Financial Services Bill

Debate between Lord Davies of Stamford and Lord Northbrook

Tuesday 3rd July 2012 Lords Chamber

[Lord Davies of Stamford]

My Lords, I think that my noble friend Lord McFall and the noble Baroness, Lady Noakes, have been very persuasive on this point. All human institutions—indeed, all human beings—perform best in life and achieve the most when we set ourselves clear objectives, we monitor our performance in meeting them and we are quite clear and honest with ourselves and others about the extent to which we have met them. Clearly, with regard to an institution that has public responsibilities and fiduciary responsibility on behalf of the public as a whole to supervise our financial sector, those criteria and objectives and the extent to which they have been achieved or otherwise should be a matter of public knowledge and public debate. I am certain that matters should proceed like that.

As the noble Baroness has just said, the amendment would not in any way hardwire specific metrics or criteria into the legislation; it says merely that the FPC and the Treasury would have to agree among themselves what particular objectives or criteria they were going to adopt for a foreseeable period, and then we could watch to see whether they were adopted or not. I do not have any specific objectives or criteria to put forward except perhaps an addition to the sort of principles that my noble friend Lord McFall referred to. We should at least mention something that, while it is quite obvious, the public would expect to be there, such as that the FPC would expect to intervene sufficiently early and to be sufficiently alert to the difficulties that can arise in order to avoid situations where the Bank of England has to supply either solvency support to banks by way of deposits in a crisis or indeed liquidity support or solvency support if it requires accuracy or nationalisation. These are extreme examples of how things can go badly wrong. They have gone badly wrong over the last few years and there should be an explicit commitment to avoid those mistakes and those disasters in any agreed criteria which may come out of the discussion between the Treasury and the FPC foreseen by the amendment.

[Lord Northbrook]

I support the very sensible amendment in the names of the noble Lord, Lord McFall, and my noble friend Lady Noakes. As the noble Lord, Lord McFall, stated, the MPC’s remit is to target inflation. Finding an indicator—or a set of indicators—for the FPC is difficult. There is merit in amending the Bill to ensure that a set of statistics is available to help external bodies, including the Treasury, to assess the performance of the FPC. The recommendation in the Treasury Committee’s report says:

“The selected range of indicators must be flexible and under constant challenge and review, not only by Parliament, Government and the Bank of England, but also by others such as financial industry practitioners, the media, academia and the public. The indicators should be published so that the performance in maintaining financial stability may be monitored and so that it can be held accountable for that performance. The FPC should report against these criteria at regular intervals”.

To the same extent, the Joint Committee said:

“The FPC should begin work towards developing indicators of financial stability in dialogue with the Treasury. They should be published and the FPC should report against them. The set of indicators should be flexible and subject to regular review”.

The recommendations of these two committees are very powerful and, as the noble Lord, Lord McFall, has already stated, the court was generally supportive but did not believe that they should be put in the Bill. I happen to disagree: I think it would be much clearer to have these in the Bill.