Lord Vaux of Harrowden (CB)

My Lords, as we have heard several times already, the area of accountability around financial services Bills seems to always come to the fore, as the noble Baroness, Lady Noakes, pointed out. She referred in a recent group to the weak accountability that exists in the Bill. My Amendments 12 and 24 in this group aim to improve that. One of the main concerns raised at Second Reading was to ensure that the Bank of England explains why it has decided to follow a recapitalisation process rather than allowing a failing bank to fail and go into insolvency, which was the previous default. In particular, several respondents to the consultation raised concerns that the costs of the recapitalisation should not be greater than those that the FSCS would face under an insolvency process. Concerns were raised, not least by the noble Baroness, Lady Penn, that recapitalisation might become the default approach to a failing bank, rather than insolvency. At Second Reading, the Minister then referred to the strong expectation that “any reports required under the Banking Act to ensure ex-post scrutiny of the Bank of England’s actions when using the new mechanism would be made public and laid before Parliament ”. —[Official Report, 30/7/24; col. 933.] My Amendments 12 and 24 aim to strengthen the required reporting and to make it a requirement that those reports will be made public and laid before Parliament. Amendment 12 adds some detail around the contents of the report. In particular, it would require the Bank to explain why it chose recapitalisation over insolvency; to provide a breakdown of the expected costs, which we talked about in an earlier group; and to provide a comparison of the expected recapitalisation cost with what would have been expected to have been the cost under an insolvency situation. It allows the Treasury to stipulate other matters but, importantly, it also sets a shortish timetable for that report of 28 days. This really does have to be done on a timely basis. Also, importantly, the requirement to report—again, we discussed this earlier—will apply to any subsequent recapitalisation payments made to the same failing institution. Again, this overlaps with Amendment 3 in the name of the noble Baroness, Lady Noakes, which we have already debated. As I said at the time, it is critical that, any time we further recapitalise, we look again at whether that is the appropriate thing to do or whether insolvency is the appropriate option. To cover the ex-post scrutiny that the Minister referred to at Second Reading, the amendment also requires further reports to be issued and laid before Parliament once the resolution process comes to an end, whether that is through a sale or through an insolvency process. The whole process could be two years after the resolution process starts—indeed, it can be extended beyond two years—so it is important that what actually happens is scrutinised after the event and that any differences to what we were originally told was going to happen are explained. Amendment 14 laid by the noble Baroness, Lady Noakes, does something similar but leaves the detail of what must be included in the report up to the Treasury. I would be keen to provide the Treasury with some minimum requirements for the report; what I have laid out are the important aspects. Amendment 24 in my name simply tries to fix an anomaly, as I see it, in the Banking Act 2009. Under Section 80 of that Act, if a failing bank is transferred to a resolution company, the Bank of England must make a report to the Chancellor of the Exchequer and that report must be laid before Parliament. However, rather oddly—the Minister referred to this previously—according to Section 79A of the Banking Act, if all or part of the failing bank is sold to a private sector purchaser, the Bank of England must still report to the Chancellor but that report does not have to be laid before Parliament. The eagle-eyed among you in this Committee may have noticed that my initial version of this amendment simply stated that the report had to be laid before Parliament. We are getting to the point of the scope issues that the noble Baroness, Lady Bowles, referred to in her opening of the debate. That amendment was, at the last minute, ruled as being out of scope of this Bill. I find that hard to understand, particularly given that I felt that the Minister rather firmly put it in scope in his Second Reading speech, but it was decided that it was too broad to be in scope. I had to change it so that it refers only to the situation where a recapitalisation payment has been made. I ask the Minister to consider seriously whether he can use his influence to change that. It seems mad to do it only in this circumstance and not in the wider circumstance of a bank being sold to a private sector player. The officials have perhaps been a little overzealous with their interpretation of scope in this case—and in this Bill, more generally. As I said, in his Second Reading speech, the Minister pointed out the importance of Section 79A for scrutiny of the Bank of England’s actions. He also referred to the fact that there is no requirement for reports under Section 79A to be laid before Parliament. However, he went on to say that he could “reassure your Lordships that in any event where the new mechanism was used the Treasury would intend to ensure that any such reports were made available to Parliament and the public”.—[Official Report, 30/7/24; col. 933.] My amendment simply makes that intention a requirement; I hope that I am not pushing at a closed door and that it is not seen as controversial. However we go forward, it is essential that the actions of the Bank of England are subject to full scrutiny and transparency. At Second Reading, the noble Lord, Lord Macpherson, eloquently described the potential for a conflict of interest in the position of the Bank of England, pointing out that the Bank might choose to recapitalise rather than put a bank into an insolvency process “less because it is in the national interest and more as a way of minimising the reputational damage of regulatory failure”.—[Official Report, 30/7/24; col. 914.] Any decision to recapitalise should be explained to avoid possible creep to this process becoming the default. The noble Lord also raised his concerns that there is little incentive for the Bank to minimise the costs of resolution—after all, the industry, not the Bank, will pay. He gave the example of the Dunfermline Building Society incurring greater costs than the Treasury incurred in resolving the Icelandic banks. So I think it is essential that we strengthen the scrutiny of the Bank when it exercises these new powers, to ensure that any decisions it takes are clearly justified at the time and examined publicly once the resolution is complete so that any lessons can be learned. These amendments, or amendments like them, would achieve that. The Minister has said he expects all reports to be made public and laid before Parliament, so I hope he will simply accept them. Finally, I add my support to Amendment 25 from the noble Baroness, Lady Bowles, which is also in this group. We discussed in the first group the concerns around the MREL regime that are raised by the Bill, so it seems entirely appropriate that an assessment should be made of the impact of the Bill on the MREL regime. I beg to move.