggest that they consider Amendment 178, which at least provides a cross-reference to the code of practice. I beg to move.

I support my noble friend. It may be appropriate to make one or two general remarks about the whole proposal for a Financial Stability Committee which seems to some extent to be based on an idea similar to the Bank of England’s Monetary Policy Committee. It is not clear where ultimate responsibility for financial stability rests. I would have thought it ought to be with the Government and the Treasury rather than with the Bank of England. The idea that you can somehow delegate this to a Committee, which will then decide what the strategy is, seems to be a mistake. My noble friend is right to say that the Government should start by deciding what the financial stability objective is. It is not clear why it must be left to a committee of this sort, with all the likely problems which the noble Lord, Lord Eatwell, mentioned such as whether the advice comes from one member of the tripartite group or another.

Do the Government have a clear idea what they mean by financial stability and how do they see this Committee, if it is set up, relating to the Monetary Policy Committee as far as the overall economic management of the country is concerned?

Amendments 176, 177 and 178 are seeking to do similar things in slightly different ways. The intention behind them appears to be for the Treasury to provide the Bank of England with a single, definitive meaning of financial stability on which the Bank must rely when formulating strategy it intends to follow in pursuit of its new financial stability objective. As my noble friend Lord Davies of Oldham explained in an earlier debate, it is not possible to set out in a statute an exhaustive definition of financial stability. I believe that the noble Baroness, Lady Noakes, accepted this during a previous debate and I refer the Committee to the Official Report of 13 January at col. 1171.

I note that in formulating Amendment 176, which requires the Treasury to set out in writing what the stability of the financial system is to be taken to consist of, the noble Baroness has borrowed sections from the Bank of England Act relating to monetary policy. It is not possible, however, to set an exhaustive definition or target for financial stability in the same way as we do for inflation. The requirements for financial stability are context-specific and liable to vary as the operation of global financial markets changes. As my noble friend Lord Eatwell said a moment ago, much of the discussion and decision- making of the Financial Stability Committee will be nuanced.

The approach taken in this Bill provides the necessary flexibility so that the strategy and policy measures adopted by the Bank to achieve its objective can change over time to respond to changing market circumstances and situations. The Bill also provides for the Bank, through its court, to consult with the Treasury on the setting of its financial stability strategy. I believe this addresses the point that the noble Lord, Lord Higgins, made a few moments ago.

This mechanism, which Amendment 177 seeks to remove, will help to ensure that the Bank’s approach has a coherent fit with the work of the other authorities in the UK responsible for maintaining financial stability. Amendment 178 would require the Bank to have regard to the guidance on financial stability contained in the code of practice described in Clause 5. As my noble friend Lord Davies described last week, the code of practice, while containing a useful elucidation of what is meant by the term financial stability, is in no way intended to give a single, exhaustive definition of financial stability. Rather, the code seeks to give guidance on the meaning of financial stability, guidance that is designed to be used to facilitate decisions relating to whether the general and specific conditions in the SRR have been met. I would, of course, expect the Bank to consult a wide variety of sources of information while formulating its financial stability strategy and consider as many different definitions of financial stability as possible, including that in the code of practice. But I believe that it would be inappropriate to include in the Bill a requirement for the Bank to have regard to one individual source—moreover, one that is designed for use in a very specific and limited context.

I hope that this explanation of the Government’s thinking around financial stability and the Bank’s financial stability strategy has helped to clarify the situation, and I hope that the noble Baroness will feel able to withdraw her amendment.

I offer one definition of financial stability, or at least a test, which might be considered when the Treasury and the Bank of England are doing their work—the avoidance of queues of depositors outside the branches of any bank or building society.

I am grateful to the noble Viscount, Lord Eccles, for that helpful contribution.

I thank my noble friends Lord Higgins and Lord Eccles for their contributions to this debate.

The Minister has disappointed me yet again. The Government seem to want to keep financial stability as loose as possible. I concede that I accepted that financial stability should not be on the face of the Bill but, as the Minister will recall, especially if he looks carefully at Hansard, I argued strongly for a definition to be required to be included in the code of practice. It is right, for consistency across the tripartite authorities, that the Treasury defines what it wishes to be meant by financial stability for the Bank then to use. It is sheer nonsense to say that the Bank can make up its definition and consider as many definitions as it wants. I do not think that I have ever heard such a stupid thing come from a ministerial source.

The Government should be clear about what they want the Bank to do and tell the Bank what the parameters are—that is all we are really asking for—and then the Bank can deal with it. The important thing is that there is clarity and transparency about that, and financial stability can be seen as a common currency. I do not doubt that on individual cases decisions have to be nuanced. Definitions will not cope with all individual cases and definitions will change over time. But to think that the Bank should gather in as many definitions as possible is plainly ludicrous.

I do not think that we are going to make any more progress, because the Government are in a complete mindset this evening that the Bill is perfect. I assure the noble Lord that not a lot of people think that it is. We will return to this on Report.

As I said at the end of my previous remarks, I felt that the Government had not taken cognisance of the arguments associated with the Financial Stability Committee. It sorely tempts me to seek the views of the Committee, but it would be rather unfair to do that at this late hour. It would be more appropriate on Report, when I hope that we will have a larger attendance for this particular issue. We will return to it; the Government have got it wrong and do not have a coherent argument to express on why they think it is right. We should give them the chance to have another go at it.

I shall move Amendment 179 and speak to the other five amendments in this group. In doing so, and in subsequent groups, I am broadly taking the structure of the Financial Stability Committee as the Government have drafted it, but seeking to improve it. However, that is in no sense to say that I have moved from my position on the first group of amendments, which we debated at length.

These amendments concern the nature and membership of the Financial Stability Committee. The Bill provides for it to be a sub-committee of the court. We find that concept odd, as the FSC will have functions extending well into the realm of the executive functions of the Bank rather than the court, yet the court will have the responsibility to determine and review the Bank’s strategy on its financial stability objective. Amendment 179 turns the FSC into a committee of the Bank rather than the court, which is how the MPC is constituted. By emphasising the role and responsibility of the Bank, the oversight role of the court is made much clearer.

The Bill proposes that the FSC is composed of the governor, two deputy governors and some non-executive members of court. My other amendments deal with two questions: who from the Bank should be on the committee, and should court non-executives or external members be appointed? Look at the composition of the MPC: the Bank’s members are not only the governor and two deputy governors, but its two most senior executives with monetary policy responsibility. My amendment has the effect of replicating that for the Financial Stability Committee.

Why have the Government chosen to exclude the senior executives with responsibility for financial stability? Take the case of Mr Paul Tucker, the current executive director with responsibility for markets. He is soon to be a deputy governor, but would it have been realistic to have had a Financial Stability Committee operating without him?

What is the relationship between that committee and the Financial Stability Board, which has operated within the Bank for some time? That board has the governor, two deputy governors and the four key executive directors of the Bank. Will the Financial Stability Board be subordinate to the FSC, operate in parallel to it or disappear? This point links to one made earlier: that it is perfectly possible for the Bank of England to create the equivalent of the Financial Stability Committee without legislation. The Bank has had a Financial Stability Board ever since the 1998 Act came into effect. There is no reason at all to create that committee within the Bank.

My Amendments 182, 185 and 189 would have the effect of replacing non-executive members of the court with four external members, appointed by the Chancellor of the Exchequer. Importantly, the Chancellor would appoint only those members with the right knowledge and experience, a formulation mirroring how external members of the MPC are appointed. The noble Lord, Lord Turnbull, who is unable to be in his place, made the telling point that trying to seek non-executive members of the Financial Stability Committee from the court meant that those four members would come from an extremely small gene pool of nine independent court members.

It is obvious that someone sitting on the Financial Stability Committee needs knowledge and experience of financial stability matters, but neither the 1998 Act nor this Bill make it a requirement for membership of the court that a person has any specific knowledge, or experience of anything. I have no problem with that, as membership of a board is an art, not a science. The overall driver should be the ability to contribute to the full range of issues affecting the Bank. It may unnecessarily narrow the pool of potential members if at any time appointments to the court were driven only by the need to fill a place on the Financial Stability Committee. As I said, nine members of the court and four going on to the FSC starts to restrict options.

Other detailed points I might pass for the time being, but may raise them depending on what the Minister says. Confusion of roles is implicit in the arrangements for the Financial Stability Committee set out in the Bill. The Select Committee in another place explored these issues and made a number of recommendations, but the government proposals in the Bill still lack clarity. I am sure that the Government need to look at this again. I beg to move.

I have much sympathy with my noble friend’s view. Why is there any need to have all of this in statute, unless it is in some sense to hive off responsibility from the Chancellor of the Exchequer and the Treasury and on to the Bank of England, in the same way as the Government sought to do with the Monetary Policy Committee? The Bill specifies in minute detail exactly what the membership is and the extent to which the FSA and the Bank are represented, and then it specifies in particular that the Treasury shall not have a responsibility in this matter but only a consultative role. I am not happy about the way in which the body is being set up. It seems unnecessary to be so specific in statute.

I am saddened at my apparent mishandling of this section on the Financial Stability Committee. For the noble Baroness to suggest that this is linked to an act of stupidity of the greatest magnitude she has seen and for me to fail to convince my noble friend Lord Eatwell of the Government’s case is clearly a failure on my part. As regards my noble friend’s earlier observation about the speaking note, it may be prepared by a number of people, but I have checked it and, therefore, I take entire responsibility for what he regards as a mishmash of inconsistent observations. I will seek on Report, if necessary, to be more coherent than I appear to have been.

The amendments in this group tabled by the noble Baroness, Lady Noakes, would establish the Financial Stability Committee in a way that mirrored the structure and appointment provisions of the Monetary Policy Committee. Of course, there are arguments to be made in favour of different governance models, and all have their merits. However, as I will explain, we have set out the right model in the Bill, one that reflects the Bank’s enhanced responsibilities for financial stability, alongside its other roles.

As set out in the Bank of England Act 1998, the Court of Directors is responsible for the affairs of the Bank. It is essentially the Bank’s board and high-level governing body. Both the Bank’s executives—including the governor—and its committees ultimately report to the court, and it is from the court that responsibilities are delegated, other than those in the area of monetary policy. It is therefore entirely right that the Financial Stability Committee, which will advise on the development of the financial stability strategy and actions to be taken under the financial stability-related powers given to the Bank through the Bill, should be a sub-committee of the court and accountable to it. Financial stability strategy and its implementation will be central to the Bank’s operation and functions and will, on some occasions, affect its balance sheet and overall risk analysis, as recent events have demonstrated. It is therefore right and proper that there is a strong and direct relationship between the new committee and the court.

Ultimately, both executive actions and the committee as a whole are rightly accountable to the court for their performance, but neither the governor nor the committee will take all decisions relating to financial stability. Some are bound to be matters for the court, and that is right. As I have said, financial stability is an integral part of the Bank’s responsibility, and, as the court is ultimately answerable—to Parliament, as well as others—for the actions of the Bank, it is right that it retains a direct line of responsibility in that area of work. This is not dissimilar to the situation in public companies, where responsibility for audit and remuneration may be delegated to a sub-group drawn from what the noble Lord, Lord Turnbull, might describe as a limited gene pool, namely the board of directors. It is, nevertheless, a sub-committee of the board: it is accountable to the board and takes its powers from the board.

We want the committee to be at the heart of matters relating to financial stability in the Bank, not at the fringes, and to meet as frequently as it considers necessary to fulfil its functions and bring executives and non-executives together to maximise their respective expertise and knowledge and ensure that the Bank as a whole can fulfil its statutory responsibilities effectively. As I stated earlier, I respectfully recognise that there are arguments in favour of different governance models. Clearly, I have failed the Committee in not explaining those with conviction, but some of them have been eloquently elucidated by the noble Baroness. I hope that she and the Committee will consider satisfactory my explanation of why the Government’s model is appropriate for this committee.

I shall answer some of the questions raised. This committee will effectively replace the Financial Stability Board. I speak from personal experience, having recently been a member of the court of the Bank of England, fighting hard to persuade the governor and the executive that the independent members of court should at least be able to attend if not speak at the Financial Stability Board. The Financial Stability Board was simply not empowered enough to do the role that is required to fit with the Bank of England’s new statutory responsibility for financial stability. I believe that I have answered the point that the noble Lord, Lord Turnbull, would have made here. We may be selecting from a limited gene pool, but there is no reason why non-voting members may not be co-opted to the Financial Stability Committee if that were the wish of the committee.

The noble Lord, Lord Higgins, asks why this is in statute. The answer is that it underlines the statutory responsibility that the Bank of England and the Financial Stability Committee will now have for financial stability. Is the arrangement too prescriptive? It possibly is. As I said earlier, there is no perfect model for governance. My noble friend Lord Eatwell observed that there were arrangements for voting and that that was evidence that we had just taken the Monetary Policy Committee rules into the proposed Financial Stability Committee. I agree with him that most decisions by this committee will be made around debate and discussion, and conclusions will emerge. They will be qualitative rather than quantitative decisions. That also applies to a board of directors. Every company on whose board I have sat has, in the articles of association, spelt out the voting rights, should there ever be a situation in which a vote is required. This approach is a pragmatic one, drawing on the experience of other governance models but ensuring that we have a group at the heart of the Bank who are responsible for financial stability, drawing together appropriate skills from within the Bank and, if necessary, from outside, with a balance of executive and non-executive members.

I urge the noble Baroness to withdraw her amendment, and I hope that, on this occasion, I have not appeared to be stupid.

Can the Minister explain why the senior executive directors with responsibility for financial stability are excluded from the group? It might help the Committee if he could also explain how the Government see this committee working. He was at pains to emphasise that this group would be at the heart of the bank, yet it is to have four non-executive members of court on it. If it is at the heart of the bank, does that mean it will meet often? Will non-executive members of court become semi-executive, in the way that MPC members become virtually full-time? It is a little unclear how the Minister sees this. He seemed to articulate a strong, active and ongoing role involving non-executive members, but was simultaneously trying to position it within court and the kind of things that remuneration and audit committees do. Remuneration and audit committees meet, in the ordinary course of things, perhaps four times a year—probably not much more that that unless there is a real problem. Can the Minister say more about how this committee will look when it is working?

The noble Baroness has raised two questions. I shall seek to answer both with clarity.

First, the executive director of the bank responsible for financial stability reports to the deputy governor responsible for financial stability. Therefore, the most senior executive director in the bank, reporting to the governor with responsibility for financial stability, will be on the Financial Stability Committee. Secondly, the frequency of meetings of the Financial Stability Committee will be for the committee to determine and will, to some extent, be driven by events. However, I imagine that the committee will take up a considerable amount of time. In the specification for recruiting new members of court, which is a matter of public record, we made it clear that members of court who sit on the Financial Stability Committee are likely to have to commit additional time. From recollection, I think we have talked about two days per month for members of court and three to four days per month for members of court who will sit on the Financial Stability Committee. I hope that I have answered the noble Baroness’s question fully and ask her to withdraw her amendment.

The Minister has certainly given us more information about the committee. I am still confused about how it is supposed to be positioned within the bank, but there are more important issues to be dealt with involving the Financial Stability Committee on Report. I shall consider whether to continue with this on Report, and there are certainly more issues that we need to consider this evening.

Moving on from the composition and positioning of the Financial Stability Committee, I come to its role. I also speak to the other four amendments in the group, which are probing amendments to new Section 2B of the Bank of England Act 1998, which would be inserted by Clause 228.

New Section 2B(2) has a mix of functions ranging from making recommendations to giving advice on the use of the stabilisation powers—although it does not say to whom advice is to be given—and the monitoring of the use of those powers, as well as the monitoring of the Bank’s interbank payments systems regulation. It is really something of a ragbag.

For the purposes of today’s debate, Amendments 186, 188 and 189 have merely changed those three proposed provisions concerning recommendations to the court or the unspecific giving of advice, as set out in paragraphs (a) to (c) of new Section 2B(2), into provisions of decision-making.

An alternative, overlapping amendment deletes both subsections (2)(b) and (2)(c) of new Section 2B. I am unclear to whom advice should be given and on what basis so I have deleted them for lack of clarity. If the committee is chaired by the governor and both the deputy governors are on it, it is difficult to see to whom the committee will give advice. Where is that advice going to be given? I have deleted those two paragraphs on that basis.

The amendments do not avoid a problem with the current draft which has the committee both monitoring the use of the stabilisation powers in subsection (2)(d) of new section 2B and also advising on their use in new subsection (2)(c). This seems to create an unnecessary conflict. Amendment 190 would delete new subsection (2)(d) on the basis that the committee cannot do both. An alternative may be to give the committee responsibility to monitor all of the functions mentioned in new Section 2B(2).

This links to the question of who sits on the Financial Stability Committee and how much time they are expected to spend on it. We debated this on the previous group of amendments. What precedents has the Treasury drawn from in devising the Financial Stability Committee? I remind the Committee that the Treasury does not have a good track record in corporate governance innovation. It was the Treasury that invented the non-executive committee in the 1998 Act. Almost as soon as the Act had passed, the court was devising ways to work as normally as possible whatever the Act said, culminating in the 2003 decision for the chairman of the non-executive committee to chair the court on a de facto basis. This Bill unwinds quite a bit of the 1998 experiment and we should remember that. I beg to move.

This group comprises various amendments, which I will address in turn. The general thrust is to seek to give the Financial Stability Committee a more executive role. I shall first set out why it would be inappropriate for the FSC to be purely or even primarily an executive committee.

It is entirely right that the executives of the Bank, headed by the governor, retain responsibility for operational decisions around the Bank’s financial stability responsibility. On a purely practical level, while I would expect the FSC to meet as often as it considers necessary, it would not be realistic to expect a committee of this sort to meet with the frequency required in a fast-moving emergency situation. The FSC will provide a key source of financial stability expertise, together with bank executives responsible for advising on and implementing the SRR. It will make recommendations to the Bank—which will take these seriously. The Government believe that the FSC will prove an invaluable sounding board and source of expert advice to the Bank, which will assist it in taking decisions which will contribute to achieving the Bank’s financial stability objectives. In my experience, this will be a significant improvement on the existing financial stability board arrangement.

Amendment 186 would make it a function of the Financial Stability Committee—presumably rather than the Court of Directors—to decide how the Bank should implement its financial stability strategy. Amendments 188 and 189 would give the FSC ultimate responsibility for taking decisions related to the Bank’s use of the SRR stabilisation powers, including those in respect of individual institutions in the SRR. These changes would make the Financial Stability Committee the executive decision-maker, which for the reasons I have just given would be too direct an executive role for the committee as it has been designed.

I recognise that the noble Baroness has almost certainly tabled these amendments with the example of the Monetary Policy Committee in mind. While the Government of course intend the new committee to be as successful as the Bank’s Monetary Policy Committee, there are a number of significant differences between the roles and functions of the committees. These explain why the approach to the FSC adopted in the Bill differs from that taken in respect of the MPC.

The Monetary Policy Committee was set up as an independent committee of the Bank of England to ensure that decisions about interest rates were taken entirely independently of any political interest or influence. This operational independence is made possible by the fact that the MPC’s role, under the Bank of England Act 1998, is to take decisions over the use of one lever—control of the price of money, or interest rates—to achieve one main objective, the maintenance of price stability, while supporting the Government’s economic policies.

The MPC therefore has a very clearly defined remit to undertake a very specific role, and it has the appropriate specialist expertise to do so. However, the situation regarding financial stability is entirely different. Operational decisions in relation to actions that the Bank may carry out to safeguard financial stability cannot, and should not, be taken in isolation from the Bank’s executive and court. It is essential that decisions in relation to, for example, the SRR and wider financial stability issues are taken having regard to a wide range of economic considerations within the tripartite framework.

Implementation of the financial stability strategy involves many of the Bank’s functions and has implications for the Bank’s balance sheet and risk and control environment, as recent events amply demonstrate. It would not be appropriate for vital strategic decisions regarding an important part of the Bank’s activities to be delegated to a sub-committee of the Court of Directors while the full court remained responsible under the Bank of England Act 1998 for the “affairs of the Bank”. I hope that noble Lords can see that a model in which a committee made executive decisions on the support of institutions, and on lending and collateral, in isolation from the court would be wholly incompatible with the Bank’s governance and accountability structure.

Amendment 187 has almost the opposite effect of the previous amendments. It would entirely remove the FSC’s advisory role in the Bank’s decision-making in respect of the use of the stabilisation powers conferred on the Bank under the SRR. I do not understand how this outcome could be desirable, as it is precisely in the area of giving such expert advice that we consider the FSC can offer the most value.

Amendment 190 would remove the FSC’s role in monitoring the use of the Bank’s stabilisation powers. Of course, if the committee were taking the decisions—as proposed by the noble Baroness with her Amendments 186, 188 and 189—this provision would not be needed, but omitting it highlights that the model proposed by the Government contains more appropriate checks and balances than this alternative executive committee model.

It is not at all clear how the noble Baroness intends to ensure that the executive FSC that she proposes is held accountable for the decisions that it takes, nor what role the executive of the Bank would have in a world where responsibility for taking operational decisions in regard to financial stability was taken away from it.

The noble Baroness’s amendments would simultaneously remove executive power from where it rightly belonged—with the governor and the rest of the Bank’s executive—while removing the ability of the Court of Directors to ensure adequate levels of accountability for any decisions taken. For these reasons, I invite her to withdraw the amendment.

The Minister responded on the basis that I was proposing an executive committee, but I thought that I had tried to explain that, for the purposes of today’s debate, I was producing a version of what the committee might do to replace the ragbag in new subsection (2).

The Minister stressed the role of the court in overseeing the work of the Financial Stability Committee. Can he explain how the court can effectively oversee the work of the committee when a majority of the court’s members are on that committee?

In precisely the same way as a board of directors oversees the work of a remuneration and nomination committee in a plc. All members of such committees tend to be drawn from the board.

That is absolutely right, but it is not the case that a majority of the members will be on those committees. It would be rare to find anything approaching a majority on those committees whereas here we have a court which has the three governors and nine non-executives. The three governors go off with four of the non-executives leaving five behind. Somehow when they all come back together the court is supposed to be capable of overseeing this. I do not understand that.

My experience is that it is now increasingly the custom and practice on plc boards that a majority of non-executive directors, and frequently all the non-executive directors, comprise the audit committee, so the parallel is identical.

We can argue about what practice is emerging in the private sector, but that is for another day. I was about to ask the Minister to explain how the committee could both monitor the use of the Bank stabilisation powers as well as give advice under new subsection (2)(b) and (c). I do not see how those functions can sit well together. Is the committee monitoring the Bank’s executives and giving them advice, or is it giving advice and monitoring itself?

The noble Baroness has denied me the right to reach out to plc for yet another precedent. Boards of directors of companies and charities are engaged in providing advice, facilitating the formation of decisions, challenging recommendations coming from the executive and monitoring implementation. It will be a properly effective body comprising high-quality executive directors—the Bank of England has always had the good fortune of recruiting people of extraordinary talent and ability—and independent directors of the court. I believe that such a body would have no more difficulty in combining the role of advice and monitoring than would be the case with the trustees of an endowment, the board of directors of an NGO or the board of a non-plc.

Will the Minister accept from these Benches that what he states as the normal current practice of plcs is correct? I wonder whether he will accept through me the advice to the noble Baroness, Lady Noakes, that perhaps she has spent a little too long in this House and not enough time keeping in touch with what is going on in the private sector. If she had, she would know that that is the normal current practice.

I welcome the intervention of the noble Lord, Lord Oakeshott. However, I have considerable respect for the noble Lady’s breadth of experience in the private sector, in the professional world and in the world of public policy in government. I recognise and respect that she was regarded as an extraordinarily good member of the court of the Bank. She was a member before I joined the court so we did not overlap. I have no doubt that the noble Baroness brings great experience and wisdom to her contributions and that we can continue at times respectfully to agree to disagree, but to do so courteously and constructively.

We have probably taken this group of amendments as far as we can this evening, and I shall consider carefully what the Minister said. I remain of the opinion that the construction of the Financial Stability Committee, its relationship to the court and its composition altogether make up something of a dog’s breakfast. Perhaps we can do something about that on Report. I beg leave to withdraw the amendment.

Amendment 193 requires the publication of the minutes of the Financial Stability Committee by inserting a new Section 2BA into the Bank of England Act 1998 via Clause 228 of the Bill. The Bill is silent about the workings of the Financial Stability Committee, yet its deliberations will be important to all those working in the financial services industry and more widely. It is unusual to require the workings of a board committee to be made public, but the Financial Stability Committee, as conceived by the Government, appears to be an unusual board committee as it underpins one of the Bank’s primary functions.

My amendments have a strong connection with the arrangements of the Monetary Policy Committee, which publishes its decisions and minutes, but the arrangements suggested are not the same as there is an important override in that the minutes do not need to deal with matters that threaten financial stability. In that way, we can avoid the FSC being part of the problem instead of part of the cure. I know that the Chancellor of the Exchequer has said in the past that the proceedings of the Financial Stability Committee will be published, but he has been unspecific about that, and there is nothing to compel the Bank of England to honour that commitment to transparency. I hope the Government will confirm that they are committed to transparency and that the Bill will be improved to reflect that. I beg to move.

In this case, the noble Baroness has taken the analogy with the Monetary Policy Committee a little too far. I quite understand that in proposed new subsection (2) she rules out matters that might, as she put it so well, be part of the problem; none the less, the nature of the deliberations of the Financial Stability Committee are unlikely to arrive at definitive conclusions, unlike the Monetary Policy Committee, whose conclusions are announced immediately, so that the minutes simply reflect the rationale behind them. It is likely that the deliberations of the Financial Stability Committee will involve a lengthy development of strategy and tactics to deal with particular issues, and the publication of minutes, even given the qualification that the noble Baroness has put forward in proposed new subsection (2), could later, unexpectedly, create problems. It would be inappropriate to require such publication on the timescale that the noble Baroness proposes. An annual report would be much more appropriate.

I, too, think that although, in general, greater openness is a good idea, in this case it does not really work. The noble Baroness has already excluded from the minutes the functions of the committee under paragraphs (a) and (b). I am slightly surprised that she has not included paragraph (c), as issues about how the Bank might use its stabilisation powers are bound to be specific to individual institutions. In any event, unlike the Monetary Policy Committee, which meets with metronomic regularity every month, it is envisaged that the FSC will meet, sometimes at very short notice, to deal with immediate problems informally and may meet several times a day. It is not the kind of body with which the publication of minutes sits.

I am grateful for the contributions to this debate by my noble friend Lord Eatwell and the noble Lord, Lord Newby. The comments made by the noble Lord, Lord Newby, captured the essence of how this committee may operate in practice. That is why I respectfully suggest that this amendment, which again seems to use the Monetary Policy Committee as a precedent, is not appropriate. We cannot simply transpose the success of the Monetary Policy Committee into the architecture and processes of the Financial Stability Committee. The decisions discussed at meetings of the Monetary Policy Committee are highly market-sensitive until they are announced. However, once the decision is in the public domain, the grounds for making it can usually be disclosed in full.

The case of financial stability is very different. The grounds for making decisions about one institution or sector will often reflect the committee’s assessment of other institutions and sectors, and of the system as a whole. Noble Lords will recognise that publication of such material could be highly destabilising, whether six days, six weeks or six months after the fact. It is difficult to understand how the noble Baroness could conclude that the publication of these minutes would achieve a goal of transparency without compromising the effectiveness of the committee, which should be our primary consideration.

The amendments seek to address some of these points by allowing the committee to exclude from publication minutes regarding decisions on the use of the stabilisation tools in the SRR. However, there is no similar carve-out for the FSC’s other roles. Would noble Lords, for example, consider a discussion of the robustness and stability or otherwise of a payment system such as BACS or CHAPS, on which millions of people rely every day, to have less potential to threaten financial stability than a similar discussion regarding a bank? I think not.

What of any additional functions that the court may delegate to the FSC? Representatives of the Bank of England have signalled in the other place that they are considering delegating to the FSC responsibility for decisions regarding liquidity support. Would it be appropriate to publish minutes of these issues? I think not. It is clear that the Bank would not be able to publish these deliberations without fear of causing a run on a financial institution. Surely that cannot be the noble Baroness’s intention. There are measures later in this part of the Bill that are designed to prevent instances of potentially damaging premature disclosure of liquidity support.

For the sake of argument, let us suppose that it would be possible and desirable to expand the carve-out in the amendment to cover these and other cases. Even if this were possible, we would still oppose the publication of minutes for the following reasons. First, it is vital that the committee feels able to speak freely on issues without the threat that the minutes may be published at some point in the future. Any possibility of the detail of discussions entering the public domain would inevitably compromise the honesty and comprehensiveness of any debate, or record thereof.

Secondly, it would be very difficult for the committee to assess the potential impact on financial stability. The issues discussed may subside for a time, and the committee publish the minutes, confident that they pose no threat to stability. If the issues were to re-emerge, market reconsideration of the committee’s minutes, and any subsequent reaction, could pose a risk to financial stability.

Finally, the mere fact of the committee’s ceasing to publish minutes of its meetings after a period of consistently making them available would send a clear signal to the market that there was some threat to the stability of the financial system, which is exactly what we are trying to avoid.

The Monetary Policy Committee meets on a formal schedule. The dates of the MPC’s meetings for the next 12 months are already a matter of public record. It is an entirely different committee, with an entirely different set of processes, from the Financial Stability Committee. To borrow the rules, procedures and processes of the MPC for the Financial Stability Committee shows a failure to appreciate fully how the FSC would work. I beg the noble Baroness to withdraw her amendment.

My noble friend said one thing that disturbed me a little as an academic. He said that these minutes would never be published. Surely, in due course they will be made available to economic historians under the 30-year rule.

I am tempted to take advice from officials on whether financial stability might still be an issue 30 years after it was first discussed in relation to a specific case. However, I think that I can chance it and give my noble friend a clear and convincing “yes” in answer to his question.

I thank the Minister for his response. I understand that the Chancellor of the Exchequer has said that the proceedings of the Financial Stability Committee will be published. Part of the purpose of my amendment was to see what that might mean in practice since the Bill contains nothing about publication.

Perhaps the noble Baroness would assist the Committee by giving reference to the source of this quotation.

I do not have a reference with me, but I am sure that I can find it later and let the Minister know. Is he saying that the Government’s position is that minutes should never be published?

Subject to the caveat in answer to the question asked by my noble friend Lord Eatwell, that is correct. However, I remind the Committee that the Bank of England will continue to publish twice a year its report on financial stability. That will no doubt be informed by the work of the Financial Stability Committee, although it will not disclose the most price-sensitive issues which that committee will discuss. But I believe that there will be public dissemination of the thinking of the bank on issues of financial stability, which is informed and influenced by the work of the Financial Stability Committee and as reflected in the six-monthly report on financial stability published by the Bank.

I hear what the Minister has said and I will consider carefully what he has communicated. I will seek to re-source my Chancellor of the Exchequer quotation and let the Minister know. If I can, I may return to this on Report. If not, I may not. I beg leave to withdraw the amendment.

In moving Amendment 194 I shall speak also to Amendment 195. These amendments concern the conflict of interest provisions set out in proposed new Section 2C(2) of the Bank of England Act 1998 which would be inserted by Clause 228.

Conflicts of interest are dealt with by proposed new subsections (2) and (3). New subsection (3) provides that where a question “touches or concerns” a member, he must not vote but must withdraw from the meeting and be absent from the debate. However, new subsection (2) applies a rather different rule in relation to a member’s “dealing or business” with the Bank if it,

“falls to be considered by the Committee”.

There the member,

“has to disclose his interest”,

but might vote and take part in the proceedings if the committee agrees that it,

“does not give rise to a conflict of interest”.

I struggle to see why there are two rules in the Bill and why they are expressed differently. I am unclear what “dealing or business” with the Bank might be envisaged to be discussed with the committee if they are not also matters which touch or concern the member.

Furthermore, new subsection (3) is drafted in respect of the interest of a member but not with the qualification “direct or indirect”, as in new subsection (2). Yet I imagine that if the Financial Stability Committee has, say, directors from a major financial institution on it, any conflicts would be not direct personal conflicts but indirect conflicts arising through the institution with which they are associated.

I am sure that the avoidance of conflicts of interest is very important. In that context, I wonder whether the Minister can explain how the Government think that they will find people with knowledge and experience of the financial sector who do not have conflicts of interest, at least indirectly. If the failure of a major institution were in prospect, would there be a single active member of the City who did not have some form of conflict of interest via their own institution, or is it expected that the Financial Stability Committee will simply become a home for retired members of the financial services business?

My amendments seek to replace the concepts of “dealing or business” with the Bank with,

“in relation to any person or matter”,

in order to broaden subsection (2); and to remove subsection (3), which is unnecessarily narrow. There could be other ways of dealing with the issues but, for today, I beg to move.

I propose to deal first with the more difficult amendment—Amendment 195, with which we disagree—but hope to give the noble Baroness a better response to Amendment 194.

In appointing court members the Government will seek to ensure that the appropriate mix of skills are available to the court as a whole, including the Financial Stability Committee. The process of recruitment, which is already under way, is being run in accordance with the commissioner’s code of practice, regulated by the Commissioner for Public Appointments and overseen by an accredited independent assessor. It is vital in deciding the membership of the Financial Stability Committee to maintain a balance between ensuring that members have relevant expertise and experience of financial markets and the importance of avoiding damaging conflicts of interest, as the noble Baroness emphasised.

Under the Bank of England Act 1998, non-executive members of the court can be active participants in the financial markets as long as they declare any possible conflict of interest and absent themselves from any decision that may produce a conflict. It has of course been suggested—the noble Baroness emphasised this—that current market participants should be excluded from membership of the FSC. I can understand the reasoning behind this because the issue of conflict of interest has become sharper. However, the Government consider that members of the FSC need to have more relevant market experience, not less, than current members of the court in order to give effective advice on the Bank’s activities in pursuit of financial stability. If we excluded active market participants from being members of the FSC it would simply unacceptably limit the pool of talent from which we could appoint directors to the court and the FSC.

I recognise that this is a matter of balance. I can reassure the Committee that both the Treasury, when appointing members of the court, and the chair of the Court of Directors. when deciding the membership of the Financial Stability Committee, will seek to limit the probability of conflicts of interest as much as possible. It is clearly in no one’s interest if several members of the FSC have repeatedly to absent themselves from vital discussions and cannot vote. I am confident that the chair of the Court of Directors will do whatever he can to avoid this while ensuring that the members of the FSC have sufficient relevant knowledge and experience to support effectively the executive in taking action to protect what we all regard as a very important objective, the UK’s financial stability.

I hope that I have explained the reasons why we have decided to impose the same restraints on the members of the Financial Stability Committee as those that exist already for current members of the court. They must declare any direct or indirect interest in any dealing or business which could potentially produce a conflict. If the FSC considers that a conflict of interest could occur, the member involved will have no influence or vote on the matter. I hope the noble Baroness will at least give credit for the fact that the Government have thought about these issues very seriously. She believes that it will be difficult to recruit people under these criteria, and so it may be, but our objective is to achieve the appointment of people, particularly to the FSC, who have this crucially relevant experience.

I substantially agree with the noble Baroness on Amendment 194—this is the first time today that I have been able to express such sentiments. However, we recognise the points that she makes. As she pointed out, it is not only in relation to the Bank that a member of the community may or may not have a direct or indirect interest that could be discussed in the committee; the committee may discuss a range of subject matters in respect of which it would clearly be appropriate for a member to disclose his interest—for example a shareholding in a banking institution in relation to which the committee was considering an exercise of the special resolution regime powers.

I am grateful to the noble Baroness for Amendment 194 because it highlights the way in which the current wording excessively limits what might be considered a conflict of interest for the purposes of the Financial Stability Committee. Although I cannot accept her amendment as it stands—that would be going a little too far even at this time—we agree with the sentiments behind it. On Report I shall bring forward an amendment that addresses this point in line with her thinking. I hope that she considers that a recognition of our joint constructive work on the Bill.

My noble friend’s remarks on Amendment 195 are enormously important. The commitment to have practitioner members as active members of the FSC, and indeed of the court, is very important. I was a member of the board of the old Securities and Futures Authority, which had a majority of practitioner members. I was enormously impressed by the knowledge, effectiveness and commitment of my fellow members of the board. I believe that that could be replicated in the court and in the Financial Stability Committee.

I am grateful to my noble friend for that insight. I fully appreciate that he brings academic detachment in supreme measure to his considerations when working in this context. However I also recognise, as does he, that it is possible for us to look for people who are able to play a very significant role in this work while at the same time not being constantly racked by the issue of conflict of interest.

I am grateful for the Minister’s comments on Amendment 194. I look forward to seeing the Government produce something on Report to that effect. When that is produced the Government may like to explain what marginal difference will remain between proposed new subsections (2) and (3), because I am less than clear that subsection (3) remains necessary if subsection (2) is drawn up in a satisfactory way. For example, if subsection (2) says what I think the Minister and I think it should say, then it is difficult to see why subsection (3) should be another layer on top of that. If there is a conflict, what is wrong with the process in subsection (2), and why do we need a separate process in subsection (3)? I leave the Minister to ponder on that before Report. I beg leave to withdraw the amendment.

I hope that I can deal quickly with this amendment. It would delete subsection (4) of proposed new Section 2C of the 1998 Act inserted by Clause 228. This subsection allows the committee to delegate its functions. The FSC is not a large body, but the matters which it considers are inevitably very important. The noble Lord, Lord Myners, who is no longer in his place, described this as being at the heart of the Bank. It is difficult to see how the matters included in subsection (2) of proposed new Section 2A would not be important. To that extent, I cannot see that it would be necessary for a sub-committee of the court further to divide itself. What sort of things are envisaged, and why is it necessary to have a sub-committee of what we were told would be a pretty high-level committee intended to advise the governor and executive directors of the Bank on financial stability matters? I beg to move.

We thought that the two provisions were relatively uncontroversial but the noble Baroness wants me to comment on the two subsections. The first, subsection (4), allows the Financial Stability Committee to delegate any of its functions to two or more of its members, other than the Treasury representative and co-opted non-voting members. The intention is to allow the committee, in effect, to nominate two of its members, either executives, non-executives or a combination of both, to fulfil one of its functions. This could be used, for example, if the committee wished something to be done in relation to which particular members had special expertise. In this case, the committee could delegate the task to any two or more individual members.

For example, imagine the case of the partial transfer powers being used by the Bank of England in respect of a particular bank. This provision would allow the committee to delegate to two or three members the function in new Section 2B(2)(d), proposed in Clause 228, of monitoring the Bank’s use of the stabilisation powers to resolve the failing bank. These two or three members then monitor the transfer of the Bank and any decisions and actions taken in respect of the resolutions; gather information on the Bank’s actions in respect of bank X; and consider the effectiveness and appropriateness of any action taken. The members could then go back to the full committee and report their findings. I readily accept that it is unlikely that the committee will need to use this mechanism on a regular basis, but I see no reason why we should not enhance the committee’s flexibility by including this option in the Bill.

Subsection (5), which this amendment would also delete, would insert a new subsection into the Bank of England Act 1998, clarifying that the court’s role of managing the Bank’s affairs, including its strategy and financial management, should be subject both to the Bank’s existing objectives—relating to monetary policy, as set out in Section 11 of the 1998 Act—and the Bank’s new financial stability objective, set out in subsection (1) of this clause. This is a logical and straightforward provision, which merely clarifies that the court’s management of the Bank’s activities should be subject to its dual statutory objectives. I hope the noble Baroness will feel that I have justified the two provisions and feel safe in withdrawing her amendment.

I think the Minister has told me that the new clauses have been drafted by bureaucrats for bureaucrats. I am sure he has explained that as well as he is able. I beg leave to withdraw the amendment.

I move Amendment 197 which inserts a new subsection into new Section 2C of the Bank of England Act 1998, inserted by Clause 228. Earlier we debated the issue of making public the minutes of the Financial Stability Committee. This amendment is on the same theme of transparency, but is about reporting publicly on how well the Financial Stability Committee is doing. Under the 1998 Act, there is a sub-committee of the non-executive directors of the Bank, which is given certain functions by Section 3 of the Act. Section 4 of the Act requires the annual report of the Bank to include a report on the matters for which the sub-committee is responsible. My amendment mirrors the arrangements for the non-executive sub-committee and requires a report within the Bank’s own report on the matters for which the Financial Stability Committee is responsible. It does this by inserting a further reporting requirement into Section 4 of the Act.

The amendment requires the non-executive members of court to make this report. This would involve the inevitable problem that some of the non-executive members are on the Financial Stability Committee and some are not, to which I referred earlier. Some would be reporting on their own work, which is always undesirable. The confusion could be made complete by requiring the court as a whole to report on the work of the Financial Stability Committee, thus drawing in the governor and the deputy governors. Alternatively, the report could be made by the Financial Stability Committee itself or, more neutrally, by the Bank. None of this is perfect because of the rather curious status of the Financial Stability Committee and its membership, but the aim of the amendment is transparency and not organisational tidiness. Any formulation would therefore satisfy me as long as there was an annual report. I beg to move.

The noble Baroness suggested on the previous amendment that I was subject to bureaucratic priorities; on this one, I share her objective, which is not bureaucracy, but openness. I therefore have some sympathy with her amendment.

It is not necessary to place a statutory requirement on the Bank of England to publish an annual report on the matter for which the Financial Stability Committee is responsible—that is, financial stability—because the Bank of England already produces a report on it. Since 1996, the Bank has published a half-yearly Financial Stability Report, which aims to identify the major downside risks to the UK financial system and thereby help financial firms, authorities and the wider public in managing and preparing for them.

The Bill, and Clause 228 in particular, seeks to strengthen and enhance the Bank of England’s role in protecting the stability of the UK’s financial system. I would expect the Bank, in the light of this greater remit, to provide even further information in the bi-annual report. It is not particularly helpful, however, to state in the Bill to whom and how often the Bank must make a report on its activities in this area. A general requirement already exists for the Bank to make an annual report, which includes a review of its performance in relation to its objectives and strategy, under Section 4(3) of the Bank of England Act 1998. I share the noble Baroness’s view on the importance of transparency. If the provisions were not already present in legislation, I would accept her amendment. However, I hope that she will accept that it is unnecessary because the provisions are already there and that she can feel confident in withdrawing it.

The provisions are not already there. There is no requirement in the Act as amended by the Bill for the Bank to report on the work of the Financial Stability Committee, and the Financial Stability Report is not required by statute. I am mystified by what the Minister is saying.

The Bank has to give a report on its responsibilities. The enhanced role of the Bank with regard to financial stability will oblige it to report on that in its annual report.

Given that the Bank is required in Section 4 to report not just on its activities but on the independent directors’ committee’s responsibilities, would it not be very odd for there not to be a similar reporting requirement for the Financial Stability Committee, to reflect its importance within the context of the Bank?

I do not accept that point. The Bill enhances the responsibility of the Bank of England in this crucial area. The Bank is provided with structures which fulfil its obligations. It has to report on the role which it plays, particularly its key obligations. It will report on these matters as one of its key obligations. As there is a provision for an annual report, I have great difficulty in understanding why an additional report is necessary.

I have explained that it is because the 1998 Act specifies the report of one of the sub-committees and we now have an even more important sub-committee—a much more important sub-committee of the court than the independent committee of directors could ever be—and yet there is no specific reporting requirement. I would like to test the opinion of the Committee.

Amendment 198 introduces a new clause after Clause 228, and deals with a problem that we see as having emerged following the removal of banking supervision from the Bank of England. Before that supervision went to the FSA, the Bank had an overview of the financial and banking system as well as responsibility for supervising individual institutions. That meant that the organisation could utilise the information gathered in its broader role for its more specific role. In particular—and this is the focus of my amendment—the Bank had an overview of debt in both the economy and the banking system. Had it had concerns about levels of debt, or leverage in the banking system, those could have been fed back via the institution’s specific activities.

When the FSA took on banking supervision, that essential link between macro-analysis and micro-action disappeared. Despite not only the cross-membership between the boards of the Bank and the FSA, but the existence of the tripartite arrangements, the publication of the financial stability report, and so on, there was no linkage made between the Bank’s analysis of debt and leverage and the FSA’s determination of capital adequacy ratios. That was clear, inter alia, from the FSA’s handling of Northern Rock, whose regulatory capital requirement was reduced only weeks before its collapse.

My party proposes filling this gap with a debt responsibility mechanism, under which the Bank would be required to write twice a year to the FSA setting out the Bank’s views and the FSA would respond. Both letters would be published. This is loosely based on the letter-writing connected to monetary policy, but it is not the same. I have adapted our concept for the Bill so that the Financial Stability Committee has to write to the FSA each year. The FSA then has to take it into account in determining the adequacy of resources for the threshold conditions.

The Minister will be aware that both the Governor of the Bank of England and the deputy governor have called for new instruments to deal with the growth of debt. In a recent speech, the governor said:

“What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet”.

Sir John Gieve told the BBC in December:

“We need to develop something which … prevents the financial cycle getting out of hand”.

I had hoped that my new clause would be headed “Debt responsibility mechanism” but, while parliamentary counsel has, as we discussed earlier, been allowed to spin so that his headings do not line up with the text, I was not allowed to give my new clause such a memorable title. However, while my new clause is rather more soberly entitled, “Debt: assessment of adequacy of resources”, it is about a debt responsibility mechanism. I hope that the Government will find this a helpful addition to the Bill, since it fills a real gap in the current arrangements. I beg to move.

This proposed new clause would place obligations on the FSA to have regard to the views of the Bank of England when taking decisions about whether individual firms have met threshold conditions. I emphasise that the Government entirely support the principle that the Bank of England’s experience and expertise should be made available regularly, nay continuously, to the FSA and, indeed, to the Treasury. Yet I am far from convinced that the proposed clause is an effective or appropriate mechanism for achieving that.

I entirely agree with the noble Baroness, Lady Noakes, that full and effective co-operation with the tripartite authorities is both desirable and necessary, but I would go further. I assure noble Lords that an effective, co-operative and collaborative working relationship is already in place, with the authorities working closely together in taking steps to secure financial stability. In working with other authorities, the FSA of course pays due attention to their views with regard to the financial stability of the United Kingdom. A clear process of consultation and information-sharing is in place, with regular meetings of the tripartite standing committee at principal and deputy level, allowing for a full exchange of views on any outstanding issues of concern, which any member of the tripartite authority wishes to raise.

The Bill builds on this co-operative model, providing for improved co-operation and information-sharing across the tripartite in the interests of financial stability. Ultimately, it is for the FSA, independent of Government or the Bank of England, to determine how to exercise its powers with regard to the oversight of individual firms. The proposed new clause would risk undermining this principle. It is not clear from the new clause what mechanism there would be for linking the Bank’s macro-level assessment of financial stability with the firm level or micro-assessments made by the FSA with respect to the continued compliance with regulatory threshold conditions.

I am sure that noble Lords will agree that in planning for the future all firms need a degree of certainty as to the resources they need to hold in order to comply with their threshold conditions. The amendment would remove this certainty. The FSA would be forced under the provision to take the Bank’s assessment of financial stability into account while deciding whether firms hold adequate resources. Therefore, the firm in question would have no way of knowing the amount of resources the FSA would judge to be adequate or whether this could change at any time.

Furthermore, the amendment proposes that the consultation exercise should be conducted by public correspondence. As we have discussed in relation to the publication of the minutes of the FSC, the consideration of what information may or may not be made available to the public at any particular time is extremely sensitive, particularly as regards firm-specific information.

The Bank of England already produces a financial stability report twice a year, which is publicly available. It is not clear what type of information would be included in the proposed letter from the Bank to the FSA that is not already published in the financial stability report, with the exception of that which is firm-specific.

I have serious concerns that any response from the FSA would be likely to contain highly market-sensitive, firm-specific information and consequently should not be made public. I hope that this explanation of the Government’s position about this amendment has been helpful, and that the noble Baroness will be charitable enough to withdraw the amendment.

The Minister really should not ask me to be charitable. It is not something that comes naturally working in Committee, especially approaching midnight; so charity will not form any part of my decision-making process in relation to the amendment.

The Minister explained how the tripartite arrangements are already working effectively, and so on. Such arrangements have been in place since 2000 at least. Had we asked the question at any point along that time continuum, I suspect we would have been told that the tripartite arrangements were working effectively, with meetings at the various levels that the Minister described.

Of course there was a disconnect between the Bank’s analysis of what was happening to debt in the economy and what the FSA was doing. There is no question of that. If you look very carefully at the financial stability reports you can find some of that analysis. The financial stability report is put together in a rather academic way. It is not a communication from the Bank saying it believes that leverage ratios and personal debt are too high, or whatever.

That is the genesis of needing an additional process and needing it to be public so that the Bank’s views can be put on the record. I agree with the Minister that no part of the correspondence should be firm-specific. That was not the intention of our proposals, which are to deal with issues of macro-analysis and what the FSA’s generic response to that macro-analysis would be.

The Minister asks me to withdraw the amendment. As far as I can see, the Government have no proposals to meet this policy-instrument gap that both the governor and the deputy governor have highlighted. We are offering something which we believe would fill that gap and in effect turn the clock back to remedy something that got lost when the FSA took over banking supervision. I will think further about what to do with this before Report. I beg leave to withdraw the amendment.

These days parliamentarians receive very little praise. What we usually get is offhand criticism by people who question our motives or our behaviour, so I pay tribute to this Committee. Although I have not attended much of the Committee stage until today, the Hansard reports of the well mannered and illuminating debates on this Bill bear witness to anyone who cares to read them that this House is overwhelmingly occupied by thoughtful and responsible people, honestly striving by their own best lights to pursue the ideals for which the place stands. I hope to live up to the standards of the Committee with my three amendments today. They are all related and they all have the same purpose. For your Lordships’ easy reference I can provide a simple précis: never again.

Were there to be a fire in Britain with many hurt and much property damaged, you would expect the Government of the day to bring forward a Bill. Let us call it the “Fires Bill”. Were that Bill to bear any resemblance to this Banking Bill, it would deal in an excellent and worthy way with the speed of the fire engine on the way to the scene; who was in the driving seat; what type of hoses the fire engine carried; who was in the control room; and where the control room was situated. All very worthy and important, but in fact people would want to know what the Bill did to prevent the outbreak of such a disastrous fire again. This Bill, worthy though it is—which is why my noble friend has supported so much of it in principle—does not do that. That is why I have tabled Amendments 198A, 198B and 203A.

Amendment 198A deals with the error in the remit of the Bank of England of obliging the Bank to focus only on inflation. Amendment 198B addresses how that error was compounded by obliging the Bank to focus only on one kind of inflation—the wrong kind. Later we will come to Amendment 203A, which places a duty on auditors to investigate and report on banks’ exposure to liabilities held off balance sheet. These amendments will not abolish the economic cycle but taken together, if they were on the statute book, we would never again have an economic crisis caused by a banking crisis caused by debts that went unseen by auditors, regulators and central banks.

I stress to the Committee that I am not interested in apportioning blame for this crisis. Should there be the failure of free markets or failure of regulation, I really do not mind; or the failure of the FSA, failure of the Bank of England, failure of the Treasury or failure of the whole tripartite system, again, I do not mind; or the failure of the UK, or of the US or of the entire world, again, I do not mind. I have one, and only one, modest aim, which is to persuade the Minister and Her Majesty’s Government to accept the advice of your Lordships’ House to make sure of one thing: never again.

One of the first things I learnt about being active in politics was always to stay to the end of the meeting. The noble Lord, Lord Saatchi, has followed that injunction, sitting quietly listening to our deliberations for eight hours. I am pleased to welcome him back to our debates on economic policy and to those heady days when we were discussing the then Bank of England Bill.

I am afraid I never altogether agreed with him then and I do not now on this subject. The problem of the Bank of England or the Monetary Policy Committee is when you give it one shot but two targets. The great advantage of the remit at the moment is that it has one shot in its locker, which is the interest rate, and one target, which is the inflation rate. That makes it much easier for it to do the job.

As it happens, most of the criticism of the MPC for most of its period is that it kept interest rates too high, that it could have reduced interest rates further to promote growth and employment, and that, far from it being a profligate institution about interest and inflation rates, it erred on the side of caution. Also, from the beginning of last year David Blanchflower, a member of the MPC, argued that, given what was coming down the track in inflation as much as anything else, the Bank should have been cutting interest rates. Even within the existing remit of the MPC it would have been completely possible for it to cut interest rates quicker than it did.

We objected that it seemed to be slow in reducing rates dramatically in the autumn, but at that point our solution was for the Treasury to invoke the provision in the Bank of England Act that would allow it in exceptional circumstances, which these undoubtedly were, to override the basic interest rate target and to set different objectives for the MPC. We thought that the Government could and should have acted in that regard. As it happened, it would have made very little difference because the Bank acted of its own volition probably within about a fortnight of our feeling that it should have moved more quickly.

I am sorry not to be able to support the amendment. I do not know whether the noble Lord intends to speak separately and in detail to Amendment 198B. If he does, I shall respond to it then.

As we heard, Amendment 198A would change the objective of the Bank of England in relation to monetary policy. I welcome the noble Lord’s considered, measured and sincere expression of views on a matter on which I know he has been much exercised for some considerable time.

As noble Lords will no doubt be aware, and as the noble Lord, Lord Saatchi, has already explained, Section 11 of the Bank of England Act 1998 states that the Bank’s objectives for monetary policy are maintaining price stability and, “subject to that”—the offensive words—supporting the economic policy of Her Majesty’s Government, including their objectives for growth and employment. The amendment would make these two objectives equal in weight.

As the Government reaffirmed in the 2008 Pre-Budget Report, the existing monetary policy framework remains the right approach for these challenging economic circumstances. Its design gives the independent MPC the means to deliver price stability while avoiding unnecessary volatility in output. I do not agree that it would be beneficial to the UK’s economic policy over the medium term to amend the objectives of monetary policy and, in effect, to give the Monetary Policy Committee a dual mandate. As the noble Lord, Lord Newby, suggested, there would be one instrument and two targets. First, price stability is the MPC’s primary objective, with good reason. Price stability is a pre-condition for growth and full employment, so it must be achieved first and foremost if economic stability is to be secured.

Secondly, the amendment is unnecessary as the remit for the MPC already provides for the committee to respond flexibly in difficult economic circumstances. The 1998 Act states that the Treasury shall, by notice to be provided in writing to the Bank at least once in every 12-month period,

“specify for the purposes of section 11 what price stability is to be taken to consist of, or … what the economic policy of Her Majesty’s Government is to be taken to be”.

The Chancellor last wrote to the governor stating the purposes of Section 11 at the 2008 Budget. The remit letter stated:

“The framework takes into account that any economy at some point can suffer from external events or temporary difficulties, often beyond its control. The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the … target in these circumstances may cause undesirable volatility in output”.

I also refer the noble Lord to the minutes of MPC meetings, which show the importance of GDP growth influencing inflation as a factor underpinning the committee’s interest rate decisions. I think that noble Lords will find that that is a consistent element in the MPC’s minutes.

Thirdly, giving the MPC a dual mandate, with equal priority for both price stability and economic growth objectives, would risk markets and the public doubting that the MPC would act resolutely on inflation if there could be negative short-term consequences for growth, which could destabilise inflation expectations. This was clearly at the heart of the discussion in this House when the Bill was first debated. Inflation is pernicious; it steals from the weak and at times gives to the reckless. It is not something on which the Government would want to take a risk. We believe that commitment to a low and stable rate of inflation, as delivered by the MPC with much credit to the Bank of England and the members of the committee over the past 10 years, has played an important part in a period of exceptional, consistent economic growth. That period of growth has come to an end as a consequence of global factors. We found ourselves in a recession alongside most of the world’s major developing countries. It is difficult to believe that that can be laid entirely at the door of the MPC, let alone three words in the Act.

Accordingly, I respectfully suggest to the noble Lord that he considers withdrawing his amendment, but before doing so, he might wish to speak to Amendment 198B.

I should have done that and I apologise. We can talk about what to do with both amendments at the end.

I hope that I explained in Amendment 198A the error in the Bank of England’s remittal, or my version of it, of obliging the Bank to focus only on inflation. Amendment 198B deals with how that error was compounded by obliging the Bank to focus on only one kind of inflation—the wrong kind, as it happens. Whereas the Bank’s consumer price index keeps a close eye on inflation on the price of a packet of peas and a loaf of bread, it overlooks the very aspects of inflation that caused this crisis—all the debt, housing and mortgage ingredients of our present misfortune.

For the past five years debt inflation was 9.5 per cent a year, which is four times the Bank of England’s CPI inflation target. Where is debt inflation in the CPI? It is not included. During the same period the inflation rate of one particular asset class—property—was 13 per cent per annum, which is five times the Bank of England’s CPI target. Where is that in the CPI? It is not included. What about the cost of acquiring and holding these property assets—mortgage interest? That is not included in the CPI.

I understand the difficulty in suggesting a definitional change for inflation. The current CPI is bound by international standards and enforced by EC regulation. It was apparently intended to measure the changing price of consumer goods and services and not the change in the value of assets or debt servicing costs. That was a mistake on the part of those who devised the measure. Eurostat, which is the responsible body, has now conceded that it was an error and has apparently been considering for some time the inclusion in the CPI of service costs for acquiring new owner-occupied housing. Sadly, that investigation by Eurostat has not yet concluded an appropriate practice.

It should get on with it. The Bank’s CPI measure of inflation is out of touch because the world has changed. The era of controlling inflation and inflation expectations with hand signals from Threadneedle Street to deter troublesome union wage demands is over. Millions of people had become investors in a new asset class. They were homeowners. We are used to lamenting the disappearance of private investors from the stock markets, but they did not stop investing; they just found something better to invest in—property. They adopted a simple model: I borrow money; I buy an asset; the price goes up; I exit the asset; I repay the loan; I keep the profit. That was the joy of debt, as taught by the masters of private equity. Why should private individuals not do the same? They did in their millions. By creating the false impression—that is my opinion, although it is denied by the Minister—that low inflation meant financial stability, and then measuring the wrong kind of inflation, the Act encouraged the view that it was safe to borrow and invest. British households took the message and took on twice as much debt as their EU counterparts. UK average household debt more than doubled from £23,231 in 1996 to £56,501 10 years later—that is staggering—yet the rate of inflation, so called, as monitored by the Bank of England, excluded debt inflation, asset class inflation and mortgage interest inflation, the very causes of the current crisis. Nor did Section 11 in the original Act consider how a change in the inflation rate of a certain asset class could bring about a dramatic collapse in the economy, notwithstanding low inflation as defined by the Bank and the Act.

As the current chairman of the Federal Reserve, Ben Bernanke, put it recently, there is no one correct method for valuing an asset class, and the Minister is extremely well aware of that. There are two methods. The first is the price a normal seller would receive from a normal buyer who considers the value of the asset at maturity. The second is the price a distressed seller would take now from a reluctant buyer. That change in valuation methodology, which is completely unforeseen in the Bank’s definition of inflation, created this crisis. By focusing on the wrong kind of inflation, as the Act directed it to do, the Bank of England was blindfolded to the disaster that could occur in a low-inflation environment. This amendment takes off the blindfold. I beg to move.

I have rather more sympathy for this amendment than for the noble Lord’s previous one. It has been obvious for a long time that the asset price bubble in housing was a major feature of the way in which households were viewing their purchasing and prices more generally. For a long time, the governor of the Bank—this is nothing to do with Europe—resolutely denied that the measure of inflation should take any account of asset prices. He has been before the Economic Affairs Select Committee of your Lordships' House many times and made that point very eloquently. He was totally deaf on the point. It is now obvious that the spectacular rise in house prices was unsustainable and that it had a knock-on effect on inflation more generally because people were borrowing against it. There is now a recognition, even in the Bank, that something needs to be done.

The noble Lord, Lord Saatchi, said that they should get on with it. The good thing from his point of view is that they can now get on with this almost at leisure because inflation and interest rates are virtually zero, and this will not become a problem until the next irrational upswing. We probably have several years in which we can try to get a better way of valuing asset prices in terms of the inflation index before it will have any practical impact. I agree with the noble Lord that there is now a recognition by the governor and the banking authorities across Europe that something needs to be done. There is a window of opportunity during which there will be virtually no cost in doing nothing immediately, and during which I hope something will be done.

At present the definition of price stability is specified in writing to the Bank of England at least every 12 months and is not specified or restricted in any way in the Bank of England Act 1998. The Chancellor last wrote to the Governor of the Bank of England on 11 March 2008 to specify the inflation target as 2 per cent as measured by the 12-month increase in the consumer price index. It would be inappropriate for this mechanism to be constricted by the Act in the manner suggested. It is important that monetary policy decisions are based on the most relevant and accurate measure of inflation. To meet this objective there has been only one change in the inflation target since the inception of the MPC, in 2003.

The proposed amendment would remove the existing flexibility, which could be to the detriment of the monetary policy framework. The inclusion of the cost of property assets is one of the most challenging areas in constructing a consumer price index and has been debated at great length by economists and statisticians around the world. Its inclusion is even more challenging in the UK, where the current target measure of inflation, the consumer price index, is harmonised across more than 30 European countries, as the noble Lord, Lord Saatchi, acknowledged.

The independent Office for National Statistics and national statistical offices of other European member states are working with Eurostat, the statistical office of the European Community, to assess the most appropriate approach to including in future an index of owner-occupied housing costs in the CPI. However, at present there remains no international consensus on how to include the cost of property assets in this calculation. The noble Lord, Lord Saatchi, said that they should get on with it. I thoroughly agree, as did the Chancellor of the Exchequer in his recent Mais Lecture. While there exists no suitable measure of inflation that includes the cost of property assets, the noble Lord’s amendment would not only remove the flexibility which benefits the current monetary policy framework; it would damage the framework by forcing the adoption of an unsuitable inflation measure.

I thank the noble Lord, Lord Newby, for reminding us that in the world of central banking there has been considerable scepticism about whether it is possible to control both consumer price inflation and asset inflation through interest rates. Mr Alan Greenspan was clearly of the view that it could not be done and suggested that the best that the Federal Reserve bank could do would be to clear up the mess after asset bubbles had burst. He has now reflected on whether that was the right conclusion and has reconciled his earlier observations with reality by suggesting that he made assumptions about the behaviour of employees and boards of directors in banking organisations that proved to be too theoretical and lacking in a full awareness of human behaviour. The Governor of the Bank of England, Mr Mervyn King, expressed similar doubts in the past about the wisdom of the Bank of England seeking to control market valuations. However, there has been a change of view in the central banking community throughout the world.

It is possible that the time will come for the amendment of the noble Lord, Lord Saatchi. He may require a more complex series of proposals to achieve his goal. However, it is entirely laudable to aspire to his objective of “never again”. We should draw inspiration from that goal. However, at this stage his amendment is premature. The next trigger point may be a report from Eurostat and other statistical bodies, including our own national statistical office, on mechanisms by which owner-occupied housing could be incorporated into an inflation index. If a consensus emerged around that, the Chancellor of the Exchequer would be bound to take it into consideration in determining how to phrase the inflation objective. But until that work is complete—I repeat that I share with the noble Lord, Lord Saatchi, a wish to see them press on and bring this work to a conclusion—it would be too soon to go as far as his amendment suggests. Therefore, I would respectfully ask him to withdraw his amendment.

I thank the Minister for his generous remarks. The noble Lord, Lord Newby, made a brilliantly shrewd but simple point about the question of the definition of inflation; namely, that there is some time for Eurostat and the other bodies perhaps to form the consensus described. It is most unlikely that we will have another asset bubble any time soon.

On Amendment 198A and the remit, in November, when I put it to the Minister that this remit wanted changing for all the reasons we have discussed, he firmly said, “Not at all: the remit is excellent”. Therefore, being a modest soul, my hand literally trembled over what I think Trotsky called “the rubbish heap of history”. I was about to drop my Bill into the rubbish heap of history on the basis that the Minister knew what he was doing, as did all the luminaries in the Government, and that I was perhaps wrong about this remit for the reasons which the noble Lord, Lord Newby, outlined; namely, that it is better for a person to have one target than two, because they can get confused and conflicted and so on.

I felt that until this Banking Bill dropped through my letterbox. Then I saw that the luminaries had decided that the existing remit was incorrect and that something else needed to be added, which the Government have added in the form of Clause 228 on financial stability. I was going to drop my Bill and this point because of the merit of one remit rather than two, which the Government have abandoned under Clause 228. Five minutes ago, the noble Lord, Lord Davies, praised the merit of the “dual remit”. What was once the benefit of a single remit—which, as the noble Lord, Lord Newby, said, is concentration on one target—has been dropped by the Government in favour of the merit of what the noble Lord, Lord Davies, a few minutes ago called the dual remit.

If there is to be a dual remit, I would very much like my version of the second remit to be considered. I hope that the Minister will think about the merit of such a remit. It is not so remarkable. The Federal Reserve Act 1913 gave the Fed a dual mandate. It is apparently not the end of the world. The American economy has not done too badly since 1913. I hope that the Minister will reflect on it, and I thank him for his generous response. I beg leave to withdraw the amendment.

We return to more mundane matters with Amendment 199. I shall speak also to Amendment 200. Clause 233 makes some changes to the tenure arrangements in the Bank of England Act 1998. On the whole we welcome them, together with the somewhat belated conversion to open and transparent appointment processes. However, one important issue remains, which is not addressed by the changes in this Bill. We believe that the governor should be appointed for one non-renewable term. The Government propose two terms of five years. Our amendments propose one term of eight years.

There have been two very public reappointments to the office of the Governor of the Bank of England since the Government have been in power, each of which has left a sour taste. In each case there was a degree of briefing, presumably from the Treasury or No. 10, about the likelihood of the reappointment of the incumbents—the noble Lord, Lord George, as he now is, and Mr King. In each case the governor won his re-appointment but not without some loss of dignity to the office of governor. We do not want to see that happen again, and we do not believe that the process of advertising for a reappointment will avoid the problems happening again. The decision will still be made ultimately by the Chancellor and the Prime Minister, whatever processes precede it, and the problems that we have seen will therefore not be avoided.

In another place, the Minister’s rationale for opposing our idea of one term of eight years included the extraordinary suggestion that it would deter high-quality candidates. That is just nonsense: there would never be a shortage of candidates for the governorship of the Bank of England. Political interference is a much greater deterrent than length of term and it is that which our amendment seeks to address. I beg to move.

As the noble Baroness has explained, her Amendments 199 and 200 would change the duration of the governor’s appointment from five years, as it is at present in Schedule 1 to the Bank of England Act 1998, to eight years. They would also limit the governor to serving only one term of office rather than a maximum of two, as provided for in Clause 233 of the Bill.

The amendments would change the tenure of the governor. The current five-year term for the governor and deputy governor, as it was at that time, was set at the time of nationalisation in 1946 and has proved itself perfectly effective ever since. If the amendments stem from a concern that the governor is subject to additional influence or pressure as a result of the possibility of reappointment, I shall try to offer some comfort.

As noble Lords are likely to be aware, governor and deputy governor appointments are made by the Crown on the advice of the Prime Minister and the Chancellor. The term in office is fixed in legislation, and Clause 233 would limit the appointments to a maximum of two terms. Such a restriction is quite common in the realm of public sector governance. The powers to remove a governor or deputy governor from office are captured in the Bank of England Act 1998, and, while such a removal requires the consent of the Chancellor, the reasons for doing so are limited and are effectively for the Bank to determine.

Again as detailed in the Bank of England Act 1998, the remuneration and pension arrangements of the governor and deputy governors are set by the Bank, free of ministerial involvement. In future, vacancies for governor and deputy governor are to be advertised and to be conducted in a manner consistent with the principles of open competition, which were put in place for the recent recruitment of the deputy governor for financial stability. All of the elements relating to selection, duration of term, removal from office and level of remuneration are already subject to, at most, limited ministerial involvement.

Having a maximum of two five-year terms in office offers a strong balance between certainty and continuity on the one hand and flexibility on the other. A five-year term for the governor with the possibility of a second term gives the individual a natural break point at which to consider whether they wish to continue in the role. It also gives them something to work towards and provides an opportunity to consider their performance. In contrast, a single eight-year term might discourage some strong candidates from applying, as they might not feel that they can make such a long-term commitment.

I hear what the noble Baroness says in that respect, and she is absolutely right that the governorship of the Bank of England is a coveted position that carries great respect and esteem. But in an environment in which people increasingly seek flexibility in their life and the capacity to move between sectors—to move out of academia, perhaps, into the private sector and then back into academia or a banking institution—we should not lightly dismiss the idea that an eight-year term might be a deterrent, particularly if one is considering an applicant from outside the bank who, regardless of how well he or she conducts their research, may not be able to achieve absolute clarity as to whether it is a role they are truly going to be able to do well. As such, a five-year appointment with an opportunity to exit at that stage may well persuade a candidate to step forward, which they may not wish to do if they have to commit to a period of eight years.

I agree that it is a matter of judgment. It is six of one and half a dozen of the other. I simply would not lightly reject the idea that a longer period of appointment might be a deterrent. To stretch it to absurdity, it if were a 15-year appointment, one would imagine that candidates of extraordinarily high quality simply would not accept. Where is the tipping point? Is it at five years or eight years? That must be a matter of judgment and experience. For that reason, I disagree with the amendments tabled by the noble Baroness, and I ask her to withdraw this one.

I wished to hear what the Minister and the noble Baroness, Lady Noakes, said on this amendment. As the Minister rightly points out, it is a matter of judgment. Having heard both arguments, we on these Benches feel that five years renewable is more sensible than the “big bang” decision of giving someone the job for eight years, when one may well regret it very shortly afterwards. Five years renewable is the choice given to the electorate. In America, presidents may be given eight years, but there is a review after four years, if I can put it that way. The case made by the Minister, I think, is right. Five years with one further term is the appropriate way to proceed.

I am grateful to the noble Lord, Lord Oakeshott of Seagrove Bay, for his observations and comment. I repeat that this arrangement has been in place since the immediate post-war period. We have had an extraordinarily good succession of very high-quality governors. If it isn’t broken, we should not seek to mend it. The existing arrangement has worked well and is working well, and there is no reason why it should not continue to work well.

I thank the Minister for his considered response. The Minister says that the system works well, so we should let it carry on working well. My point was that it had stopped working well because of the highly publicised nature of the reappointment process for both of the recent incumbents. I am sure that the Minister will recall the most recent one, although he may not recall the previous one, which was when I was a member of the court of the Bank of England. It was a distressing time, and it was not easy for the office of governor, which is a highly revered office in the UK and internationally, to continue to hold its head high in that period when there was much counter-briefing.

I understand what the Minister has said and, in ordinary terms, five years renewable is a perfectly sensible arrangement. My party’s point is made in the particular context of the office of governor of the Bank of England. That appointment would be taken completely out of politics if there were no possibility of interference. We shall not agree on this, and perhaps this policy will have to await another general election. I beg leave to withdraw the amendment.

I have given notice that we wish to oppose Clause 235 standing part of the Bill. This clause removes one of the few regular sources of information about what is going on in the Bank and replaces it with absolutely nothing.

Since the Bank Charter Act 1844, the Bank has been required to produce a weekly return, which is in the form of a weekly balance sheet. The underlying rationale for removing this requirement is, I understand, to allow the Bank to conceal covert support operations on the basis that public knowledge might increase the likelihood of financial instability, either generally or in a specific case about the bank or banks being supported. On the other side of the coin, financial markets need information about the financial system if those markets are to work efficiently. Why does the possibility, which is probably remote, of a covert bank operation supplant the ongoing need for market transparency?

Clause 235 removes the legal requirement that the Bank of England must produce weekly returns of accounts from its issuing and banking departments. This requirement was established in the Bank Charter Act 1844. The weekly return consists of a one-page summary, produced by each department, indicating the sum of assets and liabilities for that department for the week in question. As the noble Lord, Lord Saatchi, was kind enough to remind the House earlier, my previous career was as an investment analyst. I and just about most other people in that trade—and it is a trade, not a profession—were oblivious to this weekly report. Very little analytical work and very few conclusions were based on this report because of its limitations, referring, as it does, to the weekly returns from two departments of the Bank, rather than from the Bank as a whole. After the provision is revoked, the Bank of England will still be able to publish such or similar accounts if it so wishes, but it will not be compelled to do so.

I am grateful to the noble Baroness for calling this debate. I hope to address what I believe respectfully to have been certain misconceptions as to its effect.

Clause 235 is designed to prevent the Bank having to make what may be inappropriate disclosures under certain market conditions—for example, disclosures connected with any liquidity assistance that it might provide to the market or to a particular institution.

The experience with regard to Northern Rock, when such a report first received significant attention from the analytical community, has shown the risks associated with the market becoming aware of the provision of liquidity assistance to an individual firm before there has been time for that assistance to be effective in helping the firm resolve its difficulties. In that case, analysts studied the weekly return of the Bank of England in an attempt to determine the amount of liquidity support drawn down. This contributed to the critical problems with market confidence that we saw over Northern Rock, as the Bank of England explained.

If the Bank of England had not been legally required to produce a weekly return over this period, it is conceivable that some of these difficulties may have been avoided. It is for this reason that the Government intend to remove the legal requirement to publish on a weekly basis, allowing the Bank of England to judge what form of reporting is appropriate in given circumstances.

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. However, in periods of high market stress, such as we have experienced recently, there may be circumstances where immediate disclosure of liquidity support is in no one’s interest. Some honourable Members in the other place rightly noted that it would be difficult to delay disclosure of major liquidity support operations for any significant time. I agree. It would not be practicable, and the Government do not intend for there to be delay in the disclosure of liquidity assistance for anything beyond the short term. However, in dealing with the sensitive issue of market sentiment, days and even hours matter, and the ability of the authorities to exercise a degree of choice over how information is disclosed is important.

Clause 235 therefore addresses the issue by removing the legal requirement to report. It operates in conjunction with Clause 242—“Registration of charges”—and Clause 243—“Registration of Charges: Scotland”—in removing provisions that may require premature disclosure of liquidity assistance by the Bank of England. These are appropriate and proportionate measures, the need for which has been proven by events. The drafters of the Bank Charter Act 1844 would not have anticipated the impact that enforced disclosure could have in modern markets, and it is the Government’s view that the provision needs to be changed. I hope that I have given noble Lords a clear indication of why the Government are pursuing this clause.

Concern has been expressed with regard to the transparency of the Bank of England. As I mentioned, the Government have no intention of reducing the overall level of transparency of the Bank’s activities. It is my firm belief that there will be no substantial overall impact on the Bank’s transparency as a result of the clause.

In practice, the publication of the weekly return has ceased to be needed as a record of the Bank’s activities, since other instruments, including an annual statement of accounts, have superseded it. The Bank of England also remains subject to normal Office for National Statistics and Companies Act reporting requirements. Further, it is worth noting that the requirement for the Bank to publish a weekly return is not one to which the market has expressed any major attachment.

The Bank of England is at present unusual among central banks in being required to report on a weekly basis. None the less, it is cognisant of the need for transparency in its activities. I can inform the House that the Bank intends to consult with interested parties on appropriate disclosure in the future. It already publishes extensive information under its commitment to international best practice in statistical reporting.

I hope that I have reassured noble Lords on the intention behind this clause. It is an appropriate and proportionate step to enable the Bank of England to take proper control of its reporting processes and to avoid a serious failure of market confidence in periods when liquidity assistance has been offered. In reminding the Committee of the Bank of England’s indication of its intention to consult on disclosure and transparency, I trust that for now noble Lords will withdraw their objections and let Clause 235 stand part of the Bill.

The Minister’s reply is helpful. I am not sure I understood which Companies Act reporting requirements apply to the Bank of England because it is not subject to the Companies Act. No doubt the Minister can clarify that in writing.

I understand the Government’s concern about not wishing to increase the possibility of financial instability; I conceded that earlier. The fact remains, however, that some information from which markets could find out whether the Bank was printing money, for example, will be removed. The Minister says that there is no intention to reduce transparency but that the Bank will publish if it so wishes. That does not seem like a recipe for transparency. I will, however, consider further before Report.

This amends one of the FSA’s regulatory objectives as set out in Section 3 of the Financial Services and Markets Act 2000. At present—we discussed this earlier today—the market-confidence objective is,

“maintaining confidence in the financial system”.

That is all very well but it assumes that the system merits confidence and there is nothing in the FSA’s objective which requires the FSA to ensure that the financial system is worthy of confidence. Only if that is achieved should the FSA seek to maintain confidence in the system. I am indebted to an Adam Smith Institute pamphlet on bank regulation for the inspiration behind this amendment. I hope the Minister can see that the reworded objective would at least more honestly deal with what the FSA should be trying to do. The current wording of the objective does not give a clear indication of what the FSA should be doing. I beg to move.

This amendment does not add a great deal to the Bill and I will ask the noble Baroness to withdraw it. I would, however, like to reassure her that what she is proposing is broadly in line with the clause as it stands. Section 3(1) of the Financial Services and Markets Act 2000 provides that the FSA’s market-confidence objective shall be,

“maintaining confidence in the financial system”.

The proposed amendment would substitute the existing drafting to require the FSA to undertake its statutory functions with the objective of,

“ensuring that the financial system operated in a way in which public confidence is justified and achieved”.

The existing market-confidence objective is broadly drafted to encapsulate public confidence to include the confidence of individuals participating in the financial markets and exchanges but also those individuals who participate or benefit from the provision of regulated activity or other activities connected to the markets and exchanges. However, the FSA is also subject to public awareness and consumer protection objectives, including the objective of reducing financial crime. These objectives together are designed to contribute and enhance public confidence in the financial system. The FSA already has a strong focus on consumer and public confidence as part of its public awareness and consumer protection objectives, as well as its market confidence objective. So the FSA is already under the obligations to which the noble Baroness’s modest amendment would only add unnecessarily. Because the FSA’s remit is quite clear in the legislation, the amendment can safely be withdrawn. I hope that the noble Baroness agrees with me.

I do not agree with the Minister. I would not have tabled the amendment if I agreed with him. The Minister says that the FSMA is perfectly clear, but it is not. It just says,

“maintaining confidence in the financial system”.

You have to go through quite a lot of contorted hoops to get to the position where the Government say, “Of course it covers all these things”. The man in the street reading that would not understand it, and neither did the Adam Smith Institute, which is why it featured in one of its pamphlets.

I shall consider what the Minister said on the subject. For the moment we must agree to differ and I beg leave to withdraw.

I return to the theme of spotting what has emerged in the past 18 months of the banking crisis but is not dealt with in this Bill. There has been much criticism of the work of the credit-rating agencies, which were at the heart of the activity of packaging up loans or elements of loans and giving them credit ratings which, as it turned out, seemed out of line with the underlying reality. The credit-rating agencies came in for a lot of criticism for their involvement in the sub-prime debt crisis. Of course, the individual institutions that had their instruments rated did not escape blame, but the credit-rating agencies themselves attracted considerable blame. They also attracted blame from, for example, local authorities that had deposited money with Icelandic banks and felt let down by the ratings given.

As I understand it, the Financial Stability Forum is working on this issue for the G7. The EU has already announced that it wants to use the Committee of European Securities Regulators, working through national regulators, to deal with credit-rating agencies—so it will probably happen anyway. My amendment would allow the Government to get ahead of the curve. We do not need to be told by Brussels or the G7 what to do; we have one of the biggest financial services centres in the world and we should be leading the way, not waiting to follow. My amendment adds credit-rating agencies to the activities covered by the FSA’s definition of regulated activities, thus bringing it within regulation. I beg to move.

The Government are not opposed per se to the view that credit-rating agencies should be subject to additional oversight. We believe, however, that given the global nature of the credit-rating industry, regulating such agencies nationally would not be the most effective option.

The Committee will be aware that the European Commission has published a proposed regulation on credit-rating agencies. The Government have been in discussion with the Commission during preparation of that proposal, and we have consistently supported the introduction of a strengthened oversight regime for those agencies—as agreed at the ECOFIN council on 8 July last year—and the principles that they should be subject to an EU registration system, subject to practical considerations being resolved, and that such a system should be proportionate, principle-based and risk-based.

As the EC plans to adopt that regulation in the coming months, it would clearly be inappropriate for the UK to take forward national regulation of credit ratings. Even if that were not the case, I can reassure the noble Baroness that if the Government decided unilaterally to regulate credit-rating activity under the Financial Services and Markets Act, that Act as it stands may well be broad enough to permit it. Credit-rating is probably sufficiently close to the activities already listed in Schedule 2 to fall within the scope of what may be regulated under the FSMA. Therefore, changes in primary legislation are not necessary; the only amendment needed would be to that Act’s regulated activities 2001 order.

If that is insufficient comfort for the noble Baroness, I reiterate what has been said repeatedly from the Dispatch Box during this Committee on amendments that seek to change the Financial Services and Markets Act: it would not be appropriate to change the fundamental objectives of the FSA via this Bill, as its primary focus is banking. This is not the occasion for a fundamental rewrite of the legislative structure governing the FSA. On both those main grounds, I hope that the noble Baroness will appreciate that the Government’s position is sound, and that the amendment should be withdrawn.

I thank the Minister for that comprehensive reply, which I shall read carefully in Hansard. I beg leave to withdraw the amendment.

I am moving this amendment because the best form of bank regulation is full disclosure. This amendment concentrates on requiring a bank’s auditors to provide explanation and commentary on contingent liabilities contained in the bank’s off-balance-sheet investments. That is so important, because the record seems to show that this banking crisis was started by an acronym.

At Second Reading, I offered noble Lords a real sentence that came from the banking world:

“I use CFDs in my SIV to buy CDIs in the CDS”.

I encouraged your Lordships to ask your friends in the banking world what that meant. I have been doing that over Christmas, since Second Reading, and I have yet to meet a chairman, a chief executive or an owner of a bank who can translate that sentence into plain English. They know what those acronyms are, and what the letters stand for. They know that they exist, but cannot explain what they mean.

The distinguished former Governor of the Bank of England, the noble Lord, Lord George, confirms the point. Writing about those banking acronyms in a recent pamphlet, he said that when they arose while he was the governor he did not understand,

“how they were rated or related”.

Those acronyms brought the world to its knees, and hence this amendment. I do not want to detain the Committee at this hour, but on the audit of banks it is important to appreciate the startling creativity of how that all came about. Some people—wise people—said that the amendment was pointless because you could not legislate for creativity and that there would always be a way around whatever rules or regulations there were. I do not have such a low opinion of the law, so I am still confident of the amendment.

I will try to edit what happened as best I can. We all know that there was a time when it was thought that banks should not lend more than they had on deposit. Then it was thought that that was very restrictive on banks and that they ought to be able to lend a multiple of what they had on deposit. It was unfair not to let them do that because not all the depositors would ever ask for their money at once. Then it was agreed that there could be a multiple, which became a ratio. That was going to be determined by a body called the Basel Committee, with which this Committee is familiar.

The Basel Committee does not lay down rules. It is a committee of central banks, regulators and bankers, and has no authority and no power. It describes itself as a forum and makes what it calls recommendations. It made recommendations about what the capital ratios of banks should be—in other words, what the multiple of deposits should be.

Here came the first startling piece of creativity on the part of the banks, which was deliberately concocted to get around the restrictions of the Basel Committee. It was to create what are called structured investment vehicles, which for some reason—and I still have never had an adequate explanation from any auditor—could be contained off balance sheet. Therefore, these became investments, not loans, and this was no longer a bank’s loan book; it was a market in investments. It enabled the banks to do exactly what it intended, which was to lend more.

As banks began to lend more, they began to lend more to classes of activity that brought them to a second restriction, which was the credit rating agencies, just referred to by my noble friend. Apparently, in this world it is not possible for certain institutions to buy or invest in anything other than what are called triple-A-rated securities. Sometimes they do not want to; sometimes they are not allowed to. Anyway, they reached the point where they had to overcome the problem that the credit rating agencies were refusing to give triple A ratings to some of these investments. They hit on another brilliant way around that; they created a new industry. They went to insurance companies which, up until then, had insured cars and houses against loss, and said that this was a new world in which they could insure securities—debts—which the insurance companies willingly did. The banks were then able to go back to the rating agencies and say, “There you are. These debts are now triple A because they are insured”.

Therefore, in two steps you have the makings of how so much debt and liabilities were contained off balance sheet in the accounts of giant banks. This is why when the crisis arose it was all such a shock and why it is still unravelling. Nobody knew—not even the Minister himself, not the Treasury, the FSA, the Bank of England, the US Federal Reserve, the US Treasury Secretary or the Chancellor of the Exchequer—and they still do not. I am assured that there are more write-offs and shock announcements on the way. To give the Committee an idea of the scale, Citigroup still has $1.2 trillion in off-balance sheet special purposes entities. To underline the point, the Committee should consider what was said by a senior Government source on Friday about the liabilities of the banks. He said:

“In short, we do not know what they are worth. All the assets on the balance sheet have got to be valued to the best of our ability. Auditors have been brought in to work this out”.

That statement, were it to apply to the grocery shop down the road in your local high street, would be sad but understandable. When it applies to the biggest banks in the world, it is truly astonishing. No wonder the former head of the Federal Reserve, Alan Greenspan, looked on as all these events unfolded with what he called “shocked disbelief”. A request that banks routinely make to their customers—“Please show me your balance sheet”—was one with which the banks themselves could not promptly comply. This amendment places a duty on the auditors of the banks to ensure that this never happens again and that their clients can provide an answer in future.

My noble friend has made his usual eloquent and amusing case. I agree with the main thrust of his amendment, which is that there needs to be better disclosure in the accounts of banks. I have one quibble with him, which is that it is headed “Audit of banks” and requires auditors to put things in the notes to the banks’ accounts. There are many questions to be asked about the role of auditors in the financial crisis but I do not think one of the answers is to give them power to write things in the banks’ annual reports. That is for the banks themselves. If this were headed “Accounts of banks”, it would be a more straightforward amendment, but I completely support the thrust behind it.

Today of all days, I would have hoped that the noble Baroness, Lady Noakes, would declare an interest as a pensioner of an audit firm and take a more robust view.

I have no interest to declare as a former pensioner of a firm because I am not.

We on these Benches support the noble Lord, Lord Saatchi. If I can dare to give him a slight lesson in negotiation, I do not think he should have pre-empted the Minister. He makes an extremely powerful case. The Sunday Times yesterday also made a powerful case about the questions and the potential conflicts of interests for auditors, who are taking large fees for auditing our banks as well as substantial fees for non-audit work. I think the example that it gave was that Barclays last year gave £25 million to PricewaterhouseCoopers for auditing and £19 million for non-audit fees. There are serious questions, as in America, as to whether major audit firms should do non-audit work for banks, particularly in the present climate.

I remember during the passage of the Bill to nationalise Northern Rock that my amendment for an independent audit by the Bank of England was passed with Conservative support. Unfortunately, it was overruled in another place. PricewaterhouseCoopers was, again, the auditor there. Serious questions remain over their failure to get to the bottom of what was going on at Northern Rock and properly to alert the Financial Services Authority. We on these Benches believe that the amendments of the noble Lord, Lord Saatchi, are timely, significant and appropriate. If he chooses to press them to a vote at this late hour, we will support them. If he feels that he does not want to, I hope that the Minister will think carefully and consider what the noble Lord has said, and perhaps come back with a substantial response on Report.

In the present climate, with the taxpayer at risk for literally trillions of pounds, these are important and timely amendments. I hope that the Minister will take them seriously.

It is perhaps appropriate that I thank the Minister at this stage, after what has been an extraordinary time—and we have an extraordinary time to go on the Bill yet—for his courtesy throughout the debate. It has been noticeable that my noble friend Lord Saatchi has maintained that courtesy, as have my noble friends.

I was glad that my noble friend Lady Noakes was able to intervene so rapidly to respond to an unjustified attack by the noble Lord, Lord Oakeshott. It is difficult for me to find the words, because I was appalled at the manner in which he addressed his opening remarks about a declaration of interest. It is not something that I thought would happen. Of course, it is our normal custom to ascertain accuracy before one makes allegations against a Member of this House. It is not something that I take lightly.

I am happy to correct any impression that I gave. I thought about it as we were talking about auditors and I knew that the noble Baroness had been a partner. I am happy to withdraw anything. I thought that we ought to be particularly careful to declare any potential interests. I did not intend in any way to impugn the honour of the noble Baroness, Lady Noakes, and I apologise.

I listen with great interest to anything that the noble Lord, Lord Saatchi, says about banking. I remember that, in the late 1980s, his advertising agency Saatchi & Saatchi was reported to be considering the acquisition of Midland Bank. Whether those reports were true or not, perhaps the noble Lord will advise the Committee. He was certainly timely in spotting the opportunity for creative writing and creative skills in anticipation of new opportunities arising in the emerging and acronymic world of banking.

The noble Lord’s amendment would ensure that bank financial statements included full and proper disclosure of bank liabilities, so that shareholders, regulators and policymakers could understand the position and discharge their respective duties. I entirely agree with this purpose. Unfortunately, the amendment is not the most effective way of achieving this purpose. Indeed, I suspect that it would have damaging effects.

First, imposing this obligation on the auditor would confuse the clear, long-standing and appropriate relationship between companies and auditors. Directors must prepare accounts in accordance with detailed accounting standards and are legally responsible for their content, truth and fairness. That is the point the noble Baroness, Lady Noakes, was making. Auditors then examine their accounts and provide a separate opinion for shareholders on their truth and fairness. The amendment would reduce the clarity as regards who is responsible for disclosures and who for examining them.

Secondly, this obligation would effectively duplicate existing requirements. Banks are required to fully disclose their liabilities in accordance with the relevant standards if the auditor believes disclosure of liabilities or any item is inadequate or misleading. It must provide an emphasis of matter if inadequate or qualification if misleading in its audit report. I hope the noble Lord will agree that the critical issue is to ensure that the accounting standards governing bank disclosures and their application and audit is sufficiently rigorous to ensure full disclosure of off-balance-sheet liabilities, credit insurance exposure and all liabilities.

Let us consider the adequacy and application of accounting standards in these circumstances. Certain financial liabilities such as structured investment vehicles can, in some circumstances, be removed from company balance sheets. This is generally permitted when companies no longer have any responsibility for the liability; for example, if the liability has been taken on by another entity. Even if the liability must no longer be consolidated into the accounts, standards require disclosure of the liability in notes to the accounts. If the liability becomes due and the separate entity is unlikely to be able to meet it, the liability may then revert to the original company. It should rightly then be put back on the face of the company’s balance sheet, as opposed to being referred to in a note.

These decisions, such as the decision to reinstate off-balance-sheet liabilities, require judgments based on probabilities. For example, how likely is it that the liability will have to be paid, or that the separate entity will be able to pay it? It is appropriate that these judgments should be made in the first instance by company directors who surely should be the most knowledgeable about the assets they have placed on the balance sheet. It is equally appropriate that those judgments should then be reviewed and reported upon by the auditors. That is the essential check and balance. The criteria for making these judgments and the detail of the consequential disclosures are set down in international financial reporting standards.

As this point, I believe the noble Lord, Lord Saatchi, was correct in summarising what I would have said. At this late hour, I am cognisant of the fact that he may well have introduced the House to an entirely new form of debate in which a Member not only speaks to an issue but also provides his own response, thereby eliminating the entire need for the other side of the House. I will reflect on this when I finally place my head upon my pillow later this morning.

The noble Lord, Lord Oakeshott—duly chastised, but with his apology correctly made—indicated that if pushed to a vote he would support this amendment. I urge the noble Lord, Lord Saatchi, to reflect on some of the things I said which he did not anticipate. Like a great copywriter he covered most of the content, but missed one or two bits. The most critical is this balance between the responsibility of the directors for the content and the auditors for independent verification. I hope he will reflect on that and come back on Report if he is still not persuaded. I would be happy to engage with him on this subject outside the Chamber. In those circumstances, I hope he might be persuaded this morning to withdraw his amendment.

I am so persuaded. The only point that I wish to make to the Minister is that, if he were a lecturer at Harvard Business School and he described, as he did, the balance of responsibilities of companies’ directors and the auditors’ reviewing duty, everyone would have been very impressed and would have thought that it was a very sensible system. There is only one slight flaw, in that that was the system in place when this complete world calamity occurred, the basis of which was the production of incorrect accounts by the banks. Therefore, it does not quite work in the way that he described.

I hope that between now and Report he will reflect on what can be done to give the public at large, the media, and Members of this Committee and your Lordships’ House more confidence that the information provided by banks is truly timely and accurate, because that certainly has not been the case in the past six months.

This is a probing amendment but, in the light of some of the remarks about private banking that the Minister made in the Times on Saturday, perhaps it will receive the support that I had hoped for. My only disappointment is that we are debating what I consider to be a very important amendment so early in the morning, but I shall be as quick as I can in speaking to it.

The Government have been talking about a universal bank for the Post Office since 2000, and it is time that the talking stopped and the action began—it is time to decide. The case for it is fairly straightforward. There are 12,000 branches nationwide, and it would bring banking to deprived areas and bring in those who are currently financially excluded. At the same time, now that the Post Office card account has been awarded, we could change it from an account from which people can only withdraw money that has been deposited by the Government. Indeed, we could turn it into a real, fully functional card, and that would be of advantage for people who are deprived or excluded and have to pay more. However, of course we would have to prevent them going into debt.

The benefit to those in rural areas is self-explanatory. Banking facilities would be brought to rural areas, where the nearest bank is probably miles away. It would certainly be an advantage to the elderly, to people with disabilities, to mothers with children and to those without cars. I shall not go into that too much as it is self-explanatory. A lot of small and medium-sized businesses would also benefit. They rely on the Post Office and it would be a great advantage to them. This proposal is long overdue.

The question of what type of bank it should be is a different matter. I was speaking to the National Federation of Sub-Postmasters, whose members would like a return of the National Savings Bank. It was in existence for about 108 years—I think that it was abandoned in 1969—and the federation feels that it would be a suitable vehicle. Others take the view that Girobank, which was highly successful, should be brought back. Unfortunately, it was privatised by a previous Government, and I thought that that was a mistake. That is another way in which this issue could be dealt with. From my own point of view, I think that consideration should be given to the new Britannia/Co-op merger. It is mutual and ethically responsible, and I think that it would fit well into the banking service. That is just a thought .

Let me say finally that people like to go to the Post Office. They feel comfortable there. Many people who would not go near a bank go to a post office. Having made this plea, I hope that we shall not have to bring it back at Report, but I shall listen carefully to my noble friend’s reply. I beg to move.

It has been worth all the hours of waiting to be able to take part in this debate and support the amendment. I say that it has been worth the wait because the first wait for a National Girobank took 40 years. My organisation—in which I declare an interest, and which was for Post Office workers at the time—agitated and argued for what became the people’s bank, the National Girobank. So a few hours out of a January evening is not very much when we think of what is at stake.

My noble friend Lord Hoyle has just mentioned the Girobank. The question of a people’s bank, or a publicly owned bank which could operate within our Post Office organisation, has already been answered. The proposition is feasible. It was tried, tested and found to work successfully when the National Girobank was created in 1968—and then almost given away in 1990 because of political dogma. I have no problem with political dogma. The then Conservative Government wanted to sell it, so they sold it. They did not like it but they did it. I would argue that now that we have a Labour Government, the Government should resurrect it.

Just before Christmas I asked the Minister whether he thought that,

“the highly popular, efficient and straightforward banking service provided by the Post Office through the National Girobank was a very successful operation”.

I said:

“It was a tragedy when it was … sold off … for £118 million. At that time thousands of people were waiting to open accounts at National Giro”.

The Minister said that he would give the matter further consideration, and I asked whether he would consider reintroducing it. He said:

“I take note of what my noble friend has said. In the first instance I am going to convene a group of government departments to identify the potential additional work that the Post Office may do. There are opportunities there and we want to examine them closely”.—[Official Report, 13/11/08; cols. 789-790.]

It is late but I am pleased that I have stayed to hear this amendment being moved. I have no doubt that there will be other occasions when we can tell the whole sorry story of the sale of Girobank at a knock-down price. For tonight, or this morning, I simply ask my noble friend to agree to look at the possibility of resurrecting what was a reliable, efficient and growing bank at the time that it was effectively destroyed. It served ordinary folk then and it could do so again. It will not take long, as the evidence is there. I commend the article that appeared in the Scotsman soon after the sale took place. I was concerned that no other newspaper in this country carried the story. The accuracy of the financial shenanigans surrounding the sale of Girobank needs to be looked at. If I win the lottery I will get a student to write a thesis—I do not have the time. As I said, there will probably be other times when the story can be told, but for this evening I shall simply support the amendment.

We on these Benches support the amendment as well. I pay tribute to the noble Lord, Lord Clarke of Hampstead, who as a former postman knows what he is talking about. We are very concerned about the present banking arrangements of the Post Office, specifically its arrangement with the Bank of Ireland.

A few weeks ago I warned in this Chamber about the very shaky state of the Irish banks. I particularly had in mind Anglo Irish Bank, which I knew from my experience in the property market had been involved in some utterly wild lending in this country. Since then Anglo Irish Bank has had to be nationalised, and it was also discovered that its chief executive had his hand in the till—I think it is fair to say it that way—for more than £100 million. I warn noble Lords that the other two Irish banks and the Bank of Ireland, which is the partner for the Post Office and its banking services, are also in a very grave state.

Not many people who have deposits in the Post Office know that they are not covered by the Financial Services Compensation Scheme in this country. They are relying entirely on a guarantee from the Irish Government which runs out at the end of September 2010. We saw the risk of relying on guarantees from small foreign countries in the case of Iceland, and I have serious concerns about the position of Ireland.

In these very troubled times it is not appropriate for British depositors who have their money in the Post Office to rely—though many do not know it, as it is not made clear on the website—on an Irish Government guarantee. I reiterate the warning that I gave a few weeks ago. I ask the Minister and the noble Lord, Lord Mandelson, to face up to this problem and to make sure that we now get a stronger and more stable long-term partner for the British Post Office in its banking operations. The suggestion was made from the Benches opposite that a mutual such as the new Britannia/Co-operative, the Nationwide Building Society or one of the substantial, now mainly nationalised, British banks would be appropriate. Things are now too serious for depositors in the British Post Office to be relying, perhaps without being aware of it, on a guarantee from a small and shaky country. That is the real message of this amendment, and we should deal with it rapidly. If noble Lords press this amendment now or on Report, we would support it.

I am grateful to my noble friend Lord Hoyle for raising this important topic, albeit somewhat later than he would have hoped. I am also grateful to my noble friend Lord Clarke, who we all recognise to be a great authority on these issues and zealous on all occasions when he can put the case forward, as he did at this late hour.

I want to be as positive as I can in response because I recognise the value of several of the points made by my noble friends. Let us not underestimate the role that the Post Office plays at present in providing banking facilities. Banking facilities from all the major banks are already available in post offices. The most recent FSA guide to basic bank accounts, published in autumn 2008, lists 17 providers whose basic bank accounts can be accessed at the Post Office. In addition, current accounts from Alliance & Leicester, Bank of Scotland, Barclays, Clydesdale Bank, Halifax, Nationwide, Lloyds TSB, Northern Bank and the Co-operative Bank are all accessible at the Post Office. Moreover, the Post Office provides a range of its own services, including its own-brand banking services.

The noble Lord, Lord Oakeshott, said that he has no faith in any of the banks in Ireland or in the Irish Government guarantee. He may be justified in his warning, or he may, unlike Cassandra, be warning a great deal without validity. That is an issue for judgment. The Post Office has its own-brand banking services backed up by the Bank of Ireland, and depositors receive a guarantee of £100,000 backed by the Irish Government. The noble Lord, Lord Oakeshott, may have the confidence to say that that should be set at nought, but that is not the view of the British Government.

The Minister may recall that he was very dismissive of my warnings about Iceland. Can he confirm for the record that there is no British guarantee of any kind for deposits with the Bank of Ireland through the Post Office, and depositors are totally relying on an Irish Government guarantee? Can he just put that on the record, please?

I was not seeking to strike it from the record. Of course that is true: the noble Lord is right. I was indicating that the British Government do not share his opinion that the guarantee of the Government of Ireland is worthless.

I was suggesting that the guarantee is not nearly as good as one from a British Government or bank.

The noble Lord did not introduce that comparison, but of course I accept it. In any circumstances where one compares the support of the Government of one of the greatest economies in the world with that of a Government that represents one of the smaller economies of Europe, there is no comparison in terms of the resources that can be made available. The issue is the guarantee, and the British Government do not share the view of the noble Lord that there is an inherent insecurity because the Bank of Ireland’s work for the Post Office is backed by the Irish Government. I do not accept that.

I will now be more constructive and move on from this arid debate with the noble Lord about the value of the guarantee. It was recently announced by a British Minister, the Secretary of State for Work and Pensions, my right honourable friend James Purnell, that the Post Office will retain the contract to deliver the Post Office card account, a simple and effective facility for people to receive benefit payments. There is no evidence to suggest that present commercial arrangements for access to banking facilities through Post Office branches is inadequate. There appears to be no need for a statutory requirement to provide a service that is already available.

My noble friends talk about the potential of the Post Office. I agree that there is potential. However, more importantly, I want to quote a reference. The Government have asked the Select Committee on Business, Enterprise and Regulatory Reform to investigate what scope there may be for the Post Office to expand the services that it offers. As part of its investigation, the Select Committee will look at how the Post Office can expand its financial services. Constructive work is being done, and I appreciate the contributions of both my noble friends in seeking to emphasise that the Post Office may have greater potential than is being exploited at present.

My noble friend Lord Hoyle said that he will almost certainly raise the issue on Report if he does not get a satisfactory reply now. I imagine that a satisfactory reply would be to endorse every conceivable constructive suggestion that he has put forward, together with those that my noble friend Lord Clarke added to the list. I cannot quite do that, but I hope that my noble friends will recognise that the Government are already constructively engaged in extending the financial services of the Post Office to a much greater extent than many recognise. On that basis, I hope that my noble friend will withdraw the amendment this evening—if it is still this evening.

It is this morning, in fact. My noble friend, as always, was trying to be very helpful. We are asking for an extension of the full range of financial services through a public bank, so it is probable that we shall return to this on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 204 places a requirement on the Treasury to arrange an independent review of the workings of the Act three years after Royal Assent. When we reach the amendment about the review of the Act, we always know that we are on the final lap.

We have discussed what reporting requirements are or are not in this Bill at several points in Committee. Our call has generally been for more transparency and our calls have generally fallen on stony ground.

Perhaps I may remind the Committee that there are several types of concern about how this Bill will operate in practice. First, there are some very sweeping powers allowing the tripartite authorities to act when they believe that financial stability is at risk. If those powers are used—we probably all hope that they will not have to be used—it is right that how they have been used will be examined, together with the outcomes, whether they are positive or negative.

Secondly, there are concerns about the impact of some of these provisions in terms of how they will affect the financial services sector in the UK. The partial transfer provisions and their impact on legal certainty have stirred up much unhappiness. If either or both of the terms of Clause 48 or the provisions of the related statutory instrument are not satisfactory, there could be adverse arrangements on netting, set-off and similar arrangements. We know that the Government do not want that to happen but there is not yet agreement on all sides about the way forward. The BBA, for example, is keen for a review of this area after the Act has been passed.

Thirdly, the Government are keen on the breathtaking powers in Clause 75 to rewrite other legislation even on a retrospective basis and with virtually no parliamentary scrutiny. In other places, the Bill will be practicable only if significant secondary legislation is passed. There are other very wide powers and how those powers will be used is largely an open question.

My amendment is loosely based on the provisions of Section 14 of the Financial Services and Markets Act, which allows the Treasury to set up an independent review of the FSA’s value for money. I am sure that value for money was one of the prime concerns when that Act was going through. That is not the issue for this Act. Our concerns are much more about the impact of the Act on the financial services sector and whether it has been effective. I have suggested having a review after three years. There is never a right time, but three years should be enough time to reveal the kind of consequences that might arise, for example, if legal certainty on netting and set-off were not achieved. The major secondary legislation should have been made.

My amendment requires a review by an independent person. I think that there is justifiable scepticism about internal reviews. The position of the Treasury within the tripartite authorities means that it is parti pris for this purpose. A credible independent review will inform the Government and Parliament about the quality of the provisions in the Bill and whether it remains fit for purpose. It will also contribute to the wider public confidence in financial services. Because of that, I am confident that the Minister will welcome my amendment. I beg to move.

I should like to comment on Amendment 204. In order to save time, I shall also speak briefly to our Amendment 208, which would have the same effect. The noble Baroness has laid out a number of reasons why the Bill in certain respects raises as many questions as it answers. It contains sweeping powers. We have talked about a number of those today. We talked, for example, about the powers in Clause 225, and other clauses also introduce sweeping powers, which, had we not been operating in haste and in the middle of a financial blizzard, would almost certainly not have got into legislation in their current form.

My concern about the noble Baroness’s amendment is simply that you can have an independent person doing a review, but having people doing reviews, as we have seen with jolly old Equitable Life, does not necessarily mean that any action flows from them, however damning they are about the way that something is operated. Amendment 208 puts a stronger requirement on the Government because it requires them not only in effect to have a review but to justify the Act, as it will be, in its entirety after a three-year period. Parliament would then have a cast-iron opportunity, just as we have now, to debate the issues because the Banking (Special Provisions) Act had a life of only a year. It will give Parliament an opportunity to discuss the many and various issues about which we have ongoing concerns and which the noble Baroness raised.

As I said, my concern with her amendment is that, in a sense, it is too weak to ensure that Parliament has a chance to examine all these items in great detail. I realise that ours is a nuclear weapon of an amendment in comparison but I would rather that the balance was on that side than the other.

As she is fond of doing, the noble Baroness began with a sporting metaphor. Earlier she provoked my noble friend to produce a tip for a horse that was running today which came second at 40-1. That shows the virtues of these debates provided people act upon what the Government says. I objected to her sporting metaphor because it is all right the noble Baroness saying that she is glad that we have reached the last lap, but the last lap of a marathon is 385 yards and there are 26 miles before it. I feel today that we have been through that experience and I hope the last 385 yards will not take too long.

On the key points of the proposals in Amendment 204, mechanisms are in place to ensure that the arrangements can be reviewed and refined as we go forward. Most notably, the banking liaison panel will have an important role in advising the Treasury in due course on what changes are needed to legislation. The panel’s remit allows it to give advice on the secondary legislation made under Parts 1 to 3 of the Bill and it will be able to keep under review aspects of the special resolution regime, which is a very important part of the Bill, including the partial transfer safeguards and the detail of the operation of the new insolvency procedures established under Parts 2 and 3 of the Bill.

An ongoing process of review is surely far more appropriate than a one-off review. The tripartite authorities are bound to be fully accountable to the public, the courts and, where appropriate, to Parliament for their actions. Therefore, each time the special resolution regime tools are used there will be a process of consideration and review.

This said, I agree with the principle adumbrated by the noble Baroness in her proposed new clause. While we have mechanisms in place to review elements of the scheme, good governance and our better regulation principles demand that the legislation as a whole is reviewed at an appropriate time. It is therefore, of course, our intention to return to these arrangements and ensure that all elements of the scheme are appropriately covered by a review. I commit the Government to this position and I hope the noble Baroness will feel that that commitment is an earnest of our intent and meets the broad position put forward in her amendment.

The noble Lord, Lord Newby, said that he had produced a nuclear weapon. It leaves the noble Baroness’s approach looking relatively mild if I have to tackle the nuclear weapon of a sunset clause. As I recall from past occasions when tests used to take place at various atolls, the atomic bomb produces a rare form of sunset.

The noble Lord will appreciate that we have, as I have just indicated, appropriate mechanisms in place to ensure that the arrangements can be regularly reviewed and refined. I, therefore, hope that he considers that the sunset clause is not necessary. We have had a fairly substantial debate on this on two occasions, thanks to the initiative of the noble Lord, Lord Saatchi, on the necessity for a fundamental approach to these issues. He may not altogether agree with the Bill, but he has taken the trouble to contribute this evening because, as he will concede, the Bill has a long-term perspective on banking legislation. It is meant to set the basis for effective control of the banking system against the background of the difficulties of the past 18 months or more. We are not out of difficulty yet and, therefore, this is substantial legislation with a long-term perspective.

We had a limited time on the Banking (Special Provisions) Act, which lasted for a year. We all recognised then that we were acting in emergency circumstances relating to localised difficulties rather than the total position. This Bill is not about a partial, small-time solution: it is a fundamental reform of banking and the structure that we need for the future. I hope that the noble Lord, Lord Newby, will accept that a sunset clause, albeit slightly longer than one year, is more appropriate for legislation that has a shorter perspective than this Bill. Therefore, I hope that he will see that the processes that we have in place for review, answerability and accountability, which run right through the Bill, are an assurance and that he does not need to press his amendment. I hope that the noble Baroness recognises that I have accepted her principles and have interpreted them in a marginally different way, so that she is able to withdraw her amendment.

I thank the noble Lord, Lord Newby, for taking part in the debate and for grouping his Amendment 208 with Amendment 204. He described his amendment as the nuclear option, which it is. That is why we find so much difficulty with it. It seems to us that much in the Bill should be on the statute book in order to deal with the possibility of financial instability problems arising again; for example, the bridge bank provisions should be there permanently and should be a matter of detail and not fundamental provision. We do not feel that a nuclear option is right for a Bill as complex as this one; it contains so many necessary provisions. As I pointed out when I spoke to my amendment, we think that a number of areas will need to be revisited or reviewed after enactment.

The noble Lord, Lord Davies, referred to the Banking Liaison Panel’s role—an ongoing situation. On a number of occasions, the Ministers, like me, have pointed out that the wording of the Bill does not quite say that. I have already said that I will return to the matter. Clearly, that is helpful.

The Minister said that an ongoing process of review is better than a one-off process. I do not think that one is better than the other; they tend to be different elements of review. A one-off review tends to lead to a specific set of actions rather than an accumulation of points that have arisen. The Minister said that the Government would undertake review. The issue is whether that should be in the Bill. I am sure that the Government will review, but in their own time and in a way that they want. The purpose of my amendment is to put some structure and timing around that so that it is not left entirely to the Government of the day. I shall consider what the Minister has said before Report.

Before I withdraw my amendment, I have decided that we will not move Amendment 205, as my noble friend Lord James is unable to be with us, or Amendments 206 and 207. We will save those for another day. In view of the lateness of the hour, the noble Lord, Lord Newby, has indicated that he will not now be moving Amendment 208. That brings us to the conclusion of the Committee stage. I place on record the appreciation of these Benches for the staff of the House, and to Hansard, who have had to labour alongside us in circumstances which are clearly quite exceptional and difficult. For all of our differences, I think we have had a constructive Committee.

I second the noble Baroness’s vote of thanks to all those who have served the Committee so well through its proceedings. I pay tribute, of course, to the noble Baroness. All in the House will recognise that she has borne the majority of the heat and burden of every day on this Bill. We respect the work that she has done; I only wish she was slightly more appreciative of the Government’s responses on occasion. We look forward to Report.

I join other noble Lords in expressing our appreciation to the staff of the House for putting up with the way that we sometimes do business here. I confirm that I do not intend to press Amendment 208 to a vote.

I beg leave to withdraw the amendment.