BANKING BILL

HL Deb 06 March 1979 vol 399 cc46-77

5.1 p.m.

The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)

My Lords, I beg to move that this Bill be now read a second time. I believe that, in view of the general welcome that the Bill has received, particularly in its present form, and in view also of the considerable consultation that preceded its introduction and the improvements made to it in the course of its progress through another place, I can attempt to explain the background to it quite briefly. In this country we have never had a comprehensive system of authorisation for banks and deposit-taking institutions. The primary banking sector has traditionally accepted the authority of the Bank of England, and has been supervised by the Bank on an informal, non-statutory basis. However, in more recent times —and I am thinking of the last two decades—a fringe of deposit-taking institutions grew up outside the primary banking sector. These institutions were not subject to the informal authority of the Bank or to any analogous supervision, and although the Protection of Depositors Act was passed in 1963 to provide certain safeguards for their depositors, the crisis in secondary banking some ten years later indicated that it was time to review in a comprehensive basis the regulatory framework for institutions taking deposits from the public.

The Banking Bill is designed to preserve as much as possible of the flexible approach which the Bank of England has brought over the years to the supervision of the primary banking sector. In placing on the Bank the responsibility for operating the system set up by the Bill, we are taking a deliberate decision in favour of flexibility and against regimentation. This approach has been welcomed not only by those concerned in the banking industry, but in the financial Press, and more generally. Coincidentally, the European Economic Community were considering harmonising rules of banking at the time when we were reviewing our arrangements for supervision. In the event, the first EEC Directive on credit institutions, which was adopted in December, 1977, reflects a good deal of our approach. Its provisions will be implemented by the legislation now before us.

The Bill has three main Parts. First of all, it sets up a system of authorisation for deposit-taking institutions which will be administered by the Bank of England. Authorisation may take the form either of recognition as a bank, or of the granting of a licence to take deposits. In each case, statutory criteria set out in Schedule 2 to the Bill will have to be fulfilled. Authorisation may be withdrawn if the Bank is no longer satisfied in the course of its supervision that these criteria continue to be met. Although the criteria for recognition as a bank are much more demanding than those for a licence to take deposits, the system is designed to ensure that all institutions taking deposits from the public meet and maintain satisfactory standards of honesty and competence. Progression from the licensed to the recognised sector, as an institution builds up its reputation and develops its banking characteristics, is of course possible. The Bill allows institutions which may be aggrieved by a decision of the Bank to appeal to the Chancellor of the Exchequer, who is required to refer all such appeals to an indendent tribunal. I should mention also that the Bank will make an annual report to the Chancellor on the exercise of its supervisory functions, and this will be laid before Parliament.

The second Part of the Bill sets up the Deposit Protection Scheme. It has been argued that if the system of supervision works effectively, then all failures of supervised institutions ought to be precluded. The Government do not accept this. We hope of course that any failures will be very few and far between. The history of the British banking system encourages us in this hope, as does the long experience of the Bank of England in supervision of banks. However, any system of supervision that sought to rule out altogether the possibility of failure would be unacceptably interventionist, and would necessarily have a stifling effect on the commercial judgment of those directors and managers responsible for running the institutions. Consequently, since the very occasional failure must be contemplated, the Government believe that it would be wrong to leave the smaller depositor with no protection for his money. The scheme, while deliberately not removing all element of risk from the depositor, gives him the assurance that he will receive back 75 per cent. of the first £10,000 of his sterling deposit in the event of an insolvency. The scheme will be financed by contributions from recognised banks and licensed institutions, and consist of a small cash fund, plus a system of back-up guarantees. This should combine the flexibility to deal with any small failures from the cash fund, while keeping in reserve larger resources should the need ever arise. The Bill now provides, in response to representations, that all contributions to the scheme will be tax-deductible.

Part III has proved to be the most controversial Part of this generally welcomed Bill. Essentially, it confines the use of banking names and descriptions to institutions recognised as banks under the Bill. This policy is a natural concomitant of the two-tier system which is set up under Part I of the Bill, and which largely reflects the existing division between the primary banking sector and other deposit-taking institutions. In general, only institutions in the primary banking sector may at present have such words as "bank" in their titles. However, this policy on the use of banking names has been largely undermined by the uncontrolled use of banking descriptions such as "bankers" immediately after the name. This has given rise to much confusion among the general public, and has been suggested as a contributory factor in the secondary banking crisis in 1973–74. So, far from clarifying the position, it would perpetuate the confusion if institutions which had not gained recognition as a bank under this Bill were nevertheless able to represent themselves as banks.

Some uneasiness was shown in the passage of the Bill through the other place at these provisions in Part III. Consequently, the relevant clause as it now stands differs somewhat from the clause as originally introduced. The main difference is that licensed institutions, notwithstanding the prohibition on holding themselves out to be banks or bankers, may nevertheless use the phrase "banking services" in relation to themselves, except in certain defined circumstances. The Government believe that this should meet the substance of the case put forward by licensed institutions who feared unnecessary damage to their business. However, we do not feel it possible to go further without undermining the policy itself. I should also mention that the position of foreign institutions licensed to carry on a deposit-taking business here through a branch caused some concern. It had originally been proposed that all such institutions would be allowed the use of any banking name that they had in their country of origin, providing that this was qualified in this country by an explanatory phrase. It was suggested that this gave an advantage to foreign licensed institutions over their domestic counterparts. Because of a provision in the EEC Banking Directive, it is not possible to deny EEC-based institutions the use of any banking name they may have in their country of origin. But the clause as now drafted confines this privilege to EEC institutions, and requires that their status as licensed deposit-takers should always be made clear when the name is used in this country.

The Bill has been generally welcomed, both inside Parliament and outside. I am sure that this is in no small measure due to the fact that the Bill places responsibility for administering the system of authorisation and supervision upon the Bank of England. We have every confidence in the impartiality, expertise and care which the Bank can be expected to show in administering this system, as it has hitherto done in conducting its traditional supervision of banks. The Bill passed through the other place in an atmosphere of constructive co-operation. The Government accept that because of this it is a better Bill than when introduced. I commend it to the House, and I beg to move.

Moved, That the Bill be now read 2^a.—(Lord McCluskey.)

5.10 p.m.

Lord REDESDALE

My Lords, first, we are most grateful to the noble and learned Lord, Lord McCluskey, for such a clear exposition of the Bill. I thought also that he was particularly fair in taking the points which had been put in another place and which I think have improved the Bill. We of course believe that it can be improved still further. Next, my Lords, I must declare an interest. I am employed by the Chase Manhattan Bank, a major American bank established here and authorised for many years. So this Bill does not pose any problems for the Chase or for other United States banks in this country. Consequently, I believe that my declared interest is an advantage, as it has helped me to become better informed about the Bill and yet I can still remain completely objective.

From these Benches we welcome the concept of the Bill, especially Part I, which statutorily regulates and defines banks, although the two-tier system and some other aspects of it create some unfair situations. Although welcoming a scheme to protect depositors, we have some reservations about the implementation of the fund and the board. In Part III there are a number of points with which we shall want to take issue. Since this Bill is the first piece of major bank legislation this century, we believe it provides us with a very good opportunity to widen its scope to cover some points of banking law reform—a daunting subject for a layman to raise, especially with such a distinguished lawyer as the noble and learned Lord on the Bench opposite taking charge of the Bill.

However, looking at the Bill as a whole, the July 1978 White Paper states: One of the purposes of this legislation is to assure the health of the financial system generally". That is very laudable, but does it have that effect? I think it is doubtful. Let us look at the 1973–74 secondary bank crisis, to which the noble and learned Lord has already alluded. No depositor—and I stress the word "depositor" —actually lost any money. In fact, I cannot find a case in which a depositor has lost money in a British bank. I raise this matter because in another place the Minister took exception to this claim, and at Report stage said that he did not want to hear any more about it. I have to confess that I have looked into this a little more fully, and I gather that the case that he quoted as an example was rather strange. It turned out to be Gwili Farmers, a Carmarthenshire farmers' cooperative operating as corn and seed merchants—hardly, I think, a bank. It happened 15 years ago, so it was pre the 1967 Companies Act and the well-known Section 123, which has of course since been repealed. Therefore, it was not a bank, I believe, under the DTI terms; nor was it a bank under any other terms. I am sorry to take up your Lordships' time on this point, but it was raised in the other place and I think it is important. I do not think that anybody has lost any money as a depositor—and this concerns a depositor—in a bank, and certainly not a bank recognised by the Bank of England. Perhaps the noble and learned Lord can come up with a better example than a farmers' co-operative.

Returning to the 1973–74 crisis, not only did no depositor lose any money but only one secondary bank actually went into liquidation. The proposed fund would not in fact have been called on. However, I accept that if Part I of this Bill had been in operation then perhaps some of the Section 123 banks which got into trouble would not have been granted licences in the first place. I accept that point. What was required, however, was a lifeboat of cruise-liner proportions. In fact, it had a displacement of no less than £1,200 million, and 80 per cent. of that was put up by the clearers. This is evidence of their strength, and that strength is very necessary. They must be strong, because a lifeboat is the surest way to protect depositors. I believe it is a much surer way than a fund which pays out only when a bank actually goes into liquidation, and then only on 75 per cent. of a maximum up to £10,000.

So let us look at the fund. The noble and learned Lord sounded very plausible in his explanation of this, but I am not quite clear why not less than £5 million and not more than £6 million was the sum chosen. Just to look at it in a little more detail, the latter figure—that is, the £6 million—is enough to cover 800 depositors each over £10,000; that is the maximum on a call of 75 per cent. Taking the fund with borrowings up to its maximum—that is, with the doubling and everything added in, the Bank of England's borrowing—we get up to a figure of some £300 million, which would cover 40,000 accounts of over £10,000.

I do not want to confuse the issue as between what is an account and what is a customer, because it gets extremely complicated and figures are very hard to come by, but I tried to quantify this and I found out that one clearer alone has over 20,000 accounts of over £10,000, which would be a call of £150 million. Very well; that is the first call that we talk about, which is at £140 million, give or take the odd £10 million, which could be borrowed by the Bank of England. It is estimated that the call of the smaller depositors—that is, those under the £10,000—would bring this total that I have mentioned, of £150 million, to well over £1,000 million. I make this point to show that if a clearer collapsed the whole financial system would probably collapse. As I have said, the clearers are strong, and thank goodness they are! It is therefore highly unlikely that a clearer could or would collapse.

My Lords, the point I am trying to make is that, as the clearers are going to have to pay the lion's share of covering the fund, this is a little unfair; and a point which I am sure the noble Lord, Lord Polwarth, will raise is that, proportionately, because the minimum has been lowered and there is a ceiling of £300,000 on the contributions, then in fact the people who are going to be hit the hardest, probably. in terms of contributions are going to be the Scottish banks—a point which might come home to the noble and learned Lord. So on this basis the safest have to pay most. I am sure the noble and learned Lord is a very careful driver, and I do not think he would be very happy if this principle was applied to his no-claim bonus. The other point I should like to make is that the fund could really be a potential drain on the much more important issue of a stand-by lifeboat. However, accepting that we are going to have a fund, even if it is of somewhat doubtful value—and I say "doubtful value" because, let us hope, the regulations as carried out by the Bank of England will make any failures extremely unlikely—let us at least, at this stage, dispense with the doubling of a 0.3 per cent. of deposits call to a 0.6 per cent. I say this not to make a Party point, or anything else, but because I have tried to show that in the event of a major collapse in that sort of area we would he in the throes of a full-scale banking crisis of really mammoth proportions, and it would need a lot more than an Affirmative Order—which, after all, as your Lordships know, cannot be varied; it can only be accepted or rejected. That situation would require very full debate and, I believe, primary legislation.

Next, I should like to come on to the question of the Giro. The Giro, of course, are guaranteed by the Government and are therefore totally safe; but I have tried to show that the clearers are totally safe. Her Majesty's Government say that the Giro will make a comparable contribution to the Treasury. I do not think there is much force in that point. I think it would be much better if that contribution was paid into the fund, to reduce the overall contributions. After all, the Giro do hide their accounts within the Post Office. When I say "hide", they are part of those accounts and therefore it is harder for them to pull it out. Even so, the accounts in 1977 (under Note 13) had an auditors' qualification—something which, if it happened to a clearer, would have caused a major scandal.

What about deposits as a whole? There was an excellent article in the Economist on 18th February last year which contained a chart showing how the deposit cake was made up. Two periods, 1962 and 1977 were taken. Back in 1962, the building societies had only 20 per cent. of that cake. Now, they have 40 per cent. The clearers had 45 per cent. and they have dropped to 29 per cent. This shows the great growth that there has been in the building societies. The share of the other areas such as the Scottish banks, Giro, the Post Office Savings Bank et al has in fact gone down as has that of the clearers; but other banks have gone up from 2 per cent. to 12 per cent.

The point that I am making is that the funds are there to cover 12 per cent. of the deposits, let alone the building societies. When it comes to the Building Societies, they, with their massive 40 per cent. have also a higher proportion of the smaller deposits—that is, those of people depositing under £10,000—and, therefore, although they are supervised (as the banking system will be by the Bank of England) it seems fair that they should be brought within a comparable scheme and should then compete on all fours with the clearers and the other banks. I think it is only fair to do this. Although the Government have said that the building societies are going to be encouraged to have a scheme, I think that they ought to be encouraged with a rather more cogent incentive. I believe that the incentive should be that they should have 18 months during which they are excluded (as they are at the moment) from the Bill covering deposit takers, but that, within 18 months of this Bill becoming law, they would have to come into the scheme or have a comparable scheme actually in operation and approved by the Chancellor of the Exchequer. I think that 18 months is fair and that it would get things moving on that front.

That brings me to the Trustee Savings Banks. I accept the argument that they cannot come into the scheme at the moment although they would like to do so and are prepared to make a contribution when that time comes. But they will require a certain amount of Government assistance on legislation and other matters. I hope that the noble and learned Lord may come on to that when he winds up. I believe that the Government should be encouraged to get that date brought nearer rather than further away. I believe that a similar clause should be inserted which would bring us to the beginning of 1981, which is a date that the Trustees Savings Banks think is a realistic date for them to come into the scheme. Therefore I hope that this point will be accepted by Her Majesty's Government.

My Lords, while on fairness, I should like to touch on Clauses 11 and 13 which were discussed in the other place. They concern appeals. At the moment appeals can be heard only by the courts on matters of law. I believe that this should be extended to matters of fact, as well.

Clause 16 covers the need for a definition of "accountants". It mentions the word "accountant" and an accountant can be anybody who calls himself an accountant; whereas only solicitors can call themselves solicitors. Although the Government criticised as being too long the definition that was put up in one Amendment—and I have sympathy with that criticism because it was too long—the definition could be brought within an Amendment based on Section 161(1)(a) of the Companies Act 1948. When it comes to the definition of "proper accounts" this could be done with an Amendment based on a modified form of the way it appears in the Companies Act 1976.

Clause 19 comes to the question of the public interest and the widening of the Bank of England's powers in determining what is the public interest. This was debated in another place. Surely the public interest can be determined only by either Parliament or the courts, and not by a central bank. The Minister was adamant on this point; but in order to cite an example he had to go back to 1924 and to a case which involved somebody who had been trading with the enemy in the First World War. This seems a very long time to which to have to go back for an example. I should like to raise this point along with the other questions of disclosure to the Treasury and overseas central banks. I believe that we should look at this very carefully; otherwise there are real dangers in so reducing the basics of confidentiality in banking as to harm the image of London as a major financial centre.

I come now to the vexed question of Part III, Clause 36 and banking names. The noble and learned Lord has talked about this. There are several unfair aspects of this Part of the Bill. I accept that it is very difficult. Life is unfair, but in this Bill let us at least try to reduce this inherent unfairness. The noble and learned Lord talked about the EEC banks. I will not elaborate on this point, other than to say that they have an unfair advantage. The reason why I raise this unfair advantage is that the criteria by which the parents are judged differs throughout the EEC. Some of those criteria are far less severe than the criteria by which banks will be judged in this country. It is something which bears consideration.

Next there is the problem of the finance houses, many of whom offer a range of banking services. I appreciate the changes that have been made to allow these companies that provide banking services to claim in law that they are banks, but they will be prohibited by law from saying that they carry out banking business. This is a long and involved subject but I hope that we can persuade the Minister at a later stage to go a little further. I have a suggestion along the lines that, if you describe these services more accurately and also in a more limited fashion, then this might be more acceptable. I would suggest that they ought to be allowed to use words on the lines of, "Licensed for limited banking services". This is something which is worth consideration.

On the question on investment banking, the Minister in another place poo-poohed this. All that I would say at this stage is that it is an accepted term in North America; we cannot ignore the outside world and the English organisations will be at a grave disadvantage if they can call themselves investment bankers only when they are describing themselves overseas; but they cannot do so here. Perhaps the answer is that, if they become licensed institutions, they might be allowed a little more leeway on this matter. I next come to the question of management companies and an absurdity whereby two of the clearers, Barclays and Lloyds, are going to be hampered in their rather imaginative developments of using management companies to be responsible for the United Kingdom banking subsidiaries of the holding companies. The clearers are going to pay the lion's share of the fund for which their customers and shareholders will receive very little; and, at the same time, they are going to have to submit to, I think, some petty regulations which will prevent them using the names that they would like to use and which insist that these management companies call themselves by rather unwieldly names like "Lloyds Bank UK Management Limited". This management company would bear the responsibility if anything went wrong with Lloyds Bank United Kingdom operations so that it would be sensible (even if it is not a trading company) to call itself by the United Kingdom Bank branch name of "Lloyds Bank UK Limited". This would allow the holding company the important advantage of using the full footings of the bank when dealing overseas by being known as "Lloyds Bank Limited".

Finally—and I see I am speaking for rather longer than I intended—I should like to raise two points: this Bill gives us the opportunity of widening the banking legislation in this country. I shall have to cut my speech much shorter than I intended, but there are two Acts which ought to be brought into the Bill. I believe this can be done because the Long Title of the Bill says: to repeal certain enactments relating to banks and banking". The first concerns the Consumer Credit Act 1974. I shall not go through the full argument that I wished to make; but I should like to draw attention to a particularly good piece of pleading on this subject which appeared in the Trustee Savings Bank's case which was presented to the Wilson Committee, paragraph 8.3. It speaks of the highly complex nature of the legislation, the increased costs it would involve and reduction of services. It ends: The resultant additional protection is in any case likely to be minimal. Above all the Act is concerned with the imposition of rigid rules in the granting of consumer credit at a time when the banking industry is trying to develop greater flexibility in the services it offers". I believe that the removal from the Act of those recognised banks which provide a substantial part of their banking services in current account and overdraft facilities can only be beneficial by clearing away some of the problems preventing implementation of parts of the 1974 Act. After all, a third of that Act, as the noble Lord, Lord Jacques, knows because he is quoted at some length in that debate, is not yet implemented.

The other point I wanted to raise briefly is a subject on which a layman should be careful especially with as learned a noble Lord as the noble and learned Lord, Lord McCluskey, sitting opposite. It is the effect of the Torts (Interference with Goods) Act 1977. At a later date we should like to put down an Amendment on this because the onus on the banks in this country is far greater than it is in any other EEC country. We have a different concept of conversion to any other country apart from perhaps the old ex-colonies which work from our law. I believe that we could rectify a situation which has developed whereby the fraudulent conversion of cheques now bears very heavily on the banks, far more so than it actually should do. It has crept in probably more by mistake than by intention. I hope that we can have a look at that point in some depth later. My Lords, let us hope that with a little co-operation from Her Majesty's Government we shall be able to improve this Bill still further in this House.

5.34 p.m.

Lord SEEBOHM

My Lords, after spending nearly 50 years in the business of banking, I must naturally declare my own interest in the Banking Bill. However, let me say straight away that I and my colleagues in the clearing banks on the whole welcome this Bill. My object in speaking today is to draw attention to certain aspects which in our view need amendment. I do not propose to go into great detail this evening as there will be a further opportunity in the Committee stage. The noble Lord, Lord Redesdale, has mentioned most of the points that I wish to make. I shall therefore cut my speech very short; but I want to underline from the point of view of the clearing banks one or two of the matters to which the noble Lord referred.

First of all, there is no doubt that they would like to see the whole of Part II of the Bill removed. If, on the other hand, it is to be adopted, then, like the noble Lord, Lord Redesdale, we see no reason why the National Giro bank should be excluded just because it is Government-owned. It has been generally accepted that none of the British clearing banks is likely to fail. They are only brought in in order that a sufficient sum should be available to bail out their weaker brethren. The same argument must surely apply to the National Giro bank. In order to retain equality of competition, as the noble Lord, Lord Redesdale, pointed out, it has been agreed by the Government that an equivalent sum should be paid not into the fund but to the Treasury. Can anything be more absurd than this, my Lords? As at present envisaged in the Bill, two-thirds of the entire insurance contributions will come from the clearing banks. Surely the same rules should apply to all competitors in the same game whoever are the ultimate proprietors.

My second objection to Part II is that the building societies and the Trustee Savings Bank are excluded under Schedule 1. In so far as the building societies are concerned, it must be remembered that their deposits now considerably exceed those of the clearing banks. As they already have considerable competitive advantage over the banks in tax concessions there seems little reason why they should receive yet further benefits. In the case of the Trustee Savings Bank, the Government have agreed that they will come entirely within legislation at the appropriate stage of their development. Why should they not come in now as they are very anxious to take their place in the private sector as soon as possible? Alternatively, the whole of Part II could await the inclusion of the building societies and the Trustee Savings Bank.

Finally, on Part II, the Banks feel most strongly that the Treasury should not be given the power to increase the Bank's contributions from 0.3 per cent. to 0.6 per cent. at their discretion. This power is equivalent to increasing the sum involved at present deposit levels from £140 million to £280 million—a vast sum indeed. As the premium is expressed in percentage terms, it is, of course, inflation indexed. Surely Parliamentary scrutiny should be preserved for sums of this order.

In Part III I am sure that all will agree that the name "bank" in the title of a financial institution must be used with care. I do not however believe that it is unreasonable to allow the use of the name "bank" by a wholly-owned subsidiary of a recognised bank, and Clause 36 should certainly be amended to include wholly—owned non-trading subsidiaries. This applies at present to two of the clearing banks, as the noble Lord pointed out, but could affect more if they wished to adopt a divisional basis of management as have Barclays and Lloyds Banks. If the main object of the Act is to protect depositors, who can possibly object to such management subsidiaries, which will not be taking deposits anyway?

My Lords, there is one further matter to which I wish to call your attention. It is the possibility of using this Bill to correct a severe disadvantage that arises from the Consumer Credit Act 1974. It will be recalled that that Act was introduced so as to protect consumers from some of the worst aspects of those who lend money at excessive rates of interest, or with inadequate safeguards. It was never really intended to apply to ordinary bank lending on overdraft. Indeed, it has always been recognised that overdrafts represent one of the cheapest and most convenient forms of credit.

During the passage of the Consumer Credit Bill through this House in 1974, I and other noble Lords pointed out the disadvantages to consumers that would occur as a result of the legislation, almost accidentally, being drafted to cover bank overdrafts. It has in fact taken a long time for the Act to be implemented but now we are beginning to see the adverse consequences. Regulations are now about to be made in respect of advertising, and are expected before long in respect of the provision of interest rate quotations. The requirements under these regulations will involve the banks in expensive extra computer equipment and in heavy costs of employing additional staff. I am not making a special plea on behalf of the banks: the case I am making is that these regulations, so far as they apply to overdrafts, will be of no benefit at all to consumers. The additional information that will be supplied to the ordinary bank customer taking out an overdraft will not assist him in any way; but the effect will either be to put up the cost of overdrafts or to force the banks to move out of their business into personal loans. And either way the result will be that the consumer will have to pay a higher cost.

All this we predicted when the Consumer Credit Bill was under consideration in this House five years ago. At that time we were told it would not be possible to exclude the banks because no definition of a bank existed. Now, however, with the advent of the Banking Bill, that hurdle is removed. One of the main purposes of the Bill that we are discussing today is to provide a statutory definition of a recognised Bank. And, indeed, one of the criteria for recognition as a bank is that overdraft or loan facilities shall be offered to members of the public. This is in Schedule 2, page 55, of the Bill.

I very much hope that when we come to the Committee stage we can agree on an Amendment which will have the effect of exempting ordinary overdraft lending from the Consumer Credit Act. It has already been mentioned in fact that in the Long Title of the Bill this is probably in order. I should make it clear that I am not suggesting that all bank lending should be exempted from the Consumer Credit Act. Personal loans and other lending on fixed terms should clearly stay within the Act, and this is accepted by the banks. It is only a question of overdrafts, where the balance outstanding and the rate of interest charged often vary from day to day, and where the application of rigid regulations designed for a completely different purpose looks like making the whole system much more difficult to operate. This is, I am sure, the most important change we can make to the Bill and it is one which will provide real benefit to something approaching 20 million consumers—many of them small businessmen and some of them perhaps even Members of your Lordships' House—who have bank accounts and may at any time need to run up an overdraft, and who wish to be able to continue to do as cheaply and as easily as at present.

5.41 p.m.

Lord POLWARTH

My Lords, I must start with an apology to the noble and learned Lord, Lord McCluskey, for not being in my place during his opening speech. I can only attribute my absence to an unfortunate failure of communications. I, also, must declare my interest, as a director and former Governor of the Bank of Scotland. Certainly the noble and learned Lord, Lord McCluskey, needs no information from me on the role of the Scottish clearing banks. Their origins are ancient. The Bank of Scotland, I might remind your Lordships, was constituted under an Act of the Scots Parliament, although founded by an Englishman, in 1695–one year after the Bank of England was founded, of course, by a Scotsman! The other two Scottish clearing banks as constituted today were founded in 1727 and 1836 respectively.—

Lord COBBOLD

My Lords, if I might interrupt the noble Lord, I think the Englishman who founded the Bank of Scotland lasted for a little longer than the Scotsman who founded the English Bank!

Lord POLWARTH

My Lords, the noble Lord the former Governor of the Bank of England is absolutely correct. So, although we are quite a bit smaller than our English colleagues— on average some 10 per cent. of their size—we do enjoy, I think, the same confidence in the community and have been pioneers in some respects, notably in the system of finance through overdrafts and, more recently, in the introduction of computer technology in banking. Also, we have always been subject to the same degree of supervision as our English colleagues.

Subject to what I shall say later, I would say that I, and, I know, the Scottish clearing banks, broadly welcome this Bill and its intentions. If this debate appears to be somewhat dominated by bankers, I hope that will not arouse any undue suspicions because I think the first interest of both a reputable banker and his customers must be a mutual one. The relations between a bank and its customers must be based on confidence. It is in the best interests of the bank that the customer has confidence that his money will be there when he wants it, and so we welcome anything that will give him the assurance that this will be so.

All of us in banking and finance were very shaken by the events of the fringe bank crisis of 1973–74. We shall welcome anything that will prevent a recurrence of anything like that. Confidence is not important merely in the home role of the banks but also in their role overseas. I would remind your Lordships that British banks, in the last year for which figures are available (1977), brought net earnings to this country from overseas of over £250 million. The maintenance of confidence in the British banking system abroad is every bit as important as at home. The Bill also, as we have heard, ensures the meeting of our obligations in respect of the EEC in this field, and that is to be welcomed too.

I believe that Part I, which provides for control and supervision by the Bank of England, is absolutely right. The Bank of England are the right body for this purpose. They already have a close, intimate and continuing relationship with the traditional banks and they know what to look out for. I would only say of my own experience that when I was Governor of our Bank, and dealing with the then Governor of the Bank of England—Sir Leslie and now the noble Lord, Lord O'Brien—it was brought home to me that there was a relationship between the Bank of England and the banks based on fairness, mutual respect and trust but with, I can assure your Lordships, no "soft touches". I have every reason to think that those relations are the same today. I think it is absolutely right that the powers of the Bank of England should be extended in the way they are in this Bill to the whole of this sector.

Turning to Part II, I would say that I have the same reservations about it as the two previous speakers and therefore I will not go into this at any great length. I would simply quote the evidence and the representations put forward by the Committee of Scottish Clearing Bankers: The Scottish banks strongly endorse the view that there should be no need for a deposit protection scheme if the supervisory and control functions of the Bank of England operate as intended. To introduce a scheme on the proposed scale can only imply doubts about the exercise of the Bank's statutory powers". I am all for the reasonable protection of depositors but, as has been pointed out, this scheme can only operate when an institution has already come to grief. It will only cover deposits of under £10,000 in size, and then only as to 75 per cent. of their amount. We have also heard that it was not the withdrawal of these small deposits which brought down the failed fringe banks or at least brought them to the verge of failure; it was the withdrawal of the large deposits. By the time this has happened, there could indeed be monumental calls on the fund. We have been into maritime metaphor already this afternoon and so I would say that the wreck could be more like the "Titanic" than the "Hesperus" and the lifeboat would have to be of a phenomenal capacity, if indeed it could be launched at all.

There are a number of questions over this operation, and I suspect that the proposed scheme is largely cosmetic. But if, as seems clear, the Government are determined to go ahead with the Fund, there are also questions of equity in its constitution. I find it hard to believe that the undoubtedly sound financial institutions whose reputations have never been called into doubt should have to contribute in the way that they do. I will not go on about the Trustee Savings Banks and the building societies. Let us hope they may be brought into the ambit of this scheme or into a similar one reasonably soon. However, I cannot leave the National Giro unmentioned. It seems a rather remarkable conjuring trick that this equivalent sum in proportion—presumably £300,000 maximum at first call: I do not know—will be spirited away into the funds of the Treasury. Somehow I doubt whether that rabbit will ever return! If there is indeed good reason why that sum should not be paid into the Fund but into the Treasury, will not the Government give an undertaking that, in the event of a call on the Fund, the Treasury will then "ante-up" its share in proportion to the other banks? I can see no valid reason why they should not at least give an undertaking to that effect.

There is one other element of inequity in relation to the Fund. This is possibly where I may part company, though I hope not seriously, with my noble friend who has just spoken, from the point of view of the English banks. This relates to the relative size of contribution and was touched on briefly by the noble Lord, Lord Redesdale. In the initial call at the top end there is a cut-off or ceiling of £300,000 for any one institution. Obviously that will apply to the four London clearing banks, and I think that, at the time, it was brought in in reasonable recognition of their contention of their indubitably sound status.

At the bottom end, as we have heard, there was originally to be a minimum contribution by the smallest institutions of £5,000; I believe to recognise the risks of the smaller scale operation, perhaps partly as an entrance fee to the club to help cover administrative costs and perhaps partly to deter frivolous applications—all, I think, quite good reasons. Even at that time, the Scottish banks pointed out that on the best estimates available—and it is very difficult to work this out until the full supervision system is in operation—of the deposit base this provision, together with the upper limit of £300,000, would result in all the banks in between, the institutions between the very smallest and the very biggest, paying on a percentage basis, which could result in their contribution being considerably in excess of what was fair in relation to the largest. At that time, it was thought that for the Scottish banks it might be between one-third and one-half of the comparable London clearing banks.

But that was not the end, because in another place in Committee stage strong pleas were made on behalf of the very small institutions that the £5,000 was excessive and, after a long debate, the Minister magnanimously conceded the point and agreed to reduce the minimum to £2,500 apiece. I know from experience on the other side of the House how tempting it is to concede a point to one's opponents, especially if it seems of minimal importance. It always helps to throw a dog a bone in order to keep him happy. But in this case I do not think that the Minister appreciated the consequences, because with a ceiling on the larger banks and a fixed sum to be raised, a reduction in the many minimum contributions can be made good only by an increase in the contributions by the institutions in between; in other words, the middle-sized ones. This does not include only the Scottish banks, because I think that there will be a number of others. It makes their contributions still more out of proportion to those of their larger brethren. So that in throwing a bone to the little dogs, the Minister was, in fact, taking it away from the middle-size dogs.

Although the figures are bound to be the subject of some conjecture, we were given information by the Bank of England only last week which, added to our own calculations, suggests that in the case of one Scottish bank their contribution, initially, could well be of the order of £200,000, compared with the maximum of one of the clearing banks of £300,000, and yet we are only about one-tenth of their size in deposits. This may seem something of a Committee point, but I think it is right that it should be aired now, so that the Government can look into the possible justice of our case before the next stage and endeavour to rectify it.

I shall not go into any further detail, particularly on Part III. I would simply conclude by saying that we want to see a strong and dependable banking system commanding confidence for our customers, whether at home or abroad, and in this I say that there is no conflict between bankers and their depositors. Generally, we North of the Border welcome the intentions of the Bill, particularly the provisions for licensing and control, with the reservations I have already expressed about the deposit protection scheme. With those words, I strongly support the Second Reading of the Bill.

5.54 p.m.

Lord SELSDON

My Lords, I feel that I, too, should declare an interest as I work in one of the clearing bank groups. It often embarrasses me in your Lordships' House that banking groups have such wide interests that there are very few subjects upon which one can speak without declaring some interest. Thus, I suppose that as a banker I should give a qualified welcome to this Bill. But my own inclinations are not to welcome it at all, for I have a secret fear that if, as one of the freest banking nations in the world, we begin to introduce legislation bit by bit, then, however slightly, our competitiveness in the world may be eroded. We should bear in mind that one of the reasons why the United Kingdom, in London, is perhaps the pre-eminent centre of the international banking world is that we have not had restrictive legislation.

Most of the American banks—and I am sure the bank of my noble friend Lord Redesdale—set up here for international business, often associated with the Euro-currency market, because of legislation back in the United States. One particular type of legislation, the interest equalisation tax, or IET, encouraged people to set up and work outside America and, logically, they came to London. It was interesting that when that tax was amended the banks did not take their business back to the United States. So that in looking at this Bill, I ask myself: Will it have any effect on our international position?

I think that at the moment there are something like 199 foreign banks with branches over here, a further 100 or so with representative offices and some 86 full partners in consortia. Every time a foreign bank wishes to set up in London, it goes and asks permission of the Bank of England. Those outside the banking world, and they included myself for many years, often failed to understand the remarkably close relationship which there was between the Bank of England and every bank in London, whether British of foreign. It was a strange informal relationship with people coming together to support each other in difficulty. Almost by a process of osmosis, rules or codes were laid down which were respected the world over.

I should like to ask the noble and learned Lord, Lord McCluskey, what the Bank of England feels about this legislation as it stands. Does it support it completely as it stands? Does it look at the need for amendments? What does it feel about the need for a protection scheme? I should like to ask him, too, if he will reply to the question of my noble friend Lord Redesdale, whether anybody lost any deposits during the secondary banking crisis? It is a point that should be cleared up. I understand that they did not. We should remember that that secondary banking crisis started initially not in London but in Germany. Someone reminded me the other day that a few hundred years ago a banking crisis, or a financial crisis, took a year to blow up. Then, as communications improved, it took a matter of a day and now, since the South-East Asian markets open early in the morning, you can, within a matter of five minutes, get an idea of which way the currencies of the world will move on that day. Crises are based upon a lack of confidence. Confidence is often based upon respect for prudent banking.

I was once asked a question by a Frenchman who was coming to live over here. Unlike so many people who wish to leave the country, he thought that this was a wonderful place to be, and he brought all his money with him. He said "I should like to deposit it somewhere". We were having lunch together with an elderly and very distinguished banker, and the Frenchman asked him "Where should I deposit my money? I do not understand the banking system. What is a bank and what is not a bank? "He said" I have heard about merchant banks. Are they safe places?" The elderly banker said "Yes, many merchant banks are accepting houses, and they have the Bank of England behind them." Then the Frenchman asked "What about the clearing banks?" The banker said "Ah, clearing banks are undoubted." "Then I suppose" said the Frenchman, "clearing banks stand behind the Bank of England." There are times when you have a crisis, like the lifeboat with cruise liner proportions, as my noble friend Lord Redesdale said, but, however big and terrible that crisis was, it was probably resolved—perhaps the noble and learned Lord, Lord McCluskey, would confirm this—with nobody losing his deposits. Certainly, investors lost money.

We must bear in mind that, as the banking world, or the financial world, seeks deposits, there are those who will inevitably offer a higher return than others. That higher return is almost always associated with higher risk. Sometimes that risk may pay off, but, when there is a flood of money which can often come with a property boom, or a boom in other areas, that money can move in and out with frightening rapidity. It is not usually the individual, the man in the street, if I may use that phrase, who causes the crisis; it is the institutions, people doing their jobs, protecting their own employers, hedging et cetera.

We often forget, the way in which the individual is involved in the banking system. Only half of the adults in the United Kingdom have bank accounts. Others use other types of financial institutions, which they often regard as banks. This Bill could tell some people that organisations which they regard as banks are no longer banks, and with it confidence may erode. The two-tier system proposed is an invidious one. While I understand the desirability of trying to keep out—I do not mean to insult our American cousins —the cowboys and the hustlers in the financial world, it may unwillingly upset honest, respectable, highly successful bodies in the financial community which regard themselves as banks and which would take considerable exception to this. Representations have already been made to the Government.

Much has been said about Part II of the Bill, the deposit protection scheme. All I would say is that I can think of a better solution, and I am sure that many other people can, too. I hope that many Amendments will be put down relating to Part II of the Bill. Ideally, I think that Part II should be removed entirely, but I am sure that it will not be. During the time that I have been in your Lordships' House I have become more and more depressed about the way in which we have legislation pushed upon us, legislation which is neither clear, nor concise, nor even fair. I feel that it is its fairness which is the most important issue of all. Our normand cousins across the water often say that all good legislation requires three phases: conceptualisation and realisation, and in between a good bit of animation. In this Bill, the animation is missing.

6.2 p.m.

Lord O'BRIEN of LOTHBURY

My Lords, although I did not put down my name on the list of speakers, I hope that I may take advantage of the convention of your Lordships' House whereby if a noble Lord feels he must speak he is allowed to do so. I do not want your Lordships to think that just because I am sitting next to my noble friend Lord Cobbold I am seeking protection, or that he will pull my jacket if I go wrong. We just happen to be sitting together. I do not want to upstage my noble friend Lord Seebohm, but I have been in banking for 52 years. He may say that for most of that time I was not a proper banker, anyway. That is a matter of opinion, of course. Certainly, for 46½ years I was in the Bank of England and was Governor between 1966 and 1973, a period which has some relevance to the legislation which we are now considering.

Since then, I have become a sort of commercial banker, for I am the director of one bank—the Saudi International Bank —and adviser to two others, Morgan Grenfell and Morgan Guaranty. I should not like to say that the great success of all those banks is entirely due to my advice, particularly in the presence of Lord Taylor of Gryfe who is a far more effective adviser to Morgan Grenfell than I am. I am also the President of the British Bankers' Association and am therefore in some sense a spokesman for over 300 of the principal banks in this market. But even though I am a kind of commercial banker now, and a representative of those banks, I cannot be expected to forget my lifetime in central banking. Therefore, I am in something of two minds in approaching this legislation.

As I say, I spent a long time in the Bank of England, and seven years as Governor, when the conditions which helped to bring about this legislation were being created. I remember the Radcliffe Committee Report of 1959. In their report they showed that they were aware of the fact that, partly due to the extreme restraints which were placed upon the banking system proper from time to time as we went through successive crises, the fringe institutions were growing up. The committee decided that although that was so, it would not be right or worth while to extend control to them. Whether they would have thought the same 10 years later is perhaps open to doubt. Certainly they would not think the same now.

I am convinced that this legislation, or legislation of this kind, is absolutely imperative. It is imperative because we have to comply with our obligations to the European Economic Community. But it is not only for that reason that I think that legislation is absolutely imperative. I believe that Lord Cobbold would be only too ready to agree with me that for many generations the Bank of England were rightly proud of the very light-handed regulation with which they managed to keep the banking system of the United Kingdom under proper control. But the banking system of the United Kingdom now is very different indeed from what it was even 20 years ago, and I believe that we need a framework of legislation.

I was most grateful to the noble and learned Lord for the manner in which he outlined what that legislation would be and the thought behind it: the desire for flexibility and the desire to bring about the very minimum change to the arrangements which have served us so well over so many years. It is entirely right that the Bank of England should be at the centre and should be the implementer of this legislation: the continued controller of the banking system. I think that the banking system would be very shocked indeed if that were not so.

I do not think that the noble Lord, Lord Selsdon, needs to worry about the degree of change in the method of controlling the banking system which this legislation will bring about, so long as the Bank of England is there to implement it. I believe that the philosophy which has actuated us over hundreds of years will continue and that the advantages enjoyed by banks in this market will also continue. I say, therefore, that the legislation is necessary. Also I say that I do not think that it is a bad Bill. That may sound a bit grudging, but if a Bill is not bad it is beginning to be good—which is more than I would say for the Consumer Credit Act. I think that is a very bad Act, and I have great sympathy with what my noble friend Lord Seebohm said about the inclusion in it of ordinary bank lending. I, like him, very much hope that this opportunity will be taken to change that, to the great advantage of all those who use banks.

I have great sympathy, also, with those who are unhappy about the deposit protection scheme. This subject is being considered in Europe where it is thought at the present time that they should seek in the Commission to co-ordinate the separate deposit protection schemes of the individual countries. Their further thought is that those schemes should rest entirely upon guarantees, not upon cash subscriptions which I should have thought would be entirely adequate. Cash guaranteed by a leading British bank is as good as money. Also, I sympathise with the views of people who feel that others, such as the Giro Bank and the Trustee Savings Banks, should be brought in.

I do not intend, however, to go in detail into all of the objections that have been made. The Committee stage will come and then we shall have a chance to look at the Amendments and debate them in detail. For my part, I welcome the legislation and the spirit in which it is put forward. I look forward to it being administered in a way which will be satisfactory both to the authorities and to the banking system.

6.8 p.m.

Lord McCLUSKEY

My Lords, if all the speeches this evening had been as welcoming as the speech of the noble Lord, Lord O'Brien of Lothbury, was modest in its recitation of his contribution to and experience of banking, I should have a much easier task both now and at the Committee stage, which will prove to be rather more interesting than I had hoped or, indeed, feared.

The Bill has received this evening a more muted welcome than I had expected from some sources, but that may simply be a question of emphasis because most speakers, while extending a general welcome to the legislation, have concentrated upon its supposed defects. However, most of the points which have been taken are ones which we can properly look at and examine in detail in Committee. I need not take up your Lordships' time in going through them all at present. However, there are some which I must answer. In some ways, the most important of them, and certainly the easiest for me to answer, was that asked by the noble Lord, Lord Selsdon; namely, what is the view of the Bank of England? Does it support the Bill and the scheme? The answer to both parts of the noble Lord's question is, Yes.

I was asked by the noble Lord, Lord Selsdon, and by the noble Lord, Lord Redesdale, about depositors losing money in the 1973–74 crisis. As a lawyer, I was always brought up never to ask a question unless I knew the answer, and it was plain from the smugness with which the question was put across this Table that the answer was well known. The 1973–74 crisis in secondary banking led, as noble Lords are well aware, to the creation of the lifeboat. The intention of this operation was to avert a crisis of confidence in the banking system. The immediate objective was to provide liquidity support to those institutions which were experiencing rapid and substantial withdrawals of deposits. In the event, a number of these companies turned out to have deeper-rooted problems of solvency, and these have been run down in an orderly fashion.

As a result of the lifeboat, however, no depositors who were not connected with the institutions lost money. So in short the answer is, none. Of course, connected depositors —and the noble Lord Redesdale, was particularly careful to phrase his question exactly —are not protected by this Bill, and they were the ones who lost in that situation. A sum of £l.2 billion was mentioned, and that indeed was the sum committed to the lifeboat at its peak, but the final losses of those who suffered losses will be very much less.

The deposit protection scheme is directed towards the same kind of depositor who was protected under the lifeboat but who did not in fact lose. It excludes from protection the directors, controllers and managers of a failed company and their immediate relatives, and it gives the Deposit Protection Board discretion to exclude from protection other depositors who appear to the Board to have had responsibility for, or to have profited directly or indirectly from, the difficulties of the institution.

There are, of course, differences between the 1973–74 lifeboat operation and the present matter. In particular, we are only concerned here with what protection is required when insolvency actually occurs. I was also asked about the arbitrary size of the fund—not less than £5 million and not more than £6 million—but, of course, in a Bill one cannot just say that we will have a sum of money and when the Government pick any sum of money it is bound to be said to be arbitrary. So really in a sense one cannot avoid an arbitrary figure. What we have here is a cash fund which is small. Although I understand the particular point raised by the noble Lord, Lord Polwarth, and I shall have to deal with that in due course, it does not make excessive demands upon the institutions which are called upon to contribute, particularly when one recognises that now all the contributions are—as I said in my opening speech—tax deductible. So the contributions are relatively modest. Therefore, one ends up with a cash fund which is limited in size but which should be available to deal with the relatively small failure; and indeed one hopes that with the system of supervision that is introduced by Part I of the Bill and that working, as one would expect it to work, under the supervision of the bank, that we shall not have to face any other type of crisis but that type of crisis. Accordingly, we are creating a cash fund which gives credibility to the scheme in the eyes of the public and enables these relatively small matters to be dealt with without too much difficulty.

In relation to Giro a number of noble Lords mentioned the position. It is exempt, of course, because ultimately it is responsible to Ministers and I do not think that the criticism was in relation to its exemption. But it is already subject to a system of supervision very like that which will be carried out by the bank under this Bill, and I do not think there is any suggestion that in that respect it enjoys a "soft option." The main point, however, was that it was excluded from contributing to the deposit protection scheme and that was thought to be unfair. I think noble Lords recognise that there is no unfairness, in that it makes a similar contribution to the Treasury. The point is that that money which it contributes ought to be available to the fund or indeed to help to bail out someone when there is a failure. I think the noble Lord, Lord Redesdale, wishes to intervene.

Lord REDESDALE

My Lords, the noble and learned Lord is most kind. The only point on that is that their contribution would then reduce the fund and therefore it would be a more equitable fund, especially covering the point raised by the noble Lord, Lord Polwarth.

Lord McCLUSKEY

My Lords, merely to give figures would not answer the point on equity, but a contribution to the initial cash fund by the Giro bank would amount to some £40,000. This would not materially reduce the contribution of the Big Four London clearers who are already contributing at their maximum of some £300,000 and clearly a contribution by Giro of that figure—which I am advised is the correct figure—would not have a very noticeable effect upon the other contributions to the whole fund, given the size of the fund that I have mentioned. But I think there is a difference here between the private investor and the role of the Giro bank. However, no doubt this is a matter which noble Lords will feel constrained to pursue at a later stage, and I see from the look of amazement on the face of the noble Lord, Lord Redesdale, that he does not believe my figures. I do not think I can improve upon them at the moment, but if I am wrong I shall hasten to eat humble pie on another occasion.

The noble Lord, Lord Redesdale, mentioned the matter of public interest and felt that only the courts and Parliament should be able to judge the public interest. Of course in certain circumstances it is right that Parliament should be the judge of the public interest, and in certain limited categories of matter no doubt the courts can make a judgment upon the public interest. But in a matter of this kind it cannot be wrong to say that the Bank, and ultimately the Treasury or the Chancellor—the Chancellor himself being answerable to Parliament for his judgments—and others than the courts and Parliament, have a role to play in assessing the public interest. It arises only in a very limited matter in relation to the disclosure of information here, and if that matter is raised in Committee no doubt we can pursue it further.

The position of the Trustee Savings Banks and the building societies has been mentioned. Perhaps I may just say a word about each of them. So far as the building societies are concerned, the council of the Building Societies Association is discussing with the chief registrar the feasibility of establishing a deposit protection scheme for building societies and the terms on which it might be set up. It is expected that the building societies would agree to establish such a scheme. I do not know that it would be proper to put such a time limit on it as was proposed by the noble Lord, Lord Seebohm, in relation to that matter, but doubtless that again can be pursued if it is raised at the Committee stage.

As your Lordships will be well aware the Trustee Savings Banks are now moving from the public to the private sector, and it is expected that within a few years they will have developed sufficiently to bring them within the supervisory system established by the Bill. At that point they will automatically become contributors to the deposit protection scheme. So that is the position with regard to them at the present time.

A small point was raised by the noble Lord, Lord Redesdale—small in relation to the whole Bill, although no doubt it is important for those involved. It was the case of the management subsidiaries of Lloyds and Barclays. The Bill as framed already allows for a wholly-owned subsidiary of a recognised bank to use the name of its parent bank in its own title, in two sets of circumstances: where the subsidiary is itself a deposit taker, then the Bill in Clause 36 specifically provides for the use of the parent's name and where the subsidiary is not a deposit taker, so long as its title makes plain the nature of its activities it would not come within the scope of the prohibition in the clause at all. So, for example, it can call itself "XYZ Bank Computer Services" or "XYZ Bank Management Limited", and the Government are not persuaded— although of course they would listen with interest to any further representations on the matter—that there is a case for allowing for total exemption from the prohibition in the clause to a company which does not in fact carry on a banking business.

I think one can make the general point that the prohibition on the use of a banking name must extend beyond deposit-taking institutions in order to cover the case of, for example, foreign exchange bureaux, which frequently describe themselves as "banks"; in any case it would be absurd to constrain the use of banking names and descriptions in relation to licensed institutions which may provide some banking services and allow them to institutions which provide none.

Some criticism has been made of the Consumer Credit Act, and as a mere lawyer who has had to look at it I must express some sympathy with what has been said. We shall have to see what Amendments are tabled, but, on the face of it, it would appear that the Amendments which perhaps the noble Lord, Lord Seebohm, had in mind might not be within the Long Title. However, we must suspend judgment on that until we see what is brought forward.

I should like to thank the noble Lord, Lord Polwarth, for giving me notice at this stage and not expecting a reply in relation to the position of the Scottish Bankers. I think I may say in general to the point he made that one cannot construct a scheme which provides perfect justice for everyone. If one has a perfect sliding scale from the lowest to the highest, then I think the major clearing banks would complain that they were making a quite unduly large contribution towards the initial fund. So if one does place the kind of limit that the Bill does in relation to the contribution by such banks, one begins to create what the noble Lord would describe as unfairness in relation to the banks which do not quite reach the limit. Of course one can make the same point at the other end of the scale. So whenever you adjust things a little in order to satisfy one person you immediately expose another to the cold winds. So far the Government have sought to achieve, and thought they had achieved, a compromise which would be acceptable, but it may be that this matter will have to be pursued a little further. Mention was made of my familiarity as a lawyer with the concept of torts. As a Scottish lawyer I have no such familiarity. The same applies to conversion, which is not known to Scottish lawyers. However, I am aware of the representations made to the Government which I understand will be pursued at Committee stage. These matters are certainly going to be considered, but we see real difficulties in giving effect to those representations as put to us in this Bill at this time. I think there are more problems that may arise than envisaged in the submission that was sent to me and other Ministers.

My Lords, I thank all noble Lords for their contributions, particularly for making it clear what hurdles we will endeavour to cross in the Committee stage. I hope at that stage I will be able to give more satisfactory answers to the points of detail than I have been able to offer today.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.