HC Deb 19 February 1987 vol 110 cc1110-4

Amendment proposed: No. 4, in page 2, line 15, leave out from '(b)' to 'being' in Hine 17 and insert 'six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor,'.—[Mr. Ian Stewart.]

Mr. Deputy Speaker

With Government amendment No. 4 it will be convenient to take Government amendment No. 6.

Mr. Nelson

This is the only opportunity that we shall have to discuss the amendments relating to the establishment of the Board or Banking Supervision under clause 2. I make no apology to the House for taking the opportunity to do so because it is at the absolute heart of the Bill.

One of the major reasons for introducing the Bill were the problems that resulted from the Johnson Matthey Bank collapse. At the time it was suggested that some of the shortcomings of the Bank of England could have been avoided if there had been some impartial, objective advice and a proper supervisory board — or, as Opposition Members would have it, a commission—established that would be more incisive about some of those problems.

The amendments are the result of discussion during Committee and deserve to be discussed on Report. As regards amendment No. 4 I welcome the fact that my hon. Friend the Economic Secretary has decided to bring forward proposals to increase the number of independent members. That will further enhance the weight and power of the independent element of the Board of Banking Supervision as against the ex officio membership of the Governor, the Deputy Governor and the director responsible for banking supervision.

It is important that we take this opportunity to seek assurances from my hon. Friend that when the Bill is enacted, the banking sector will not return to the initial system and business as usual. The Board of Banking Supervision is a grand title but it is little more than an advisory body because it has few teeth. Will my hon. Friend assure us that it will be, not a cosy luncheon club, but an effective watchdog body over executive decisions and policy judgments of the Governor and the Bank of England?

I should also welcome a brief comment on the sort of relationships that the board will have with the Governor and the division within the bank responsible for banking supervision.

Amendment No. 6 gives the independent members certain powers to place before the Chancellor of the Exchequer their views, presumably, about the broad range of matters that they may consider. Will my hon. Friend give some idea of the circumstances in which he envisages such a report being made to the Chancellor of the Exchequer? That is clearly a welcome departure because it introduces some political influence. Would it, for example, enable the independent element of banking supervision to report to the Chancellor of the Exchequer if it felt that a matter of political significance in banking supervision should be drawn to his attention? Or would matters of reference of a more technical nature be exclusively for the Governor of the Bank? If it were felt, for example, that the amount of credit extended through credit card transactions was becoming excessive and that certain action needed to be taken, which if not taken would threaten the banking sector, could the independent element of the Board of Banking Supervision draw that to the attention of the Chancellor and, thereby, raise the political profile?

Does this measure mark a shift of power from the Bank to the Chancellor? I suspect that it in no way undermines what the Economic Secretary wishes to see as the firm control and executive power of the Governor. However, clearly circumstances are envisaged in which such a reference will be made. As the powers of the board, particularly of the independent element, are matters on which the House sought reassurance on Second Reading and in Committee, I would be grateful for my hon. Friend's comments.

Mr. Stewart

The amendments to clause 2, which are embodied in amendments Nos. 4 and 6, have three purposes. First, the number of independent members is increased to six, so that in future there will be a total membership of nine and twice as many independent members as ex officio members. Secondly, the independent members are to be appointed, not by the Governor with the approval of the Chancellor, but by the Chancellor and the Governor jointly. Thirdly, there will be a specific statutory entitlement of the independent members to place before the Chancellor their reasons for holding a different view from the ex officio members, if such comes about.

I have no reason to think that this will be a cosy system. It seems that the advisory functions of the independent members will greatly strengthen the system and will be of great value to the Bank of England. I am sure that the Bank will not lightly disregard the comments of the independent members either about specific matters of supervision or more general questions, such as those which my hon. Friend the Member for Chichester (Mr. Nelson) mentioned. The independent members would need to pass on their opinion to the Chancellor only if there were a difference of view. Otherwise, if there was general anxiety in supervisory terms about, for example, the extension of credit, it would be dealt with in supervisory policy, about which the Governor would be in communicaton with my right hon. Friend the Chancellor.

The amendments respond to points made in Committee and they strengthen the role of the independent members. I hope that the House will welcome them on that basis.

Amendment agreed to.

Dr. McDonald

I beg to move amendment No. 5, in page 2, line 25, at end insert 'and to resign from the Board immediately on the commencement of an investigation by the Bank of England into a bank in which the independent member has a position of responsibility'.

In his reply to the hon. Member for Chichester (Mr. Nelson) the Minister said that he did not regard the Board of Banking Supervision as a club. In his reply to me I hope that he will accept the amendment because it will ensure that the Board of Banking Supervision is not a club.

The Minister will know that on 4 February the Standard Chartered bank asked the Bank of England to appoint inspectors into its affairs, one assumes as a result of the continued press rumours about what happened when the Lloyds bid was first made in April 1986,. Between April 1986 and July 1986 the Lloyds bid failed. Hon. Members will know that during that period several so-called white squires, including Mr. Khoo, assisted the Standard Chartered bank to fight the bid from Lloyds. The Minister will also know that the press recorded many allegations about loans that were offered to the National Bank of Brunei and to Mr. Khoo, who at that time owned 70 per cent. of that bank, before and shortly after the Lloyds bid failed. Obviously, we shall not know whether those allegations are true until the investigation is completed.

Mr. Gerald Howarth (Cannock and Burntwood)

I hope that the hon. Lady will tell the House that Standard Chartered invited the Bank of England to appoint inspectors from a position of strength and because it repudiates scurrilous reports in the press, some of which are now the subject of libel proceedings.

Dr. McDonald

I entirely understand the hon. Gentleman's anxieties because, as he states in the Register of Members' Interests, he is an employee of Standard Chartered. If he were listening carefully to what I said, he would have noted that I said that on 4 February Standard Chartered asked the Bank of England to appoint inspectors. I do not propose to assess the truth or falsity of those allegations; that is for the inspectors whom the Bank of England has now appointed. It would be useful to have the full report of that investigation made public, but we do not know whether that will be the case.

I tabled the amendment because I am disturbed to note that Mr. Peter Graham, deputy chairman of Standard Chartered bank, is also a member of the Board of Banking Supervision. I am in no way making personal allegations against him. I do not know what part he played during the Lloyds takeover bid, which is presumably another matter which, I hope, the inspectors will investigate. My point is simply that if the Board of Banking Supervision is not to be regarded as a cosy club the suggestion that is implied in my amendment should be followed. I understand that Mr. Graham has resigned, but that his resignation is due to take effect from May when he takes over from Lord Barber as chairman of Standard Chartered. It seems that he is still a member of the Board of Banking Supervision and was when Standard Chartered asked the Bank of England to appoint inspectors.

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In the interests of justice being seen to be done, in those circumstances it is important that a member of the Board of Banking Supervision should resign immediately. If that were the expected step for anyone in that position to take, it would not carry any implications that the allegations under investigation were either true or false. It would simply be an automatic step. It is an entirely proper step. The function of the Board of Banking Supervision is to advise the Bank of England on supervisory matters. It is quite wrong that someone who has an interest in the outcome of a current investigation should remain on the board. I am not making any judgment about Mr. Graham; it is simply a procedural point in the interests of justice being seen to be done. If the Minister does not feel able to accept that amendment now, I hope that he will give an assurance that he will consider this matter and perhaps accpt it at a later stage.

Mr. Hugh Dykes (Harrow, East)

I need not cause alarm to anybody, not least the Minister or other collegues or Opposition Members. My intervention will be brief.

I am tempted by the argument of the hon. Member for Thurrock (Dr. McDonald) on this point. None the less, I have reluctantly come to the conclusion that it would be wrong to write a specific provision of this kind into a legislative instrument. Perhaps I am saying that at some risk, because it may be that the Minister will be tempted to accept the amendment. If he does not, I shall be interested in. and supportive of, his reasons. It would be difficult and unwelcome, in terms of any specific incidents in the future—we are all in favour of proper supervision — were a requirement to resign immediately to be specifically written into the legislation. That may seem to be at variance with other requirements in other parts of the Bill for specific legislation.

The act of resignation is difficult to write into a text of this kind. I shall be, as others may be, interested in the Minister's views. It might be that this could be encapsulated more appropriately not merely in the written convention of the behaviour of such a body, but in the standing orders or rules of procedure of the board in its career and constitution.

Mr. Ian Stewart

The point which the hon. Member for Thurrock (Dr. McDonald) has raised is a serious one. I agree with my hon. Friend the Member for Harrow, East (Mr. Dykes) that to build compulsory resignation powers into statute is a dangerous course to follow. The circumstances under which the amendment might operate could vary considerably and might include cases where the resignation of such a person would be wholly inappropriate. I shall elaborate on that briefly. An investigation does not establish any wrongdoing. Only if the investigation uncovered any wrongdoing would that difficulty apply. Indeed, an investigation into institution A might be undertaken in relation to a suspicion of wrongdoing in a different institution, institution B. It might be that, purely to obtain information, such steps would have to be taken.

The more important point is that it is standard practice in any body of this kind — I understand that it is intended that the board will operate in this way—that if there is any possibility of a conflict of interest the member concerned declares that interest and stands aside from the decision in that case. The board is not yet operating, so those rules are not in place. If a person were improperly to remain part of the discussion and process, it would be likely that that would be highly unsatisfactory in the view of the bank — a reasonable stance to take — and that person would then be removed from the Board of Banking Supervision under paragraph 2 of schedule 1, under which an independent member may be removed if he is unfit to discharge his functions as a member of the board. That description would fit anybody in a case of a conflict interest where a member did not stand aside. On those grounds, it would not be right to accept the Opposition amendment.

Dr. McDonald

I was disappointed by the Minister's reply. He will have done nothing to allay the fears of the public, who will find it quite extraordinary that someone should remain as a member of the Board of Banking Supervision in an advisory capacity, and will obviously see the investigation papers. It is quite wrong that the powers that the Minister mentioned should not be used in those circumstances. The Minister knows full well that the Standard Chartered bank case is causing considerable anxiety with the public and the press. To allow the deputy chairman to remain in that position is quite wrong. It flies in the face of seeing justice being done.

I am surprised that the Minister did not give a more conciliatory reply and say that if automatic resignation were not the best way of dealing with the matter he would look into other ways of dealing with it.

Amendment agreed to.

Amendment made: No. 6, in page 2, line 32, at end insert 'and the independent members shall be entitled to place before the Chancellor the reasons for their advice.'.—[Mr. Ian Stewart.]

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