HC Deb 10 January 1977 vol 923 cc1160-95

8.48 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I beg to move, That this House takes note of Commission Documents Nos. R/3592/74, R/1820/75, R/2146/75 and S/349/76 on Banking and the European Export Bank. These documents deal with two quite separate subjects. The first three relate to the draft directive on the co-ordination of laws governing the commencement and carrying on of the business of credit institutions. Document S/349, on the other hand, contains a proposal that a European Export Bank should be established. I shall deal with these two subjects in turn, beginning with the draft banking directive.

Document R/3592 is the original Commission proposal for a banking directive. That proposal is amended by Documents R/1820 and R/2146 and a number of detailed amendments have been agreed in discussion in Brussels. The main lines of the draft directive remain, however, as in Document R/3592.

An essential point about this draft Community instrument is that the Commission has proposed a framework. The directive lays down some broad principles and a few detailed requirements. But member States are left largely free to interpret and add to those requirements as they judge best. If it is accepted that there is a case for a Community legal instrument in this area, I am sure that a framework directive on these lines is the right way to go about it. Great differences exist between member States' systems of banking authorisation and supervision, and it would be very difficult to reach agreement on any more ambitious set of proposals at present.

The draft directive has been under discussion in Brussels for about 18 months now. There are still a number of questions on it to be resolved, but there is a reasonable chance that after discussions it will be ready for adoption during the first six months of this year, while the United Kingdom is in the chair. It will come fully into force—that is, we shall have to comply fully with its requirements—two years from the date when it is adopted by the Council of Ministers.

The draft directive deals with credit institutions, which it defines as institutions which take deposits or other repayable moneys from the public and grant credit on their own account. It is concerned with member States' controls over the commencement of business by credit institutions, and with the continuing supervision of credit institutions. I shall analyse briefly what the draft directive has to say on these subjects.

As regards the commencement of business by credit institutions, the draft directive enunciates the general principle: Member States shall require credit institutions to obtain authorisation before commencing their activities". It lays down certain broad criteria for authorising and for withdrawing authorisation from a credit institution. It allows member States to subject to authorisation the branches of a credit institution established in another member State—for example, the London branch of a French bank.

The second main strand in the directive concerns the prudential supervision of banks and other credit institutions once they are in existence—that is, checks and controls on their liquidity and the adequacy of their capital. Here the draft directive is even less specific than in the provisions dealing with the commencement of business, and the final text of Article 6 of the draft directive, which deals with prudential ratios, will, I understand, be less specific than the corresponding article in the document we have before us. The Contact Committee, or Advisory Committee, which Article 11 sets up, is to look at capital adequacy and liquidity ratios and see whether any further harmonisation in this area is desirable or, indeed, possible. The authorities responsible for supervising credit institutions in the different member States of the Community are to co-operate closely.

There are a few miscellaneous pro visions dealing, for example, with exceptions to the directive and the treatment of branches of third country banks.

When adopted, this directive will have two significant effects upon our approach to the regulation of credit institutions. The first is that the directive will commit all member States to establish a prior authorisation system for credit institutions. In the United Kingdom we do not have any basic authorisation require- ment We have a system of prudential controls over some specialised types of credit institution such as building societies.

We also have a series of statutory "recognitions" which banks and other credit institutions must acquire in order to carry out certain specific functions. Exchange control authorisation is the most obvious example, and for many years the Bank of England has operated a system of prudential supervision over banks, though its supervisory role has not been derived from specific statutory authority. But we have never had the kind of law that the draft directive envisages and requires, under which all institutions have to obtain a licence or some other form of authorisation in order to engage in the basic business of taking deposits and giving credit.

Hon. Members will remember, however, that in August last year the Government published a White Paper on the licensing and supervision of deposit-taking institutions. The White Paper said that the Government intended to introduce legislation which would set up a system of prior authorisation for deposit-taking institutions. We propose that there should be two forms of what the directive calls "authorisation": licences and banking recognitions. Licences will be awarded to institutions which meet the requirements to be laid down in legislation. Institutions will be recognised as banks if, in addition, they are of sufficient reputation and status and provide a sufficiently wide range of banking services to justify the title "bank".

All of these institutions, licensed as well as recognised, will then be supervised by the Bank of England. In addition we intend the legislation to provide for controls over banking names and advertising and to establish a deposit protection fund, though these are not questions directly relevant to the draft directive. At the moment the Bank of England and the Treasury are holding consultations with bodies interested in our proposed legislation.

The legislation which we intend to introduce will allow us to meet our obligations under the draft directive. The Government have no objection to the basic requirement of the directive that all member States should have a prior authorisation system for credit institutions. The draft directive is not of course the only reason why we have decided to introduce such a system ourselves. There have been difficulties in what have become known as secondary banks or fringe banks in the last few years. These difficulties have also suggested that we needed to extend the existing informal system of banking supervision.

The draft directive will also affect international co-operation in banking supervision. Banking is increasingly an international business. Increasingly, therefore, it can only be effectively supervised through international co-operation between the authorities of different countries. Such co-operation already exists. Those responsible for banking supervision in the Bank of England have frequent contacts with their opposite numbers in other countries both within and without the European Community.

We can expect the directive to take this process of international co-operation further. The draft directive proposes that an advisory committee should be established. This committee will institutionalise contact and co-operation between those who are responsible in finance ministries, central banks and other supervisory authorities for the supervision and regulation of credit institutions. Informal contacts will of course continue. It should provide a useful forum for discussion in which all member States can learn from one another's experience. The draft directive represents a modest but satisfactory proposal of which I recommend the House to take note.

I turn now to Document S/349, which contains the Commission's proposal for the establishment of a European Export Bank. The proposal is in the form of a communication from the Commission for a Council regulation setting up a statutory framework for such a bank. The objective of the Commission's proposal is to improve the chances of success of companies in member countries which wish to collaborate in bidding for contracts for very large projects in countries outside the Community. The bank would provide two main facilities—credit insurance and credit finance—for exporters engaged on such projects. The bank would be able to raise funds by borrowing on international capital markets, and, subject to certain conditions, on member States' own markets, on the basis of a Community guarantee which would be fixed annually in the Community budget.

The budget would also provide the initial costs of setting up the European Export Bank, meeting any operating deficits, and providing an initial capital of 100 million units of account. The bank would supply credit at market rates or, within the limits of international obligations, on terms comparable with those granted to exporters in third countries. It would work closely with the banking sector, which would be responsible for at least a part of the finance for each project.

Talks have been going on for many years over harmonisation in the field of export credits, but progress has been extremely slow and there is little prospect of early success. At the same time, the number and size of very large export projects has been growing over the past few years and is likely to continue to do so. It is also likely that exporters within the Community will increasingly wish to collaborate on these very large projects if they are to secure business against American and Japanese competition. American and Japanese companies do not face the same problems of co-operating on these large projects as do Community firms.

A European Export Bank would be one way of trying to deal with these problems within the Community and to improve the competitive ability of firms in the Community. The Commission's proposals have some advantages. The first is the provision of a single point of contact for financing and insurance, which could simplify the administrative problems which firms face over the negotiation of large multinational operations—that is, those involving two or more member countries—compared with companies in Japan and the United States of America. The amount of business coming to undertakings in member States could, therefore, increase as a consequence of the expanded and centralised facilities thus made available.

Secondly, the European Export Bank's access to independent sources of borrowings could relieve member States from a part of the financial burden of financing particular pieces of large export business. Finally, the bank could also facilitate the financing of a multinational credit deal in a single currency.

The Government therefore believe that the Commission has usefully identified ways in which the Community's export capability could be improved. There are, however, many unresolved technical problems to be overcome before a bank can be set up and fully functioning, and we are not confident that these problems can be left, as the Commission suggests, to the management of the bank once it has been set up.

For example, the Commission mentions, but does not discuss in detail the relationship between the bank and national credit insurance agencies; the relationship between the bank and commercial banking systems; the mechanism for providing bank guarantees and for providing interest rate support should this prove necessary. These and many other basic questions will require thorough discussion before the bank can be set up and, indeed, before we can reach a final judgment on whether a bank should be set up.

There is a further important point that cannot be overlooked. Competition among exporting nations over export credit terms—which can considerably reduce the value of the exports to the countries concerned—is always likely to be mutually damaging. The United Kingdom firmly supports continuing efforts to avoid such self-defeating competition and any escalation towards a credit war. Any action to enable Community exporters to compete more effectively should not add further impetus to destructive competition over credit terms.

To summarise, the Government's view is that the Commission's proposal rightly draws attention to a potentially serious problem. We think that the Community's capacity to compete for these large export projects could be improved and that the European Export Bank may well be one way of doing so which could benefit the United Kingdom. However, it would be foolish to commit ourselves to the Commission's proposal until it has been expertly scrutinised. Therefore, we shall press for the proposal to be referred to an appropriate specialist group.

The study which we are recommending would include an analysis to establish the extent of the shortcomings of the present arrangements for coping with large-scale projects. This would reveal whether these arrangements could be adapted either as an alternative to the proposed bank or to complement the bank.

With regard to the timetable, as I have said this proposal is only a communication from the Commission at the moment. The Commission is consulting the European Assembly about the proposal. Three sub-committees of the Assembly—the Development Committee, the Economic and Social Committee and the Budgetary Committee—are to report to the External Economic Relations Committee. The Development Committee and the Economic and Social Committee have reported. The Development Committee was not in favour of the Commission's proposals as they stand. The Economic and Social Committee agreed with the setting up of a European Export Bank. The Budgetary Committee has not yet reported. Once it does, the Commission propose that its proposal be discussed by the Assembly. It is not possible to say at this stage how matters will proceed thereafter. To set up such a bank, a regulation would be required, and if a draft regulation is eventually forthcoming from the Commission to the Council, the Scrutiny Committee would have further opportunity of considering that draft regulation.

I therefore recommend to the House this draft proposal of the Commission to set up a European Export Bank as being at least a step that identifies a problem, but further discussions will have to take place before anything concrete can be considered and discussed.

9.5 p.m.

Mr. Hugh Dykes (Harrow, East)

I must first express appreciation to the Minister of State for giving an explanation of the Government's attitude towards these documents, but once again I must take a moment or two to consider the documents in the wider context of the whole argument about effective scrutiny in this House. I hope that you will not regard me as being out of order, Mr. Deputy Speaker, if I take that course.

I shall not dwell at length on these matters. There has been a full day's debate on the six-monthly report, and that included a section on scrutiny procedures. However, once again a fundamental disadvantage is facing the House in the way in which the Government accede to suggestions made by the Scrutiny Committee for consideration of documents and, in the wider sense, in the way in which the Government do not give the House time to consider them properly.

We are now dealing with two radically different subjects. One, as the Minister of State rightly said, is in the form of a draft framework directive. It is fairly gentle and mild. There are many aspects of it which we need not find contentious and upon which we can fairly easily agree. It is a fairly conventional draft directive. The House has already scrutinised a large number of such directives.

The second document concerns a quite different subject and is a quite different form of document. It is a proposal from the Commission that is communicated to the Council for a Council regulation. As you will recall, Mr. Deputy Speaker, the Scrutiny Committee has not dealt numerically with so very many regulations, there being far more directives needing consequential United Kingdom legislation, which the second subject, the formulation of an export bank, would not need, since it requires only a direct council decision. However, for understandable reasons the House has said that we should deal with this sort of directive properly and as thoroughly as we can.

Although there is theoretically slightly longer time this evening, if necessary, to deal with these subjects, we should have had only one and a half hours if the debate had begun at 10 o'clock. That means that there would have been 45 minutes for each of these major subjects if the time had been divided equally. Although the subject appears to be fairly mild and relatively uncontentious, that does not apply to all parts of it. It has the most far-reaching consequences for the country and for people involved in the industry. To give the House, theoretically, such a short time to consider these matters is absurd. I emphasise that on this occasion it is theoretical as there could be more time if necessary.

We have had a full day's debate, and the Minister of State has made the usual bland promises about considering scrutiny procedures and the way in which these documents are considered. However, we shall have to see what happens. The impatience and indignation in the House will increase, including that among pro-Marketeers who are keen on our continued membership of the Community as well as the obvious personalities on both sides of the House who take the opposite view, if we do not tackle the problem properly.

I am sure that more and more Members want to see more time devoted to these matters by way of proper EEC Supply Days, and more use made of the committee procedure, which for the moment seems to have been abandoned. I do not think that the EEC Statutory Instruments Committee has met since the early summer. Will the Minister go to the Leader of the House as soon as he can this week to ask him to take a more positive view? Perhaps it was churlish and uncharitable of us, but my hon. Friends and I grumbled on 23rd December about the cavalier way in which the Leader of the House treats the House on EEC matters. His insouciance and could-not-care-less attitude is becoming intolerable.

If the Minister of State catches your eye, Mr. Deputy Speaker, I hope he will respond to the points that I have just made. Undoubtedly he will say that it is not his province, but I hope he will take these matters seriously and will emphasise the misgivings and anxieties that apply with equal force to those who are Keen on our continued adherence to the European Economic Community as well as to those who oppose our membership. I must apologise to the Minister for inflicting these remarks on him, but, despite what was said in the previous debate, it was necessary to do it.

I thank the Minister of State for his clear analysis of the proposals in the banking directive. The Opposition feel that this is, in broad outline, a useful document which was becoming inevitable not only from the point of view of its essential elements in the creation of a common market in all sorts of financial and economic activities, banking being one of the biggest, but from the point of view of the troubles that we have had in this country and which other countries with stricter banking control regimes have had. We had trouble with the secondary banks and so on in the previous period of major expansion of banking assets when all sorts of financial intermediaries developed.

I hope that these matters can be dealt with effectively not only by means of directive but by the kind of thinking foreseen in the White Paper Command 6584 published last August. That White Paper is very much a domestic legislation document and does not refer to anything in the EEC context. Although that may be acceptable and understandable in the sense that all the banking proposals in the Community were at an earlier stage, I hope that it does not represent an attempt by the Government to give the impression that all they are doing arises from their own domestic internal propensities. An EEC obligation arises from the directive which will have to be taken into account. Perhaps the Minister will say whether conventional hire-purchase institutions, in so far as such institutions remain independent after recent difficulties, will be fully covered in the outline directive.

I could make other points about the draft directive but in the interests of time I shall not do so. Therefore, I go on to make one or two comments about the European Export Bank—[Interruption.] If the Government use lack of time as an excuse, they will perhaps get away with it with some hon. Members but, I hope, not with all hon. Members. Here we have a Treasury Minister answering points on a banking directive who is obliged to comment on a trade matter. It is far more than a financial matter. [Interruption.] The hon. Member for Feltham and Heston (Mr. Kerr) has just arrived for the debate; it is nice to see him.

There are Treasury and financial aspects to the directive, but the European Export Bank, as an institution, would primarily be under the jurisdiction of the Department of Trade and it would link up in due course, presumably, with the activities of the ECGD. These matters, therefore, are clearly delineated in a departmental function not belonging to the Minister of State. I say that merely to emphasise the problems of overlap and the fact that the House is confronted with an important draft document which probably it does not have time to consider properly.

This is an important matter. That is why the Minister of State rightly referred to the committees of the European Parliament considering it and that is why, when the proposal was made some time ago, there were among industry spokesmen in this country and elsewhere and in the British Banking Association substantial anxieties about the proposal itself and some aspects of it which did not appear to be well thought through by the Commission. It was as if Members of the European Parliament, from all countries, had the impression that the Commission had had an official sitting in a cupboard for six months, with food being pushed through the door occasionally, and coming up with this wonderful idea. If there is a gap in the services provided by the private institutions, I hope that they will be encouraged by governmental and Community authorities to fill it.

I am reassured by the fact that the Minister of State has said that the Government need more evidence and more analysis and that they therefore support the idea of an expert working group to go into the matter in more detail. Perhaps the hon. Gentleman can tell us the sort of timetable that he would envisage after such an examination had taken place.

Can the hon. Gentleman fill in some of the other details that he did not have time to deal with in opening? He referred, for example, to the permanent capital, 100 million units of account, which has been taken out of the 1976–77 Community budget and will presumably appear in the next one. It may seem to some people to be a large amount to be arbitrarily decided upon as permanent capital as opposed to any loan debt which may be raised through the open market or other intermediaries. Others, however, may think that it is a tiny amount and needs to he bigger in view of the turnkey type of contract between various member States, that with such contracts it will not be long before it is exhausted and that a large amount of loan debt will have to be raised in the open market.

I expect that the security and guarantee power of an instrument issued by an institution like the EEB, with a full guarantee bestowed on it by the Community, would have as blue chip and first-class a status of acceptability and recognition in the major international money markets as any such instrument issued by an equivalent American or Japanese institution, for example. With the power that such an institution would have virtually overnight as a result of its constitutional existence, it could provide such unfair competition with the conventional banking sectors of the member States as to undermine their activities. Yet there is a vague reference in the draft regulation to the effect that the EEB will nevertheless work with private banks in informing a syndicated amount of money if financing is needed and will, indeed, work on syndicated insurance coverage as well. The hon. Gentleman has said that there is to be a study, but can he give us some preliminary details?

There are many other points to which I could refer, but I shall conclude because other hon. Members may wish to speak, including the hon. Member for Feltham and Heston, who knows so much about the subject and no doubt hopes to catch your eye, Mr. Deputy Speaker. But the great point about such documents as these and their consideration in the House is the lack of time and that we do not have enough expertise. Indeed, the Minister had to make the amazing confession about the banking directive that its final form will be different from that which the House is considering. That is not good enough, although the proposals themselves are useful at least in taking the Community further forward to the creation of a common commercial and financial market. We welcome the proposals from that point of view, but we need more information both now and on later occasions.

9.18 p.m.

Mr. Ian Wrigglesworth (Thornaby)

I shall not go too far with the hon. Member for Harrow, East (Mr. Dykes) in his comments, although I agree that the adequacy of the House's methods of discussing these matters and, indeed, some of our own domestic matters, including the White Paper, leaves a lot to be desired. I also agree that these far-reaching documents, particularly the supervisory document, in which I am particularly interested, will have a profound effect on our banking industry. The House knows my interest in banking as a former employee of the National Giro, that very European institution which we established here in 1968 and which is now thriving as part of the Post Office.

I do not wish to deal with the export bank directive. I simply wish to refer to the document on supervision of the banking system, which I welcome as providing a framework which acknowledges and will help, I am sure, the growth of international banking, and acknowledges and, I think, will help the interdependence of banks one on another. The directive is also welcome because it has helped to push along the proposals for supervision of banking in this country, proposals that were necessary and have been for many years in the view of some of us.

There has been a dreadful confusion and lack of coherence and clarity. The banking services in this country have come under the Exchange Control Act 1947, the Companies Act 1948, the Protection of Depositors Act 1963, the Companies Act 1967, and the Income and Corporation Taxes Act 1970. I could go on to mention other pieces of legislation which have had an impact on banking over the years and which various Government Departments have been responsible for supervising.

The directive is also welcome because it has helped to put on the timetable for consideration by this House proposals to deal with the failures which have occurred in banking in recent years and which have shocked the banking community, the City, depositors, and those who use such institutions. I need mention only a few names to remind the House of the massive impact in the City during the 1970 to 1975 period of the failure of institutions such as Mercantile Credit, Vavasseur, UDT, Cedar Holdings, First National Finance Corporation, Cornhill Consolidated, and London and County Securities. Those happenings led people to believe in supervision by statute rather than by self-regulation.

The White Paper "Licensing and Supervision of Deposit-taking Institutions", Cmnd. 6584, published in August last year, said in paragraph 2: Furthermore, the customs and conventions of a self-regulatory system are likely to command more willing and effective support in this field than formal rules imposed by law. I hope that that referred to the last stand of the self-regulators. The White Paper then went on to lay down statutory proposals that will govern banking in future.

The report on the London and County Securities case pointed to the need for supervision of a kind outlined in the White Paper. The report said that up to the time of the collapse of that company the Bank of England did not greatly concern itself with secondary banks, but commented on the fact that since the collapse of that company the Bank of England had taken action by calling for detailed returns.

The report emphasised that the Department of Trade was responsible for monitoring accounts of the deposit-taking institutions under the Protection of Depositors Act. I made clear that up to the time of the London and Counties Securities crash the responsibility had not been seen to rest with the Bank of England, and no institution had taken to itself the responsibility for supervising such bodies.

The report on the London and County Securities case went on to refer to the lesson involving the use of names. The report quotes a leading article in The Accountant as long ago as 1921: Yet another point that comes well to the front as a result of this failure is the imperative necessity of limiting the use of the word 'bank' to concerns that conduct a bona fide banking business, and rely upon banking as at least the main source of their profits. The report drew attention to that lesson and pointed to the need for greater control of names and description of banks.

Any system of supervision in the banking industry needs to do three things. First, it needs to protect the system itself. Secondly, it needs to protect the shareholders of the institutions. Thirdly, it needs to protect the customers—the depositors in those institutions.

Generally speaking, in other countries the Government or central institution takes upon itself the responsibility for protecting the system. In some countries, notably the United States, there is a body like the Securities and Exchange Commission which protects the interests of shareholders. Again, in some countries, and as outlined in the White Paper in this country shortly, there is a system of deposit insurance to protect the interests of the customers.

It is vital that we keep clear in our minds these three separate functions, because it is not the rôle of a body like the Deposit Insurance Corporation or the Bank of England, carrying out the function of a deposit insurance corporation, to protect the interest of the system. The main reason for introducing the deposit insurance scheme which, I am pleased to say, the Government have proposed is solely to protect the interests of the depositors and not to protect the interests of the system. That must be done by other supervisory means, many of which are outlined in this document.

However, let me deal primarily not with the deposit insurance scheme, which is not included in the directive, but with some of the things that are included about which I am rather concerned and which are in some instances covered in the White Paper as well. I am rather troubled by the term "credit institutions". As hon. Members will know, we have a Consumer Credit Act on the statute book in this country. The term "credit institutions" could be very misleading and confusing. The White Paper is about the licensing and supervision of deposit-taking institutions. Because the term "banking" and other similar banking terms have so much meaning, it is important that there should be no confusion about the terms used in directives of this sort, or in laws, so that we are clear about exactly what we mean.

In the directive the term "credit institutions" refers to banks, but it does not purely refer to money-lending institutions, which it might be seen to do by some people in this country. That could give rise to confusion. I hope that the Minister will look a tthis because, as he will know, under Article 5 of the directive all banking institutions in the Community licensed under their country's statutes will be able to use the home name if they are operating in other Community countries.

That needs careful attention so that there is no confusion in the minds of either the customer or other users of the banking service and to ensure that the statutes protect all the people using those services. We must ensure that no bogus company or organisation comes along and calls itself by some name which could imply that it is covered by this directive or by our banking regulations when it is not.

I would say a word about the prudential regulations covered in the directive. The document is wise in not laying down rigid prudential ratios, either liquidity or asset ratios, because it is clear to me that what are needed are fairly clear guide lines but not rigid rules.

I spent some time during last summer looking at the system of supervision in the United States. After talking to supervisory bodies over there it seemed clear to me that one cannot get a clear picture of what is going on in banking simply by the three-monthly or six-monthly returns which come in and give all the facts and figures. What may be a prudential asset ratio or prudential liquidity ratio for one institution, depending on its size and management, may not be for another.

So we want guidelines but not rigid definitions which could have a damaging effect and could bring about the sort of collapses in some circumstances which the directive is intent on avoiding. If one needs evidence of that, one need only look in the United States, where there is a fairly rigid system of banking supervision, at banks like the Franklyn National or the US National Bank of San Diego, both of which collapsed despite examiners being in regularly and despite regular returns being sent to supervisory agencies by those banks.

Mr. Dykes

In that context does the hon. Gentleman agree that one of the most important ratios might be the old advances to deposits ratio which was used with the conventional clearers' banks 10 years ago, providing one knew exactly where the advances were going?

Mr. Wrigglesworth

I think that the second point is the most important. It is the quality of the assets in which one is really interested. One needs to take into account both those ratios but also the competence, the prudence and the honesty of the people operating the bank. One needs to make an assessment of that and not simply upon facts and figures being sent in on a regular return.

That brings me to the domestic position of the Bank of England in operating this directive and the proposals in the White Paper. I hope that the Bank of England will be able to shoulder the new burden being put upon it. But the supervision of probably double the number of institutions which it has had to supervise in a very loose way up until now will need a fairly substantial programme of recruitment and training of examiners and the introduction of a new system for the handling of returns coming from the banks so that a proper examination can be made of their assets and liquidity.

The directive says that the assets and liquidity checks should take place every three months. There will be a considerable amount of paper flowing into the Bank of England's banking supervision department, and examiners will have to go out into the banking world to ensure that all is in order. That will require a substantial build-up of resources. I should like to be assured that that will happen and that the Bank of England will be able to cope with its new responsibilities.

The job of supervision on a Community level will be undertaken by this Contact Committee which will work alongside the Commission. Can my hon. Friend say exactly what that means? It will comprise two members from each of the supervisory authorities in the member States. It will be bound by the professional secrecy to which members are bound in any banking organisation. But what about the accountability of the Contact Committee if this proposal goes ahead in the way envisaged in the years to come? To whom will it be accountable? To whom will it be responsible?

One can see it doing a useful job in bringing together the information from all the individual supervisory agencies in the member countries. But if it is to be coming forward with proposals and discussing reports from the individual countries, how is the elected member to have any access to it? In what way will the Contact Committee, proposals that it is discussing and work that it is doing, be accountable to elected Members of this Parliament and others in Europe and the European Parliament?

I notice that one of the Papers included an amendment which related specifically to National Giro. I was rather surprised when I read the first draft of the directive to see that national giros in member countries were excluded from the supervisory system envisaged. However, a later amendment deleted that, and as a result national giros are now included. I am not sure why the change of mind took place, or why our own National Giro is excluded from our White Paper when apparently giros in other European countries are not excluded from the directives. This appears to be an anomaly.

The House has not had a great deal of time to look at these proposals and there are many details into which I should like to go, but I cannot do so because of the time. I end by asking the Minister whether there will be a debate on the White Paper dealing with our supervisory system, which includes the scheme for a deposit insurance system for banking customers which, as I understand it, is unique, or at least fairly unusual, in the European context. There has been a certain reaction from the banks and we should like to have a lot more facts about the organisation and running of the scheme than those outlined in the White Paper.

When do the Government envisage the legislation outlined in the White Paper being introduced? I realise the difficulties with the parliamentary timetable, but some of us hope that it will be introduced into the Lords this Session. If so, it is even more important that we should have an opportunity to debate the White Paper before the legislation is introduced.

9.37 p.m.

Mr. Ian Stewart (Hitchin)

I welcome the opportunity to take part in this debate about the Commission documents, brief though it is. I shall not follow the argument of the hon. Member for Thornaby (Mr. Wrigglesworth), not because I do not want to discuss the interesting points he raised, flowing from the White Paper, but because I hope we shall have an opportunity to debate that before long and I think it is better to devote the short time at our disposal tonight to the documents and the proposals from the Community.

I declare an interest in that I have been a banker since 1960, and in relation to the draft directives on banking from the EEC I was a member of the subcommittee of the Accepting Houses Committee which considered the original 1973 directive, as well as the one which forms the basis of our discussion this evening.

I pay tribute to the Bank of England, to the British banking system as a whole and to Mr. Robin Hutton, of DG15 in Brussels, for the considerable contribution he made in getting proposals for a European banking directive into a working position. Obviously the original directive would not have worked among the original six members of the Community, and with the addition of three more members, each with its own banking system, it became clear that the original directive was impossible. The form of the second directive owes a great deal to British initiative and participation in the discussions.

I am thankful that the scope of the directive has been reduced. Inevitably, it is a patchy affair dealing with one or two areas which can be dealt with at the outset. Prior authorisation is a considerable need, not only in this country but throughout the EEC. Whether or not we had the directive, we would have had to go for a tidier system than before. I agree with the hon. Member for Thornaby that, because we have so many different pieces of legislation affecting banking or semi-banking operations, it was very difficult for the public, let alone the banking system itself, to know where an individual company stood.

I am sure that the confusion was part of the cause of some of the failures of recent years, because those fringe banks were thought to be regulated by Board of Trade requirements, Companies Acts and so on. However, when it came to the point, there was very little secure control over their activities. On the other hand the control exercised by the Bank of England, not only since the Herstatt collapse and not only in the foreign exchange market, has been extremely effective. If it can be extended to a wider group of institutions it will have a great benefit for our banking system, quite apart from our need to conform to Community practice.

It will be difficult for the bank to administer and it will be quite an expensive operation, but I think that the bank is the right supervisory authority in this case. Each country has to choose its own best method. In some countries there is a difference between the central bank and the supervising authority. Some countries have a separate banking commission, and some split the responsibilities between the two. Given the circumstances in this country, however, it is entirely right that the Bank of England should be entrusted with this duty.

I am possibly the only hon. Member who has had to go along to one of those three-monthly meetings to discuss the affairs of a bank which is being regulated by the Bank of England. It is a very thorough process. It is not just a question of filling in a whole lot of forms and allowing them to be chewed up by a computer in Threadneedle Street. The figures are looked at and the ratios which come out are examined. The bank takes a great deal of interest in the way in which the business is operated, in any changes in the business, in the amount of money which is being loaned in different directions, in the amount of payments in foreign exchange and in overseas trade, in internal borrowing, and so on. If this sort of system could be applied more widely, it would give a much sounder base both for our banking system and for the system in other Community countries.

The question of supervision has been one of the factors which has held up progress on the second directive. There were other countries—possibly the Netherlands is the most significant example—where there has been dispute about how the supervision should be carried through. But I was glad to gather from the Minister's remarks this evening that the directive seems to be making progress, because I feel that it will be in the interest of the City of London in particular and the country generally for the directive to come into force and for us to comply with it.

Let me deal now with the contact committees. I, too, wonder, although perhaps from a slightly different standpoint, about the way in which this will work. As I understand it, there is already a contact committee of the Group of Ten which was set up under Mr. Blundell at the Bank of England shortly after the Herstatt problem. Although, because it is a G10 institution, it has a slightly different constitution, it would nevertheless seem to overlap considerably with the contact committee, fulfilling a similar purpose but representing the countries of the Community. It would be helpful if the Minister could say more about how it will work.

The Commission documents seem to indicate that the committee will have some responsibility for carrying out or encouraging harmonisation of supervising techniques and perhaps even the ratios which are used. I have a hazy idea of how this could work. No doubt it will be to some extent empirical and will decide what to do when it has to do it. But within the Community it is proper that a banking directive should be in force. We should have a means of communication between supervisory authorities, and if that is what the contact committee is due to be it will be a useful weapon in the armoury.

The curious thing about banking in the Community is that although it is very little harmonised it is closely integrated. The two things are not the same. European banking has an identity of its own even though it is pursued in detail in different ways in most of the member States. There are identifiable characteristics in European banking, in the attitude to lending, in the operation of the money market, in the co-operation between bankers and banks in one country and another, and in the degree of welcome we give to branches of banks in one country and another, all of which effectively marks out European banking from American and Far Eastern banking, which are the other great centres of banking.

It is useful that in these documents we have the suggestion that the status of branches which are part of a parent banking company as a whole should be extended, wherever possible, to embrace subsidiaries. It is often a purely technical question whether a banking arm of a major international bank in another country is an incorporated subsidiary or a branch of the parent. It might be worth considering whether some different category, such as a guaranteed subsidiary. might be established to enable companies which are incorporated for this purpose to operate with the advantages of branches but also on the same footing and with the same responsibilities as branches.

After the Herstatt problems the Bank of England took an initiative, the first time it had been done internationally, in requiring the shareholders and parents of banks in overseas control and operating in the City of London to give a written commitment to back the operations of their investments or subsidiaries. Given such a backing, if this was standardised throughout the Community, some form of guaranteed subsidiary could take over the same sort of rôle as is envisaged for branches in the documents that are before us. Ido not think that the technical difference between the two ought to hinder the normal operations of banking from one member State to another.

It would be useful if we could have more comment from the Minister about how he envisages further steps in the development of banking directives. Last year Mr. Ortoli, in his annual presidential address, raised the question of deposit insurance, and I am glad to see that we are taking an initiative in advance of any requirement from the EEC to do this. There are a great number of other areas in which the original banking directive laid down what must now be regarded as longer-term measures. If the Minister can tell us what others may be in the relatively near end of the pipeline, it might be of great interest.

It would be wrong, on the first day of term and in such a thinly-attended House, to make too much of one political aspect which I must mention. I hope that since the Minister of State is a reasonable man he will take serious note of what I say. There are two serious handicaps to British banking at the moment, both being in the hands of the Government and the Labour Party. The first is the threat of nationalisation.

I was in Zurich during the week of the Labour Party Conference and a number of international bankers said "Of course, we will regret it if there is a fundamental change of this kind in the British banking system. It is not something which we think will enable the City to work as flexibly and energetically as it has done. But you must also recognise that we are competing in an international industry and we shall be able to compete on your home ground if you damage the creditworthiness of your own institutions by bringing them willy-nilly into public control." When the Labour Party Conference passed by a margin of more than six to one a resolution in favour of nationalisation, that had a measurable effect on the confidence of bankers in our system.

My second point arises from the fact that banking is now a truly international activity. One of the greatest disadvantages of the City of London is the ease with which other countries are able to poach expert personnel because of the grotesque rates of personal taxation which bank managers and executives have to bear and their after-tax remuneration compared with rates in other countries with which we are competing. I have tried to make those two points in a fairly low key because I hope that in that way the Government may give them some attention.

It would be serious if the Government were to continue to give what amounts to almost positive encouragement to people employed in any international industry, banking or oil—another area on which we depend so much—to leave this country. The result would be that, with the greater movement which is now possible within the EEC, people would be encouraged to leave employment in this country and work elsewhere in the Community where terms and conditions might be the same but where their own remuneration might be so much more advantageous.

Mr. Speaker

Order. In case the House feels that the hon. Member for Hitchin (Mr. Stewart) is in order by broadening the scope of the debate to include taxation and so on, I must remind him and the House that he is going beyond the scope of the debate.

Mr. Stewart

I accept your comments, Mr. Speaker, and shall return to the central point. I was endeavouring to make the general point that these directives and papers relate to the integration of banking within the Community and that, therefore, the degree to which people move between banks in member States will be eased by these directives and other developments. That is relevant to our banking system and the people working in it, although I agree that it is in a wider context.

I give the European Export Bank a provisional welcome. Any institution which may profit the export effort of this country or of any other member State must be welcomed. My welcome is provisional because there are still many unanswered questions about the bank.

I do not wish to repeat the interesting comments made in the debate in another place on 2nd September, but Lord Cobbold and Lord O'Brien, who both have long experience as Governors of the Bank of England, made important speeches and expressed fundamental doubts. The first doubt was to what extent harmonisation of credit guarantee provision from one country to another could be catalysed or assisted by the setting up of such an institution. Secondly, they asked what would be the position of the European Export Bank in obtaining funds with which to finance jumbo projects.

One has seen the great advantages of the Japanese Mitti and the Exim Bank in America. The greatest export competition met by European consortia is not only in risk insurance but in the length of time and the rate of interest at which they can borrow.

Unless the EEB can match this, it will find it difficult to provide equivalent services. If the bank is to provide preferential terms, it will presumably not be able to do so by borrowing on the open market without subsidy. It will be fundamental to see not only how the bank obtains the funds but how it can offer terms which are clearly attractive to exporters without the subsidies or preferential rates for exporters which are available in EEC countries, Japan and America at present.

One technical point deserves a mention. There has been a suggestion that the EEB might be administratively linked with the European Investment Bank. When I was last in Luxembourg, I got the impression that there was a reluctance that the EEB should be attached to or identified with the European Investment Bank. There are good reasons for this reluctance.

The European Investment Bank has endeavoured to provide funds not only for Community countries but for infra- structure investment in outside countries, particularly in the developing world. If the European Export Bank were competing aggressively for exports to those countries for the commercial advantage of EEC countries, this might be thought to conflict with the more neutral posture of the Investment Bank. I say this merely to put on record a point which has not been taken into account in the papers relating to this matter or in the debate in another place.

The European Community is often at its best when it is initiating rather than harmonising. For that reason, the initiation of a European Export Bank is in principle to be encouraged. I do not believe that it will be expensive in time, money or effort to set it up to see how it would work. It will be a matter of trial and error to some extent.

Until such a vehicle is available, I doubt whether anybody will have the remotest idea how many projects will be suitable or capable of being financed through it. I should like to know whether the Minister has any information regarding any assessments which have been made. It may be that some projects have foundered because there has not been such a vehicle or that some projects have gone ahead with greater difficulty than if the EEB had been in existence.

Anything that the Government can do, after due consideration has been given to the subject, to encourage this proposal should have the support of the House. Even if there is not a need now for an EEB, if we find that there is a need for it in five years' time and nobody has done anything about it, it will then be too late to start. Therefore, I hope that the Government will add their support to the proposal for a European Export Bank in the hope that it may be set up as soon as reasonably practicable and given a chance to work. I believe that it could be of considerable benefit to this country as well as to other member States in the longer term.

9.57 p.m.

Mr. Stan Thorne (Preston, South)

I cannot declare an interest in banking as such, as did the hon. Member for Hitchin (Mr. Stewart), except in the usual credit facilities which one sometimes obtains from a bank.

I want to deal with one or two of the questions which arise for one who knows very little about banking but who is aware that the public generally—my constituents, for example—in looking at these documents would have difficulty in understanding their implications for them and for Britain as a whole.

The Minister referred to a figure of £100 million as the commencing capital of the European Export Bank. Presumably that would be derived from Community funds. It obviously would have to come from somewhere. Therefore, my first question is: what is the cost of the initial investment to the British taxpayer?

In "The general analysis" of document S/349/76 reference is made to improving the coherence of the export credit facilities available to Community exporters in this field of multi-national projects. That suggests to me that the EEB will make facilities available to multinationals in certain circumstances and will clearly charge for that service. I assume that it will be in business not for fun but to make a profit in the exercise of these facilities. Therefore a second question emerges, which I am sure the Minister will be able to answer: should the EEB make profits, has it been determined for what purpose those profits will be used? I should like clarification of the kind of multinational projects which are envisaged.

Since we are talking about exports, it seems that they would cross national boundaries, and one wonders what types of goods and services are involved. I should like to hear from the Minister about that.

The document refers also to consultations, but it does not say—perhaps this is my ignorance emerging—with whom those consultations took place. For example, who in the United Kingdom took part in the original discussions about the establishment of the European Export Bank? I assume that it was not the Minister himself. Perhaps it was not a Minister at all. They may have been people associated with banking. It would be interesting to know.

I note that a board of 10 directors will be established, with an equal number of reserves. Again, we do not have much information about what sort of people will be eligible for the board of directors. I do not imagine that my hon. Friend the Member for Bolsover (Mr. Skinner), for example, would be invited to participate, but, clearly, multinational interests will be very much involved. It would be of value, therefore, to know what interests will be reflected on the board of directors. Will the directors be purely experts in banking or in some way associated with multinational companies, as many bankers are, either overtly or covertly?

The Minister also referred to American and Japanese exports and the need to compete with them, saying that the European Export Bank would provide services in this regard through its ability to make credit facilities available. Should I conclude from this that no American multinational companies operating in Europe will be entitled to obtain facilities from the European Export Bank? If they are, in what way are we assisting those in the EEC who are competing with American and Japanese exporters? This also ought to be clarified.

Paragraph 21 of the document states that The European Export Bank should establish an independent operational standing. I am probably showing yet again my lack of erudition in these matters, but what exactly does "independent operational standing" mean? The document goes on to state that the European Export Bank should be open to approach both by firms engaged in multinational projects of Community interest and by the commercial bankers who are acting for such firms". What does "Community interest" mean in this context? Is it the basic purpose of the European Export Bank to assist multinational companies to compete in a manner more favourable to them? If so, when we use the phrase "Community interest" are we not really talking about purely sectional multinational finance corporation interests?

The concept of Community interest conveys to me the idea of a mechanism whereby, on the establishment of this European Export Bank, the community in Preston, for example, part of which I represent, will in some way gain from the operation of the bank. It might gain, as it would very much like to gain at this moment, by being able to approach the bank for assistance in maintaining Preston Docks. However—before you rule me out of order, Mr. Speaker—I shall not pursue that now.

Another point arises with regard to the commercial banks, which are linked with the Bank of England—a publicly-owned body, although one sometimes wonders about that—which in turn will be linked with the EEB. The hon. Member for Hitchin mentioned the Labour Party Conference decision about public ownership of financial institutions. If one were mischievous, one might view the emergence of the EEB as an attempt to avoid some of the implications of that decision.

How will the establishment of a European Export Bank affect British financial institutions and their public accountability, which at the moment is small? If any British Government took on board Labor Party Conference decisions—that would be a new and interesting departure—would they be prevented by our involvement with the EEB from carrying them out?

What provision will be written into the final EEB directive to protect the British public from the financing by the Bank of a multinational project inimical to their interests? For example, what provision would protect my hon. Friend the Member for Bolsover if a multinational company in the EEC, supported by the EEB, pursued a project in the mining industry? In what way could he question that?

Mr. Dennis Skinner (Bolsover)

I would find a way.

Mr. Thorne

I am sure my hon. Friend would find a way, Mr. Speaker permitting. I am much more interested in those who do not have my hon. Friend's knack in raising such matters.

I agree with the hon. Member for Harrow, East (Mr. Dykes) that we are yet again discussing a proposal which has already been adopted by the Council, even if it is in only an embryonic stage. Only after such proposals are adopted are we allowed to discuss their merits and demerits. I hope that the Minister will give me some of the assurances I seek.

10.9 p.m.

Mr. Denzil Davies

The hon. Member for Harrow, East (Mr. Dykes) reiterated the ritualistic criticism of the Government on the grounds that we do not devote enough time to EEC documents. The Government do their best within the constraints of other parliamentary business and of the EEC itself.

One problem is the fundamental difficulty of fitting the EEC system into the British framework of parliamentary democracy. Some of us drew attention to this problem in the debates on the European Communities Act. We put forward amendments to set the matter right. If they had been accepted they might have strengthened our hand, but Opposition Members were not interested then in amending the Treaty of Accession in that regard. There is a fundamental difficulty here. I do not have direct experience of other European Parliaments, but I think that we do as well as, and probably better than, most of the Parliaments of other European countries in this regard, although there is always room for improvement.

The banking directive is a directive, and our own banking legislation that will follow will go through all the usual stages in the House—Second Reading, Committee, Third Reading and so on. There is no question of there not being enough time for debate. Our legislation will frame out in detail what the directive requires in general terms.

The hon. Member for Harrow, East is right in saying that the final form of the directive when it emerges from the Council of Ministers may be different and that we shall not have an opportunity to debate it further. Again, that arises because of the structure of the EEC in that the Council of Ministers passes legislation and there is no opportunity for any parliamentary institution to debate that legislation. It is a novel procedure, but there we are; we are in the EEC, and that is the set-up.

The hon. Gentleman said that the proposal for a European Export Bank was in the form of a regulation, and my hon. Friend the Member for Preston, South (Mr. Thorne) seemed to imply that everything was cut and dried and decided. The proposal is not a regulation. Those of us who for hours debated the European Communities Act have the word "regulation" engraved on our hearts. We know what a regulation is. A regulation becomes law. This is not a regulation. It is a proposal which will go through various stages before it appears as a draft regulation.

The hon. Member for Harrow, East asked why the banking White Paper did not refer to the EEC obligation. I do not know whether he seeks an answer to that question. We made clear that, EEC or not, we needed a legal system of supervision of banks, that the old system—still in existence to some extent—was not thought to be in tune with modern conditions, and that some statutory back-up was required. The EEC is relevant only in the sense that the banking legislation will conform with the EEC directive.

The hon. Gentleman asked whether finance houses would be within the directive. The answer is that the directive deals with credit institutions. Credit institutions are defined as institutions which take deposits or other repayable moneys from the public and grant credit on their own account. If a finance house falls within that definition, it comes within the directive. That is not meant to be an evasive answer. Some finance houses do not have deposits whereas others do. If they do, they will come within the legislation.

The hon. Gentleman asked what kind of timetable we envisaged for the European Export Bank and whether more details would be forthcoming. As to the timetable, I tried at the end of my opening speech to indicate what was happening. I said that the proposal had gone to the relevant committees of the European Assembly. No doubt the Assembly will want to debate the proposals. The Commission will have the initiative and, if it feels like doing so, will make further proposals. The proposals will go through various stages up to the Council of Ministers. I cannot give any more details on the timetable. Until the Assembly debates the matter and the Commission reacts to the Assembly's debate, we do not know.

My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) asked why the term "credit institution" is used, whereas our White Paper refers to "deposit-taking institutions". He asked why the same language was not used and why we did not refer to "banks". I accept to some extent what he says. These terms could be thought to be confusing. The difficulty is that, whatever word is used, without a definition we shall not be able to cover the multitude of organisations with which we are concerned. We are concerned with organisations that take deposits and grant credit. This is how they have been defined in the directive, and it is the definition that will be taken account of in other legislation when it comes. I believe that many debates are now taking place in the United States as to whether certain mechanical transfers of money are deposits within the meaning of certain American legislation. We must get the definition right. We are concerned with the taking of deposits and the granting of credit.

It has been asked whether the Bank of England will be able to cope and whether it will have the necessary resources. It will be known that the Bank of England is building up its staff because the obligations placed upon it will be greater in future than they have been in the past.

My hon. Friend and the hon. Member for Hitchin (Mr. Stewart) asked about the Contact Committee. Perhaps the hon. Member for Hitchin answered his own question very well when he asked whether it was a means of communication between the authorities of different member States. That is what it is. It is a committee to enable the authorities in different countries to get together to discuss their problems. It is not an executive committee. It has no power to do anything. It will merely advise the Commission on certain problems that might have arisen. It will then be for the Commission to take the initiative if it wants to amend the directive or to bring forward a new proposal. In that case it would have to go to the Council, and the whole matter would have to be debated through the institutions of the Council. There is no question of the committee doing anything. There is no question of its being accountable. It merely advises the Commission and the Commission takes the initiative, the accountability starting at that point.

My hon. Friend the Member for Thornaby asked about the Giro. He asked why it was excluded and then included. There have been a number of debates between member States as to whether the Giro should be included or excluded. The Giro is now basically included but it is our intention to exclude it, as we shall exclude the National Savings Bank, the building societies and various other bodies.

My hon. Friend asked when legislation in respect of the banks will be introduced. It will be introduced as soon as the parliamentary timetable enables us to do so. We are actively engaged in consultation with various banking organisations and others and we shall endeavour to introduce legislation as speedily as possible.

The hon. Member for Hitchin asked about the Contact Committee, and I think that I have dealt with the points he raised. He also asked about the Export Bank. He asked how it can obtain its funds and about the assessments that have been made of the feasibilty of having a bank and the need for a bank. The British Government are not convinced at present that the bank is necessarily the best way of dealing with the problem. We are not against it, but, on the other hand, we want to see a far greater analysis and assessment of whether multinational projects are inconvenienced because we do not have a European Export Bank similar to the American Export-Import Bank and the Japanese organisation. We want to know more about it.

We see no sense in setting up a bureaucratic body to do something unless we are convinced that it can do the job properly or that there is a special need for it. That is why we shall press for a proper analysis before the Bank is set up.

My hon. Friend the Member for Preston, South asked a number of interesting and searching questions about the directive. He asked about the cost of setting up the bank. He picked up the figure of 100 million units of account. That figure has now disappeared from the budget. That indicates that the proposal is indeed a proposal. At the end of the day the bank will have to have some capital. Proportional contributions will be made by all the member States. Reservations have been expressed about the cost of setting up such a project. There are some member States that are not entirely happy about this aspect of the proposal. These are matters that will be discussed.

My hon. Friend asked where the profits would go if there were profits. The answer is that I do not know. I shall endeavour to make inquiries into that matter. I do not know how this sort of organisation would operate in relation to profit.

Mr. Dykes

That is an important point. Perhaps the Minister will bear in mind that the original draft order suggested that any deficits, at least in the early years of operation, would be met automatically out of the Community budget and that in due course the aim would be to break even and create a small profit.

Mr. Davies

Any deficits would be met out of the Community budget. The corollary of that would be that profits would go back into the Community budget. I hesitate to make a statement in case that may not be the position. However, I shall look into the matter and let my hon. Friend know the result.

My hon. Friend referred to multinational projects and then talked about multinational companies. We are not concerned with multinational companies, although such companies might be engaged in multinational projects. A British company operating in my hon. Friend's constituency could get a large contract from, say, the Middle East or some other part of the world and might wish to contract out part of the work to a French or German company because it did not have the necessary expertise. The trouble is that when one has to bring in companies in other European countries problems arise of currency, of credit insurance and of lending money at different rates of interest to the importer.

Mr. Thorne

I wonder whether my hon. Friend would consider the situation that might arise if we had an aerospace board which was building a multi-role combat aircraft financed partly in France and partly in Germany. If difficulties arose, would the British Government, through the aerospace board, go to the Export Bank for credit facilities?

Mr. Davies

My hon. Friend has asked me a detailed question about a proposal which is in a not very definite form. I am sure he does not expect me to give an answer to questions of that kind. However, I stress that we are not concerned simply with giving assistance to multinational companies. My hon. Friend posed an interesting question about an American multinational company in Europe which might want to use the facilities. I do not know the answer, but I suspect that it could use the facilities, in the same way as a British multinational company in the United States could use the facilities of the American Export-Import Bank.

We are concerned to see whether British and European industry is disadvantaged in competing with the Americans and Japanese for large contracts in many parts of the world. I should have thought that to solve that problem, if there were one, would be in the interests of the constituents of my hon. Friend and of most people in this country.

Mr. Dykes

As the question of the hon. Member for Preston, South (Mr. Thorne) is so important, as there are many other questions relating to this proposal, and as the Minister has said twice that much further examination is needed the result of which the Government will consider in due course, but bearing in mind that it is ultimately to be a regulation, will the hon. Gentleman undertake to ensure that the House has a second opportunity to consider these matters? For him to say that he cannot answer questions such as that put by his hon. Friend defeats the whole purpose of scrutiny.

Mr. Davies

It does not defeat the whole purpose of scrutiny. This is what scrutiny is about. The hon. Gentleman knows that I cannot give any assurances about the business of the House. However, I have made it clear that this is not a regulation. If a bank is to be set up, it will have to be set up by draft regulation. A draft regulation will have to come from the Commission. It may be in exactly the same form as this proposal or it may be different, but there will be a draft regulation which will go by carrier pigeon or by some other means to the Scrutiny Committee.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

By Cable and Wireless.

Mr. Davies

Possibly, if it is still operating at that time. It will go to the Chairman of the Scrutiny Committee, and that Committee will consider it. How it decides to follow it up will be a matter for the Scrutiny Committee. I stress that this is a proposal, not a regulation, and a regulation will have to be made in due course if it is intended to set up the bank.

My hon. Friend the Member for Preston, South asked whether this proposal will hinder or have anything to do with bank nationalisation. It has nothing to do with internal domestic banking matters in this country in any way, shape or form. This is a proposal to set up something completely different. If there is a problem—and we are not convinced that there is—we shall participate in the discussion to try to set it up.

Mr. Ridley

Perhaps the Minister would like to go further and tell his hon. Friend the Member for Preston, South (Mr. Thorne) flatly that the Government have decided absolutely firmly against bank nationalisation. It would help his hon. Friend if he were to say that in the clearest possible terms.

Mr. Davies

My hon. Friend studies these matters very closely, as closely as the hon. Gentleman, and he knows very well what the Prime Minister has said on this subject. He knows what the Labour Party Conference has said on it, and he knows the constitution of the Labour Party. I shall not attempt to educate my hon. Friend in any of these matters.

My hon. Friend asked who had been consulted by the Commission. I have extracted a page from my brief which I hope will give him the answer. Apparently consultations have taken place with the Banking Federation, with the Permanent Conference of Chambers of Commerce and Industry, with something called UNICE—I shall not attempt to give the name in French—with the European Investment Bank and with various other credit guarantee and financial organisations. There has been consultation, therefore, with such organisations, and the matter will be debated in the Assembly and will be considered again when the proposals come back. There will be sufficient consultation at all levels.

Question put and agreed to.

Resolved, That this House takes note of Commission Documents Nos. R/3592/74, R/1820/75, R/2146/75 and S/349/76 on Banking and the European Export Bank.

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