BANKING BILL

HL Deb 20 March 1979 vol 399 cc1005-114

3 p.m.

Lord McCLUSKEY

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, that the House do now resolve itself into Committee.—(Lord McCluskey.)

On Question, Motion agreed to.

House in Committee accordingly.

The Lord Aberdare in the Chair.

Clause 1 [Control of deposit-taking and meaning of "deposit"]:

Lord REDESDALE

moved Amendment No. 1: Page 1, line 17, at end insert— (" or (c) notwithstanding Schedule 1 of the Bill, the business is the National Giro.").

The noble Lord said: The object of this Amendment is to bring the National Giro into the scheme. At Second Reading we covered this point at some length; I made the point and the noble and learned Lord, Lord McCluskey, replied. He came up with the figure that should the Giro in fact be brought into the scheme it would only make a contribution of £40,000. I expressed surprise that this figure was so low and he very kindly subsequently wrote to me to say that the figure would be £60,000. I must confess I was a little disappointed, because I was hoping the figure might be higher still.

However, I do not wish to take up a lot of your Lordships' time on this particular Amendment, because the principle is, I believe, very simple. It is merely this. It has been talked out in another place and to a degree in this House, and it has been agreed that the National Giro shall make a similar contribution to the Treasury. Our argument is that the Giro should make a contribution to the scheme, and I think that is very fair, because, as was said in another place, the Giro wishes to be considered as a bank so that it can really compete. In fact the Minister said in another place that he did not think he was fulfilling the wishes of the National Giro in taking the particular line that it would be excluded from the scheme. Therefore, I believe that the Giro's contribution—whether it be £40,000 or, as now increased by 50 per cent., £60,000—should go into the fund.

At Second Reading we went into some detail about the fund, and I do not propose to weary your Lordships further, apart from making the point that the fund, if we are going to have a fund, is going to be paid for mainly by the people who are not actually likely to go down, whether they be the clearers or the National Giro, because the National Giro is supported by the Government. Therefore, if the National Giro wishes to be regarded as a bank, and I believe it does, then it should fulfill all the obligations laid upon it by this new legislation. In this age of equal opportunity and equal rights, I feel that what is good for the goose should now be good for the gander, and I believe that the gander, being the National Giro, should be good for a contribution to the fund. I beg to move.

Lord McCLUSKEY

As the noble Lord, Lord Redesdale, said, this matter has been discussed before, though in fact in another place the principal emphasis was not upon this aspect of the matter but upon the aspect of supervision. I should perhaps just for completeness remind your Lordships that the National Girobank, as it is properly called—not the National Giro as described in the Amendment—is already subject to a degree of supervision very like that to be carried out by the Bank under this Bill. That has been fully described and it may be seen in the report of the proceedings in another place, so there is no question of the National Girobank enjoying a soft option in relation to supervision. So far as the deposit protection scheme is concerned, Girobank is excluded from contributing to the deposit protection scheme by virtue of its exclusion in Schedule 1 from the supervisory provisions of the Bill. We shall see when we come to later Amendments that there is one to delete the Post Office from Schedule 1.

The essential point is this. As part of a nationalised industry, it enjoys an effective Treasury guarantee, so its depositors look to the Treasury, not to the fund, as their ultimate insurers. This is a point of great theoretical importance—though I hope never of practical importance —because the noble Lord, Lord Redesdale, used the expression "likely to go down", and of course one has to accept that within this kind of scheme he is not talking about it being very likely that any one of the big four will go down. However, there is a theoretical possibility that they will go down. There is no theoretical possibility that the Treasury will go down. The Treasury is the insurer in respect of the Girobank and there is an effective Treasury guarantee.

Of course, it would be wrong if the banks with which the National Girobank was competing were to contribute to the fund and the Giro made no contribution at all, because that would give Giro a competitive edge. Accordingly, it is provided that the Girobank will pay to the Treasury in respect of its implicit guarantee a contribution equal to what it would pay if it were a member of the scheme. Of course, this also extends to any further or special contributions which may be called for under the scheme, thus preserving the competitive position throughout. The payment is to be made to the Treasury for the benefit of the taxpayers, because it is the Treasury and the taxpayer who stand behind the Girobank. Girobank's depositors can in principle derive no extra benefit from the scheme, whereas even in the case of the clearing banks some extra protection, however remote, is provided.

In relation to the amount, I promised that I would eat humble pie if my figure of £40,000 turned out to be wrong. It was wrong, and in so far as I am permitted to do so, I shall eat humble pie. The figure is in fact £60,000. The figure of £40,000 was calculated by reference to the minimum contribution of £5,000. That has now been changed to £2,500 and on the recalculation the figure is appropriately £60,000. As the noble Lord acknowledged, that does not make much difference to the substance of the argument because it would have a scarcely noticeable effect on the other contributors. It would not at all affect the big four, who are already likely to contribute at their maximum of £300,000.

I would ask that this Amendment be not accepted. In any event, it is technically defective in that it does not describe the National Girobank properly. I think that its purpose could be achieved, if, contrary to my suggestion, the Committee wanted it, by accepting a later Amendment.

Lord CARR of HADLEY

I wonder if I could ask the noble Lord to amplify one or two points. First of all, he stated as a fact that the National Girobank is subject to Treasury supervision and that that is as good an assurance as anybody could have that it will be properly supervised. That may be so. He also stated as a fact that it would be to the Treasury that the depositors would look as their insurers. I accept that that may be a factual description of the position as it is, but this situation arose before this Bill, before other banks were going to be supervised and before there was going to be supervision. Now we are introducing this system of supervision of banking and the fund protection for customers, why not put all the banks on the same footing? In other words, he explained the facts of the situation but he did not give any reasons for its continuance. I understand why it was so in the past because the system we are now introducing in this Bill did not exist. But now that it does exist and the National Girobank is wishing to be treated as a bank and wishing to compete with other banks, I fail to see why it should not be treated in exactly the same way as other banks and have both its supervision and the fund provisions transferred to the new system, so that at least we have a common system applying to all. I should have thought that was the rational and logical way of dealing with the matter. I wonder whether the noble Lord could address himself to that.

Secondly—and I apologise if I am ignorant about this—where does the legal basis for the Treasury control and guarantee rest? I do not mean this disparagingly, but is it just a matter of Government assurance, or is there some legal basis for the fact that the National Girobank is subject to Treasury supervision and does have to make an equivalent contribution to the Treasury, so that in terms of monetary contribution it will at least be on all fours with the clearing banks if we allow it to remain where it is at the moment? I think that before we finally make up our minds we should like to know a little bit more about the reason for this, and also have the assurance of the permanence of the present arrangements.

Lord McCLUSKEY

With regard to the second point, I think that I am right in saying that the National Girobank is part of the Post Office, and it is the character of the Post Office as a nationalised industry that matters. I am reminded that the legal basis for supervision is contained in the Post Office Act 1969 and the Post Office (Banking Services) Act 1976. That is, I think, the legal basis. The result is that ultimately it is Ministers who are accountable to Parliament for the Girobank.

Under the Bill there is no accountability by the Bank of England to Parliament for its supervision of individual institutions, although it is accountable in the general way in which it administers the whole system. So, if we put Girobank into the supervisory system designed for private commercial institutions we would be removing it to a great extent from public sector accountability. That is the argument and I think that that was the argument rehearsed in another place when the matter was discussed there. The banks, the institutions with which we are dealing in the Bill, are different in character from the Post Office as a body existing under the Post Office Act 1969.

Lord CARR of HADLEY

I should like to ask the noble and learned Lord two further questions. Under the Post Office legislation, would Ministers have power to alter the standards of supervision? I am not necessarily suggesting that they would have power to reduce it, but would they have power to alter the standards of supervision and make the standards of supervision of the National Giro different from the standards applied to other banks? Secondly, would Ministers have power under the Act to alter the level of contribution and again make it less—or more for that matter—than the levels of contribution of the banks that come under the Bill which we are discussing? I think that that, too, is an important matter.

Lord McCLUSKEY

I am not sure that I can give a confident answer, but I believe that Ministers have power to give directions and certainly have power to vary the amounts. But, of course, there would be no likelihood that the Treasury would require the Girobank to pay different sums from the sums which I have indicated it would pay; namely, sums equal to those which it would pay if it were in the scheme set up by the Bill.

Lord ROBBINS

Are not the arguments to some extent at cross-purposes? It may very well be that depositors in Girobank, having the Treasury behind them, will feel reasonably confident that they will not be allowed to go bust. But I wonder whether that is the ultimate philosophy of the Bill. I seem to recollect that this issue was raised as long ago as the Radcliffe Committee which pointed to the absence of control of various credit-giving institutions which were beyond the fringe of Bank of England control. Since that time various suggestions have been made whereby the powers of the Bank of England to control the credit base as a whole have, from time to time, been discussed. I must confess that it seems to me to be rather odd that the Bank of England should not be entrusted with this aspect, or that the Bank of England should have to consult with some other Ministry whenever it makes regulations in this regard. It seems to me to be quite an unnecessary complication of what, after all, in the interests of the economy as a whole, is the main purpose of the Bill.

Lord McCLUSKEY

Starting from where we are now and from where we have been for some time, the Bank of England is now exercising effective supervision in relation to the primary banking sector, but not in relation to the National Girobank and that is because responsibility for the National Girobank is taken by Ministers. I hope that we are not at cross-purposes because what I am ultimately saying is that the Bill, in so far as it creates a deposit protection fund, sets up a fund which is available in theory —and in some cases regrettably in practice —to make some recompense to the depositors who deposit with the sector covered by the fund. The depositors with National Giro Bank will never look to that fund: they will look to the Treasury in the highly unlikely event of a situation arising on which the provisions of the Bill would bite. I do not think that that situation would arise at all. However, there is a sound theoretical difference between depositors looking to the deposit protection fund and depositors with the National Girobank who would never look to that fund at all. And if, even in theory—never mind the practice—they are never to look to it, then it seems wrong that the National Girobank should contribute to it.

Lord BOYD-CARPENTER

I should like to ask the noble and learned Lord to clear up a point he made in reply to my noble friend Lord Carr of Hadley. He sought to reassure my noble friend who had asked a question as to whether Ministers in the Treasury would have the power to make sure that this Bank conducted itself properly, made the proper contributions and so on, by reminding the Committee that Ministers have the power of giving directions. I apologise to the noble and learned Lord if I am wrong—and it is some time since I have looked at the Post Office legislation—but I must confess that I am under the clear impression that, under the legislation the directions which Ministers can give to the Post Office Corporation are directions of a general character. If that be so, it would not really seem that a direction, for example—to take the specific case—to increase the contribution, could possibly be described as a general direction as distinct from a specific one. If I am right in my suspicion—if I may put it that way—that there is no power to issue specific directions, is not perhaps the reassurance of the noble and learned Lord a little less reassuring than I am sure he intended it to be?

Lord McCLUSKEY

If the noble Lord is right then that may be the conclusion. I cannot refer him to any specific part of the Post Office Act 1969. However, the pattern of these Acts is of course as the noble Lord has described.

Lord BOYD-CARPENTER

I am referring to general directions.

Lord McCLUSKEY

I am assured that, in fact, the power to require the Girobank to do what I have said is to be done, exists; if the Committee wishes me to come back to that matter in order to give chapter and verse, then an opportunity will certainly arise in the course of this afternoon when we come to discuss Amendment No. 36, which, as the noble Lord will recognise, returns to this same matter. I do not want to mislead the Committee. I am reluctant to continue talking because I have run out of information!

The Earl of GOWRIE

Those of us on all sides of the Committee who face my noble friend Lord Boyd-Carpenter on matters of information usually find that we need several minutes to recover our breath and check what he has given us. I wish to return very briefly to a smaller point. The noble and learned Lord, the Minister, said at the outset that our Amendment was technically defective because it does not contain the word "bank". If that is the case then I accept it. Nevertheless, a great part of the Bill is connected with nomenclature because of the nature of what kind of institutions can call themselves banks for trading and competitive purposes and the like. Indeed, I think that the noble and learned Lord would acknowledge that. What we are objecting to here is that we have the National Girobank—and I stress the last word—acting as it were in competition with other banking services, but disenabled, as it were, from contributing to the deposit protection scheme to which the other banks have to contribute.

The noble and learned Lord's reason for this is that the National Girobank is as good as a Treasury guarantee. Certainly I cast no aspersions on a Treasury guarantee, but nevertheless, in the noble and learned Lord's own words, this is subject to changes in national fortunes, the situation of the IMF, and to a political direction of one kind or another. I think that many of us will feel more assured if it is directly in the bailiwick of the Bank of England. However, our direct objection is that here is the Girobank able to act and to trade effectively as a bank but not having to participate in a scheme in which, by law, the other banks are required to participate. This seems to us to be unfair and highly damaging to ordinary bank competition.

Lord McCLUSKEY

On the drafting point, I merely sought to draw attention to the fact that the Amendment talks about the "National Giro", and the correct title of the institution, if I may so call it, is the "National Girobank", "Girobank" being one word. In any event, this is not a legal entity in itself; it is only part of the Post Office. That is why the Amendment which matters is Amendment No. 36, which deletes the Post Office from Schedule 1.

On the other point, of course, part of what I am saying is that it cannot be contemplated—given the character of the Post Office, and the National Girobank as forming one of its parts, as it were—that Ministers could allow the Post Office or the Girobank to fail to pay out to its depositors. Therefore, there are no circumstances in which the depositors could look to this fund. Accordingly, there is no reason why this fund should receive contributions from the National Girobank.

3.22 p.m.

Lord CARR of HADLEY

I am sorry to keep pressing the noble and learned Lord, but this is a matter of great concern on two grounds: first, the one which I had principally in mind when I made my first intervention, that now that we are, at long last, to have a proper system of banking control in this country, it is important from a commercial point of view to treat all banks equitably, fairly one with another. The noble and learned Lord keeps stressing the absolute invincibility of the Treasury as an ultimate guarantor. Perhaps we would accept that, but in so far as that appears to the general public to be a better guarantor than the protection provided by the system of supervision and the fund applying to the other banks, it might give the National Girobank an unfair competitive edge over the other banks. I do not think that we want that.

I must confess that I am not currently versed in the fortunes of the National Girobank, but in the period when I was a member of the Cabinet I remember that the operations of the National Girobank were causing grave concern. There might be a Government containing Ministers who believed in some way that it was right almost to subsidise the activities of the National Girobank at the taxpayers' expense. Indeed, in so far as it is making a loss—I am not sure what it is doing at present, but at the time I have in mind it was making a very substantial loss—it could, of course, be said to be sudsidised in that way. Therefore, there is a matter of equity here, particularly when we remember that the clearing banks must provide the bulk of the protection fund, even though they are the least likely—apart perhaps from the National Girobank —ever to let their depositors down. Therefore, we face a basic inequity anyway, and to exclude the National Girobank would add to it.

I do not want to rest entirely on that because I think that the Government and the Committee should pay more attention to the point of economic management raised by the noble Lord, Lord Robbins. We are the last substantial country to have some supervision in this form of our banking system. Personally, I believe that most of us strongly welcome this, even though we do not welcome all aspects of the Bill and have doubts about the fund and one or two other details. When we are doing this, surely it is right to put the whole of the control of the banking system under the Bank of England, which, after all, is itself nationalised and has a close relationship with the Government. To have this control separated seems to me to be one more bit of British unnecessary, messy complication. I am afraid I must say to the Minister that, to us on this side of the Committee, to put them all together is a matter of principle.

Lord McCLUSKEY

I should like to make a few remarks on the matter of equity. First, I agree, of course, that institutions, such as the National Girobank, which competes with the other institutions which are to be subject to the provisions of the Bill, should be treated equitably. As regards contributions, I do not think that the noble Lord would disagree with me when I say that in so far as the National Girobank is required to make an equal contribution (regardless for the moment of its destination), there is equity there in the matter of competition.

With respect, the other point the noble Lord made was, I thought, a bad one. He said that if the National Girobank has this ultimate guarantee from the Treasury, that would be seen by the public to give it a kind of competitive edge because it could not fail. If we include the National Girobank in the Bill, is the noble Lord suggesting that the Treasury should withdraw its ultimate guarantee from the Post Office? If not, by putting it into the fund, one does not remove that competitive edge which it seems to have, because it is absolutely solid—as solid as the Treasury. Therefore, with respect, I do not think that on either ground the noble Lord is right. I would simply rest upon the submissions that I have made to the Committee.

Lord REDESDALE

I did not entirely agree with the last point which the noble and learned Lord made because this competitive edge is as far as payment is concerned, not solidity. The other point which I should like to raise is that the Girobank is already listed by the Bank of England. It complies with the 12½ per cent. reserves for assets and ratios and the other matters within this. Therefore, it is already within the system. If it is within the system, I believe that it ought

to be there altogether. I have already said that it ought to pay a comparable amount into the fund, for the reason that if it goes into the fund—and we are all talking about it being unlikely that the Girobank would go down, because it is guaranteed by the Treasury—it is unlikely that the clearers would go down.

The last point I should like to make is that should a clearer go down—and I raised this question during the Second Reading debate—we should be in such an awful financial mess overall that even the Treasury would be looking a bit unhappy at that point. This is a matter of principle. I accept that the actual wording is defective. As the noble and learned Lord knows, I was held up in the snow in the North of England and was unable to check things through down here; I arrived rather late. Therefore, accepting that the Amendment contains that defective part, and accepting that we can look after that point later, I am afraid that we would wish to press the Amendment.

3.28 p.m.

On Question, Whether the said Amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 106; Not-Contents, 61.

CONTENTS
Airedale, L.	Eccles, V.	Northchurch, B.
Alexander of Tunis, E.	Effingham, E.	Nugent of Guildford, L.
Amory, V.	Elles, B.	Nunburnholme, L.
Auckland, L.	Elliot of Harwood, B.	O'Brien of Lothbury, L.
Avebury, L.	Elton, L.	Polwarth, L.
Avon, E.	Emmet of Amberley, B.	Porritt, L.
Balfour of Inchrye, L.	Exeter, M.	Rawlinson of Ewell, L.
Barnby, L.	Gainford, L.	Redesdale, L.
Barrington, V.	Gisborough, L.	Robbins, L.
Beaumont of Whitley, L.	Gladwyn, L.	Robson of Kiddington, B.
Berkeley, B.	Glasgow, E.	Rochdale, V.
Blake, L.	Glenkinglas, L.	Rochester, L.
Bolton, L.	Gowrie, E.	Romney, E.
Boyd-Carpenter, L.	Grey, E.	St. Aldwyn, E.
Byers, L.	Gridley, L.	St. Davids, V.
Caithness, E.	Hampton, L.	St. Helens, L.
Carr of Hadley, L.	Hankey, L.	Sandford, L.
Carrington, L.	Harding of Petherton, L.	Sandys, L.
Cathcart, E.	Hayter, L.	Seebohm, L.
Clancarty, E.	Henley, L.	Selsdon, L.
Clifford of Chudleigh, L.	Hylton-Foster, B.	Sharples, B.
Clitheroe, L.	Kinloss, Ly.	Skelmersdale, L.
Clwyd, L.	Kinnaird, L.	Sligo, M.
Cockfield, L.	Kinross, L.	Somers, L.
Colville of Culross, V.	Lauderdale, E.	Strathclyde, L.
Cork and Orrery, E.	Loudoun, C.	Sudeley, L.
Cornwallis, L.	Lucas of Chilworth, L.	Swansea, L.
Cottesloe, L.	Lyell, L.	Thomas, L.
Daventry, V.	Macleod of Borve, B.	Tranmire, L.
De Freyne, L.	McNair, L.	Trefgarne, L.
Denham, L. [Teller.]	Mancroft, L.	Vaux of Harrowden, L.
Derwent, L.	Merrivale, L.	Vernon, L.
Donegall, M.	Molson, L.	Ward of North Tyneside, B.
Drumalbyn, L.	Mowbray and Stourton, L.	Wigoder, L.
Dulverton, L.	[Teller. ]	Willoughby de Broke, L.
Ebbisham, L.	Netherthorpe, L.
NOT-CONTENTS
Ampthill, L.	Hale, L.	Pargiter, L.
Aylestone, L.	Hanworth, V.	Peart, L. [L. Privy Seal.]
Bacon, B.	Hatch of Lusby, L.	Raglan, L.
Blease, L.	Henderson, L.	Rhodes, L.
Blyton, L.	Houghton of Sowerby, L.	Ritchie-Calder, L.
Brock, L.	Jacques, L.	Sainsbury, L.
Brockway, L.	Janner, L.	Serota, B.
Buckinghamshire, E.	Kilbracken, L.	Stewart of Alvechurch, B.
Burton of Coventry, B.	Leatherland, L.	Stone, L.
Collison, L.	Lee of Newton, L.	Strabolgi, L.
Cooper of Stockton Heath, L.	Leonard, L.	Taylor of Gryfe, L.
David, B. [Teller.]	Listowel, E.	Taylor of Mansfield, L.
Elwyn-Jones, L. [L. Chancellor.]	Llewelyn-Davies of Hastoe, B.	Wallace of Coslany, L. [Teller.]
Fisher of Rednal, B.	Lloyd of Hampstead, L.	Walston, L.
Gaitskell, B.	McCluskey, L.	Wedderburn of Charlton, L.
Gardiner, L.	MacLeod of Fuinary, L.	Whaddon, L.
Garner, L.	Morris of Borth-y-Gest, L.	White, B.
Gordon-Walker, L.	Northfield, L.	Wilson of Radcliffe, L.
Goronwy-Roberts, L.	Oram, L.	Winterbottom, L.
Granville of Eye, L.	Pannell, L.	Wynne-Jones, L.
Greene of Harrow Weald, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.

3.38 p.m.

Lord McCLUSKEYmoved Amendment No. 2: Page 2, line 24, after ("body") insert ("for the time being").

The noble and learned Lord said: I beg to move Amendment No. 2. This is a drafting Amendment. The reference in Clause 1(5)(b) to a body specified in Schedule 1 differs from the reference in Clause 2(1)(d) in that it does not include the words "for the time being". Since there is a distinction in the present drafting it could be taken that Clause 1 (5)(b) refers to Schedule 1 as it stands on the passing of the Act. This is not intended, and the Amendment removes any doubt. I beg to move.

Clause 1, as amended, agreed to.

Clause 2 [Exceptions from prohibition in section 1(1)]:

Lord REDESDALEmoved Amendment No. 3: Page 3, line 23, at end insert ("provided that in the case of the body specified in Schedule 1(7) a scheme approved by the Chancellor of the Exchequer has been put into operation within eighteen months of the first day appointed under section 50(3) hereof").

The noble Lord said: I beg to move Amendment No. 3. This covers the subject of building societies. We raised this in the Second Reading debate. It is not that we believe that there is a situation which is very serious, but it is something which we believe ought to be cleared up. The building societies are meant to be producing a comparable scheme to the scheme that we have in this Bill. If that is the case, then it would seem only fair that they should have a scheme in operation at the same time as the banking scheme.

I said in my Second Reading speech that there had been a marked change since 1962 when the building societies held only 22 per cent. of the deposits and now this figure is 40 per cent. They now have, in fact, the lion's share of the deposits. I believe that they should compete on all fours with the clearers. This particular Amendment gives ample time for a scheme to be put in hand whereby they have a comparable scheme to the banking fund scheme operation within 18 months of the first appointed day. I believe that 18 months is a fair time. We have been told that they are going to have a scheme. Therefore, I think it only fair that this major section of the market which, after all, has recently had some failuresc—more failures, in fact, than in the banking world —should be regulated in a way, and a scheme should be brought in which is approved by the Chancellor of the Exchequer. In that way they would be competing fairly and affording to their depositors the same level of surety that the banks will be giving.

Lord JACQUES

Building societies have power under Section 43 of the Building Societies Act 1962 to enter into arrange- ments for making funds available to meet losses incurred by their investors. It was under such arrangements that losses to investors of the Grays Building Society, which came to light in the course of last year, were made good. The Council of the Building Societies Association have had detailed discussions with the Chief Registrar of Friendly Societies on the feasibility of establishing a permanent scheme for investors under Section 43, and I understand that, subject to a number of technical details, it is now near to completion. If for any reason this scheme should not go forward, the question of statutory provision for the protection of building society investors will need to be considered.

The application of the EEC Credit Institutions Directive is of course at present deferred in relation to building societies but it is intended that in the future legislation will be introduced to provide for the authorisation of societies to comply with the Directive's requirements. I think that that would be a more appropriate time to introduce measures for the protection of building society investors, if such measures prove necessary; in my view they will not prove necessary.

The Earl of GOWRIE

Does the Minister think such measures will prove necessary in the case of the clearing banks? The problem we are having all along is that there appears to be one rule for banks and another for institutions which effectively are in competition with banks to offer particular kinds of financial services to customers. The building societies—and good luck to them, say we—have been singularly successful in picking up business from the ordinary small investor, the unit trust and so on, yet the Government are effectively saying that the building societies can be trusted with making private arrangements of their own whereas the banks cannot, and that is plainly unfair to the ethos and philosophy of banking.

Lord JACQUES

We are not saying that. Building societies are governed by the statute which gives great authority to the Chief Registrar of Friendly Societies and all arrangements made under Section 43 for the protection of depositors must be made with his approval, so there is a protective scheme which requires approval from a Government agency—namely, the Chief Registrar of Friendly Societies—and it is working well. Let it work well.

The Earl of GOWRIE

The noble Lord, Lord Jacques, is not really taking my point. I am not saying there do not exist methods and assurances and protective mechanisms to safeguard depositors with building societies. That is not the point. I am not saying building societies are in some way removed from various obligations or various protective mechanisms. I am simply saying that building societies are not required to pay into the fund under this Bill, and that is what is distorting the position of building societies in relation to that of banks, which is a different point altogether.

Lord JACQUES

That most building societies do not pay into that particular fund does not give them an advantage; they are already paying into their own fund, and when the new scheme is commenced there will be a fund of £1½million to cover the liabilities of building societies with powers of further call-up, and the fund will be under trustees. It is not being done in some slipshod way. Building societies and the Chief Registrar are benefiting from the experience they have had of Section 43, and I suggest that recent experience has shown that the building societies are determined that their investors shall have very adequate protection.

Lord HANKEY

I should declare my interest in that I am a director of the Alliance Building Society. The noble Lord, Lord Jacques, hit the nail on the head—he is very experienced in this matter—and, without question, the building societies are not on all fours with the clearing banks. They are most carefully controlled by the 1962 Act and they lend their money mostly on bricks and mortar, which one cannot say of the clearing banks, and further they have not suffered a fringe bank crisis. It is clear that they looked after their investors extremely carefully when the Grays Building Society affair broke out and they all contributed to a fund on that occasion to make sure there were no untoward effects. I therefore do not believe there is any cause for the Amendment, and if it goes to a Division I shall vote against it.

Lord REDESDALE

I think I must have misheard the noble Lord. I believe he said the building societies were not competing on all fours. Perhaps they are not, and perhaps that is how they have managed to get up from 22 per cent. to 40 per cent. of all deposit-taking. I should be grateful if the Minister would clarify one point. Did he say they paid into a fund when it was necessary for funds to be paid in, but that it was not an on-going fund which had been set up; that if an occasion like the Grays Building Society occurred then money would be paid in?

Lord JACQUES

The position, as I understand it, is that for some years past the building societies have looked after their investors and fully protected them. They have done that by subscribing when necessary, but now they are required to introduce a scheme which will go further than that in that there will be a fund with trustees. The details of the scheme, except for a few technical matters, have been agreed with the Registrar and I expect the new scheme will come into operation well in advance of the time the movers of the Amendment have in mind. In any case, I can give a Government assurance that if it does not, then when we come forward with legislation required by the EEC Directive we shall take the kind of steps which the Opposition have in mind; but knowing our building societies we do not think that will be necessary.

3.50 p.m.

Lord CARR of HADLEY

I should like to ask the noble Lord one more question. If the scheme is almost ready, why does he find the Amendment in any way burdensome? The sole purpose of the Amendment is to ensure that the building society position is covered on all fours with the bank situation simultaneously, or at least within a reasonable period of being simultaneous. We consider that otherwise there is not fairness between these two very important media of saving and deposit-taking on behalf of the public.

I wish to point out to the noble Lord, Lord Hankey, that no one on our side of the Committee who supports the Amendment is wishing to throw stones, or even tiny grains of sand, at the building societies. Of course the building societies have a fine record, but so have the clearing banks. In fact the clearing banks, perhaps because there are fewer of them, and because they are large, have an even cleaner record. There have been some disasters in the building society world. It is true that, when these have occurred, the other building societies have rallied round and dealt with the situation; but so have the banks in similar circumstances. In fact, the clearing banks have rallied round and dealt with a situation which did not arise among themselves at all. Therefore, the record of one industry is very much on all fours with that of the other. I make it clear that from this side of the Committee we do not propose to oppose the fund, but we do not believe that it is necessary to protect those who deal with banks. We think that the supervision system is necessary, and that is why we welcome it. However, if the fund is to be imposed upon banks, and the clearing banks are to undertake the main burden of it, it would seem that in terms of fairness in competition the building societies themselves should accept a similar liability. This may not be necessary in either case, but this is another instance in which what is sauce for the goose ought to be sauce for the gander.

Lord JACQUES

Yes, but the building societies have already swallowed that sauce; they are already protecting their investors. They are to do this by a form similar to that required by the Banking Bill. They are to do this in letter and in spirit. In any case we do not like the Amendment because it would also bring the building societies within the supervisory system of the Bill, which is quite unsuited to their needs. We think that the matter should be left entirely as it is, but we say that if legislation is necessary in this field we shall not hesitate to introduce it.

Lord REDESDALE

I am most grateful that the noble Lord has raised the point about bringing the matter under the supervision of the Bank of England. In fact the Amendment sets out to do something else. It says that, unless a scheme has been put into operation within 18 months, the body concerned would have to come within the scheme proposed. I am sure that the building societies do not wish to come within the supervisory scheme. The Amendment does only one thing. It attempts statutorily to set a time limit regarding the scheme, which I am sure will be an excellent one—I am not questioning that at all—and to ensure that the scheme is set into effect. I think it a very reasonable Amendment because if what the noble Lord says about the scheme coming into effect within a very short time is correct, it will have met the requirements of the Amendment.

I want to turn to the point which the noble Lord, Lord Hankey, raised so as to clear up any misconception. He said that the building societies have looked after any relevant situations that have arisen. Of course I agree with that; they rallied around the Grays society. I do not think that the noble Lord was present for the Second Reading, though I may be wrong about that— —

Lord HANKEY

No, I was not.

Lord REDESDALE

On Second Reading I made the point that in the secondary banking crisis it was the clearers who put up 80 per cent. of the £1,200 million required; and it was a lifeboat scheme which saved any depositor in a British bank from losing his money. The noble and learned Lord, Lord McCluskey, was kind enough to confirm that point, but I want to raise it again so that the noble Lord, Lord Hankey, appreciates it. No depositor in a British bank has lost money. I acknowledge his point about the building societies having rallied round, but I point out that the clearing banks rallied round in a much bigger way. I believe that that takes care of that question.

We on this side of the Committee are, I believe, being reasonable about this matter. We are in effect saying to the Government, "Fine, you are producing a scheme, an excellent scheme, but let us have a time limit set on it so that is is actually put into effect". That is all we are saying. I consider our request reasonable, and I cannot see so reasonable a man as the noble Lord, Lord Jacques, denying that most reasonable request.

Lord JACQUES

In principle there is no difference between us. The Opposition are saying in effect, "All right, those concerned have nearly finished with the scheme, but if they do not finish within 18 months, then they come within this scheme". In reply we are saying, "Nonsense; they will have their scheme ready long before the 18 months expire, but if they do not, then we shall by legislation insist that there be a scheme fitted to their requirements". So there is no basic difference between us; it is merely a difference of procedure. We think it better to do it our way by having a scheme suited to the requirements of those involved.

Lord REDESDALE

Surely we are in agreement. There will be a scheme suited to their requirements. That is what the noble Lord has said. Presumably the scheme will be approved by the Chancellor of the Exchequer, and it will be ready within a very short time. Am I not right in saying that? If the scheme is to be ready within a very short time the requirements laid down in our Amendment will have been met. Therefore I cannot understand how the noble Lord can object to the Amendment, because what is sought will have gone through in any case within the time period.

Lord JACQUES

If the scheme did not go through, the consequences would be different in the Opposition's case than they would be in ours. We say that there will be a scheme suited to the requirements of those concerned, whereas the Opposition say, "Oh, no, we shall have this scheme". We believe that our solution is the better of the two.

Lord CARR of HADLEY

Am I to understand from what the noble Lord is saying that a differently drafted Amendment, providing that there must be a suitable scheme by a certain date, would be acceptable to the Government?

Lord JACQUES

That is not the Amendment which we have in front of us, and I should like to take advice upon the noble Lord's suggestion. I think that what the noble Lord proposes would be an unnecessary Amendment, and it would litter the Bill with unnecessary details. But, frankly. I see no reason why the noble Lord should not table such an Amendment if he so wishes.

Lord REDESDALE

I knew that the noble Lord was most reasonable. If he will give an assurance that he will look at this matter and let us know his views, I shall not press the Amendment.

Lord JACQUES

I give an assurance that we shall look at the point raised proposing that there shall be a building society scheme within a specified time.

Lord REDESDALE

I am quite happy with that assurance. I take full responsibility for the Amendment. It was my idea to provide a link to act as an incentive towards getting the scheme into operation, and I thought that was quite reasonable. On the basis that the noble Lord has given an assurance I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Recognition and licences]:

3.59 p.m.

Lord McCLUSKEYmoved Amendment No. 4: Page 5, line 21, after ("of") insert ("Part I of")

The noble and learned Lord said: I beg to move Amendment No. 4. Amendments Nos. 4, 5 and 40 are associated and, if they were included in the Bill, they would make a provision in Schedule 3, directed to institutions in existence on 9th November 1978 (the date of introduction of the Bill in another place) allowing United Kingdom-based institutions to be eligible for recognition on the basis of their worldwide banking activities if in all respects they meet the other criteria for recognition. The Amendments relate to the position of a number of British overseas banks; and this, I think, was a matter which was raised in another place.

I think my right honourable friend in another place, the Minister of State, made it clear in Committee there that it is not the intention that the Banking Bill should inadvertently damage the interests of British overseas banks, which in the main carry on their banking activities abroad. He therefore undertook to bring forward an Amendment at Report. This was not possible in the time available, and this series of Amendments, Nos. 4, 5 and 40, carry out that undertaking, though a little late. I should perhaps add that the banks concerned have extensive branch networks abroad, but two of them take no deposits at all in the United Kingdom and the remainder take very few. Without this Amendment, therefore, the two that take no deposits would be ineligible for authorisation under the Bill; the others would be eligible for a licence, but not for recognition, since they do not provide a wide range of banking services in the United Kingdom. In all other respects, all these institutions could be expected to meet the criteria for recognition in Part I of Schedule 2. So the position of these banks could be severely prejudiced if the Bank could not grant them recognition and they accordingly lost their banking status here. I beg to move Amendment No. 4.

Lord REDESDALE

I should like briefly to say that I am most grateful that the noble and learned Lord has carried out the undertaking which was given by the Minister in another place, because it clears up a situation which was rather unhealthy. I am most grateful that he has done so.

Lord O'BRIEN of LOTHBURY

May I ask a question on this Amendment? Can the noble and learned Lord tell me whether it would enable a Commonwealth State savings bank which operates in London to continue to do so?

Lord McCLUSKEY

I think we are going to come to the matter of Commonwealth State savings banks at a later stage, but as I understand the position—and I shall no doubt be corrected if I am wrong—that is not connected with this series of Amendments.

Lord McCLUSKEYmoved Amendment No. 5: Page 5, line 22, at end insert ("and the provisions of Part II of that Schedule shall have effect with respect to the grant of recognition to certain corporate institutions which were in existence on 9th November 1978").

Clause 3, as amended, agreed to.

Clauses 4 to 8 agreed to.

Clause 9 [Duration of directions and direction-making power]:

4.4 p.m.

The Earl of GOWRIE moved Amendment No. 6: Page 11, line 9, leave out ("fourteen") and insert ("twenty-one").

The noble Earl said: Under the two previous clauses, which we have just passed into the Bill, Clauses 7 and 8, the Bank of England is empowered to revoke the ability of an institution to take deposits. Being given these powers, it must of course give notice to the institution that it is going to revoke their ability, that it is going to lean on them; and during that time, having given the warning, as it were, it may also give direction to the institution, to the bank in question (let us call it the bank), to restrict or regulate the business transacted by the bank.

These, of course, are very serious and grave powers, and are of great consequence for any bank which is under scrutiny or in trouble in some way, and we accept that they are necessary under the general framework of the Bill. But, if exercised, they will have a deep effect on the institution concerned, and because of that serious effect the institution, the bank, is of course allowed to make representations—to appeal against the Bank of England's verdict, if you like.

What we are seeking to do here is to give the institution in question a little more time in which to appeal. It is allowed only 14 days in which it may make any appeal. We think this is too short a time for a decision to be taken on whether to appeal against a decision which affects the heart of the business of that particular kind of institution. It will want to defend itself; it will need to marshall facts; it will need to open its accounts to every kind of scrutiny; witnesses or directors of the bank may have to be called back from abroad, and the like; and I really think a little more time is needed.

At an earlier stage of the Bill, in another place, the Minister of State at the Treasury showed that he had read his Johnson and defended the Bill against similar Amendments from our side of the Committee by arguing that, under such danger, the bank concerned would find that its thoughts would be wonderfully concentrated if it knew that, so to speak, it was going to be hanged in a fortnight. I do not think that what we are suggesting would really extend the delay very long, because we are suggesting a period of only three weeks, of 21 days in all. Of course, when one says a fortnight, that is not 14 working clays, it is only 10 working days; and there are also many variable factors, such as bank holidays, Christmas, some kind of recess or industrial troubles, strike action or the like, which would make a fortnight, 10 working days, quite unreasonable. So in this Amendment we simply submit that 21 days should be the period in which appeals should be allowed.

In making these remarks, I should like to point out to the Committee that we have a consequential Amendment to Schedule 4 which is really on the same point, so I will speak to it now; that is to say, Amendment No. 41 on the Marshalled List is covered by the remarks I have made. I beg to move.

Lord JACQUES

Directions may be issued to an institution only when the Bank has given notice that it proposes to revoke all deposit-taking authority. This is a very serious step, which will not lightly be undertaken by the Bank. As Clause 8 makes clear, directions will be issued where the Bank considers this is in the interests of depositors, and in particular to safeguard the assets of the institution. It is desirable, in this situation, that any period of uncertainty should be as short as possible; and this is in the interests of all concerned, including the institution itself. Moreover, the institution may of course appeal to the Chancellor. under Clause 11(1), against the issue of directions; and to lengthen the period for representations to be made to the Bank would impose a further week's delay before the appeal could be made. So far as holidays are concerned, I would expect that an institution which was in these difficulties would be working whatever the holiday was. It certainly would if I had anything to do with it.

The Earl of GOWRIE

I think that last remark begs the question, because the institution might not accept that it is in difficulties. It might be the Bank of England's mistaken notion that it is in difficulties. The noble Lord's substantial point, I think, is that where you get financial institutions, banks and the like, in trouble, you get the danger of an escalating lack of confidence, and non-confidence can spread like a disease over the financial community. Yet I think that if this Bill—which, after all, is coming before us fundamentally as a response to the secondary banking crisis of a few years back—with this provision of 14 days in it, had been in existence as an Act at that time, the proliferation of non-confidence might have been much faster, because under that Act the Bank of England would have been shutting down institutions effectively without any scrutiny of what was in fact happening or of which ones should properly be shut down and which ones should not. So in making an appeal for, effectively, another working week, I do not think one is really being unreasonable at all.

The noble Lord, Lord Jacques, mentioned the question of an appeal to the Chancellor of the Exchequer. The exigencies of the parliamentary and Government timetable might mean that the Chancellor of the Exchequer would not be able to give enough time, at a particular period, to his decision. Not only is it very important for the institution concerned that the decision should be the right one; it is very important for the general level of confidence in the economy, which the noble Lord, Lord Jacques, was quite right to raise, that any decision is the right one and has been taken with full regard to the facts and with full representations being made by the institution under scrutiny and the like. I do not like to accuse the noble Lord of being churlish but I think that he is (let us say) being stingy. I think that three or four more working days is not an unreasonable thing to ask.

Lord JACQUES

I think that the noble Earl is confusing two periods of time. At the beginning of his argument he was concerned with the time before a direction was made: that there may be such difficulties that the Bank would be giving directions here there and everywhere and did not know where to give them. He was dealing with the time element before the direction. That is one thing. What the Amendment is concerned with is the time element after a direction is given. I suggest that much of his argument has therefore no bearing on the issue before the Committee.

The Earl of GOWRIE

I am happy to accept the noble Lord's point. I do not accept that my argument had no relevance to what is before the Committee, but I am happy to accept that what I have been talking about in the Amendment is the period after the direction has been given. But there are provisions that I can see (and the noble Lord will correct me if I am wrong) about the period of notice between the time the directive is going to be given and the time that it is announced that it may be given. I think that the noble Lord is splitting hairs. I am concerned here with a hypothetical institution in some hypothetical situation of trouble. The institution receives a directive from the Bank and the Bank must have power to enforce its directive. We do not quarrel with that. But under our sense of fairness, and not only under our sense of fairness but under our anxiety to maintain confidence by seeing that the facts are brought out and that the facts are right about the working of any particular institution—under those two philosophies, we consider on both sides of the Committee that it is reasonable that there should be a period in which the institution under scrutiny should be able to appeal, to make representations and the like.

Allowing for the fact that we in this country are still wedded to our weeekend and the rest of it, the noble Lord has not convinced me that 14 working days—and there are not even 14 working days here—is sufficient time for these kinds of representation to be made. Why is he therefore not prepared to extend it to 21 days?

Lord JACQUES

I think that we are all aware that these things do not normally happen overnight. There is always a reluctance on the part of a public institution to interfere with the business of a bank. There are discussions going on and there are even threats sometimes that, "We shall have to do this unless …". Consequently the time element is much greater than the noble Earl is suggesting that it is. In fact, the whole matter will have been discussed weeks beforehand.

I am saying that once a decision has been made that a direction shall be given, then one should proceed with the utmost speed and this should minimise the period of uncertainty. There has been already sufficient uncertainty before the direction was given. I believe that in the circumstances 14 days is the better period. I would point out also that if this Amendment were carried there would be consequential Amendments to be made in the Bill. For example, the whole thing must be dealt with in 28 days, and if you take 21 of them, then it would not leave much time after that.

The Earl of GOWRIE

Naturally, there would be consequential Amendments, but I think that on Committee stage we are dealing with the merits of the argument of a particular Amendment on its own. If it has merit then we can work out later what would be the consequential Amendments. I am not disposed to squabble too virulently about these extra days. The noble Lord, I think, is being slightly stingy in legislative terms. We are perhaps not disposed to stick on this because, like the noble Lord, we have confidence in the Bank of England and in the fact that any institution under scrutiny would be scrutinised only as a result of responsibly-taken action by the Bank of England. We are not critical in that way.

I am bothered, perhaps more than are some of my noble friends, about the logistics of raising an appeal against this serious kind of action by an individual company. I do not think that the noble Lord has met me on the point. He says that it is vital to confidence that this be taken with the utmost despatch. In working business terms, a difference of five working days does not alter the principle of despatch. However, I am in an amiable and tolerant mood, and in that spirit I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clauses 10 to 15 agreed to.

Clause 16 [Powers to obtain information and require production of documents]:

4.16 p.m.

Lord REDESDALEmoved Amendment No. 7: Page 17, line 9, at end insert— (" (9) Except in the case of an overseas subsidiary of a United Kingdom institution, an accountant shall not be qualified to furnish a report under subsection (1)(b) unless he is a member of one or more bodies of accountants established in the United Kingdom and for the time being recognised for the purposes of section 161(1)(a) of the Companies Act 1948 by the Secretary of State.").

The noble Lord said: This Amendment takes up from where the matter was last argued in another place. It concerns the question of a qualified accountant. In another place it was vehemently argued by the Minister that definition as a qualified accountant was not necessary. This is a matter of opinion. In our view, it is necessary to qualify an accountant whereas it is not necessary to qualify a solicitor. There are two aspects to this. When one talks about an accountant, it is, I agree, unlikely that the Bank would put up any old unqualified accountant. However, I believe that if one specifies an accountant in a Bill like this it should be one who is recognised for the purposes of Section 161(1)(a) of the Companies Act 1948. This would, I believe give a good clear definition.

The second point is that the provision does not in any way undermine the additional accountancy experience and qualifications that are likely to be required for this type of business. These people would probably be selected by the Bank. We are putting it quite neatly and succinctly here. I agree that, when an Amendment to try to achieve the same end was put up in another place, it went on for rather a long time, and I accept the Minister's strictures about this. But I think we have overcome the difficulty. I hope that the noble Lord, being in a reasonable mood, will be prepared to accept this particular Amendment. I beg to move.

Lord JACQUES

From time to time in the past we have been accused of making legislation far too complicated. I have heard that from the Benches opposite on several occasions and I have been the target of it. Here we are trying to make it simple and the Opposition are trying to prevent us from making it simple. We would accept that, generally speaking, where a reference is made to an accountant one should define an accountant as a qualified accountant and the nature of his qualifications should be made clear. We would accept that, in normal circumstances, that is most desirable. But we think that this particular clause is an exception.

The intention behind this provision is that the Bank should be able to require an institution to have the information reported on by an accountant acceptable to the Bank. It is important that the accountant should have adequate specialist knowledge and skill for the proper execution of the reporting requirement. But it is inconceivable that the Bank, having this power to specify that an accountant should be acceptable to it, should then approve the appointment of an accountant without the requisite professional qualifications. In effect, the Bank's power is to discriminate on grounds of specialised knowledge among qualified accountants, and not to sanction the appointment of an unqualified accountant. It is for this reason that we think that the Amendment is unnecessary.

I must also point out that it is unfortunately defective. It would exclude accountants authorised by the Department of Trade as having overseas qualifications equivalent to those obtained by members of recognised United Kingdom accountancy bodies, except in the context of overseas subsidiaries. The point in question is not overseas subsidiaries but something quite different—that is, institutions licensed to operate here through a branch of an overseas bank which operates here. Very often the information that would be required would be information that would have regard to all the activities of the overseas concern which had a branch here. Consequently, it might require an accountant who did not meet the qualifications required in this country. He might not even be on the Department of Trade's list though fully qualified in his own country. He may be the right person to act because he is the one who has the full knowledge of the particular bank's activities. We should have to provide for that. For Heaven's sake! let us not make this unnecessarily complicated by having to do that.

Lord REDESDALE

I am never one to try to complicate an issue; I would much rather have it simple. I am still not entirely happy with the point that it is unnecessary to have a definition in this Bill whereas it is necessary in other Bills. I do not think the noble Lord is being altogether fair on that one. I was thinking very much on his last point—

Lord JACQUES

We have a definition in the Bill where it is needed; for example, there is the accountant employed by the Protection Board. The qualifications are laid down there. This is something different. This calls for qualifications within qualifications.

Lord REDESDALE

I do not think it actually lays down the actual qualifications. It still just says, "qualified", I believe. As he has made the point, perhaps the noble Lord can state where it actually says this and what the words are?

Lord JACQUES

Schedule 5, paragraph 4.

Lord POLWARTH

While the noble Lord is pursuing this reference, may I declare an interest and say that I find the noble Lord's explanation a little difficult to follow. It is almost universally the case in Statutes that, where the services of an accountant arc prescribed as being necessary, a definition is given of the qualification. The term "accountant" does not imply any qualification. The term "solicitor" does in that profession; but the term "accountant" can be used by anybody without challenge. It would have been simpler had we allowed the same definition as already appears in other Statutes to appear in this case. I said that I had an interest to declare because if the noble Lord were to carry his Amendment, I should technically be qualified to carry out these functions. Nothing in the Amendment would oblige the Bank of England—if indeed they were so mad as to do so—to select me to carry out these functions, I have not the necessary experience. I do not think that the question of simplicity arises in this case. I see the point about reporting on institutions with an overseas parent, but this could surely be dealt with by an additional Amendment referring to similar qualifications or qualifications normally accepted in the country of domicile of the institution.

Lord REDESDALE

I do not entirely accept this point. I do not wish to labour it too fully. When the noble Lord raised the question of an overseas bank, I was trying to think, having declared my own interest in working for an overseas bank, how this could affect one. I do not think his point is valid there. I do not want to take up the time of the Committee any longer and I beg leave to withdraw the Amendment at this stage.

Amendment, by leave, withdrawn.

4.26 p.m.

Lord SELSDON moved Amendment No. 8: Page 17, line 9, at end insert— ("(10) Any information obtained by the Bank from an institution in accordance with the provisions of this section shall be confidential to the department of the Bank responsible for Banking Supervision and shall not he disclosed to any other department of the Bank or to any department of Government or to any other body or person.").

The noble Lord said: I move this Amendment in the names of my noble friends. It raises that old stalking horse of confidentiality. I do not wish to burden the Bill with unnecessary clauses or terminology; but concern has been fairly widely expressed, both in another place and outside, that this Bill may in some way adversely affect the image of confidentiality, and that through the Bill the Government or outsiders may inadvertently have access to information that could be against the interests of a bank's customers. It is not a major issue but I should like the noble Lord to give certain assurances. I should like to put to him the question that could be posed to banks in London by their customers. What reply can one give to a customer who questions whether information passed to his hank in confidence could inadvertently be made more widely available, thereby making the whole affair detrimental to his own interests?

The noble Lord will be aware that many banks and banking centres around the world are envious of the reputation which banks in London have managed to obtain. Confidentiality is critical to the future of banking in this country. It is not so much confidentiality among our own domestic customers but it is the confidence of international depositors and customers. I shall use one example: the noble and learned Lord will be aware that the Middle East States move up and down in different political arenas with frightening rapidity and have currently about 200 billion dollars invested abroad. It is estimated that in one way or another an excess of 50 billion dollars of this is in the banking system in London. Discussions which one may have with individuals or institutions always embody a phrase like: "Is it really safe? Will anybody know? How sure can I be that your system is as confidential as that of other countries? How sure can I be that when legislation is passed harmonising EEC banking law information passed to the Bank of England may not be made available to some foreign central bank?"

All of us have supreme confidence in the Bank of England; but we wonder whether the bank may have questions put to it by Government or others to which it will have to reply, and that information may thereby leak into the system and be damaging to the interests of the customers of the bank. I beg to move.

Lord McCLUSKEY

I have listened to what the noble Lord has said in presenting this argument. I want to make it clear to the Committee that the Bank may obtain information under Clause 16, and in that event the person from whom the information is sought has to provide it. The Bank may—and I am addressing myself to the argument that the noble Lord put forward—seek information without demanding it under Clause 16. In that event, the person concerned may well ask himself the kind of question that the noble Lord, Lord Selsdon, put. In either event, when the information comes to the Bank it is the provisions of Clause 19 which then apply. When the person asks: "What protection have I got against disclosure of this information?" the answer is to point to Clause 19 and say: "That is the protection which applies whether it is given as a result of a request from the bank under Clause 16 or given otherwise". The answer is that Clause 19 is the one which provides the safeguards. I will come in due course to Clause 19, but there are difficulties about the particular Amendment which I would have to point to.

It would be rather difficult to confine the information to a department of a bank, and I think the noble Lord recognises the problems involved there. It would mean, for example, that the governor of the bank himself could not be informed if he were not a member of the particular department concerned. In other words, the department is not a legal entity and one could not enforce it. I think one has to approach it simply on the basis that at this point this Amendment would not be appropriate. One has to look at the quality of the safeguards provided in Clause 19. If they are thought to be inadequate then it would be appropriate for those who thought them inadequate to seek to move an Amendment at that point.

Lord SELSDON

I agree with the noble and learned Lord that in general this Amendment is not perfect and that if Clause 19 were properly applied it might well sort out this particular problem. But I would point out that the next Amendment is also related to this and I would prefer to speak to that. I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 16 agreed to.

Clauses 17 and 18 agreed to.

Clause 19 [Confidentiality of information obtained by the Bank]:

4.32 p.m.

Lord SELSDON moved Amendment No.9: Page 20, line 23, leave out ("or in the public interest").

The noble Lord said: I beg to move the Amendment standing in the names of my noble friends. We come here to the impact of Clause 19 and in particular the inclusion in the Bill of the words "in the public interest." This point was raised on Second Reading and has been aired pretty thoroughly in another place. Much depends on who it is who decides what is in the public interest. If I understand it correctly, the Government could declare that it is in the public interest that certain information be made available to them by the Bank and that the making available of that information could be detrimental to the interests of a Bank's customers. I should be most grateful if the noble and learned Lord would care to comment on this.

Lord McCLUSKEY

I think that ultimately under the clause the question of "What is the public interest?" could fall to be decided by the court, because the structure of the clause means that the disclosure of information to which the clause relates is not permitted, and any such disclosure which is made without being permitted can be visited by a fine or imprisonment under subsection (7). Accordingly, if a disclosure is made which is not authorised by the clause and it comes to the court's attention, the court may judge that an offence has been committed; and in that sense the court is the ultimate arbiter. But at the particular point at which the decision is taken, it is the Bank which is the arbiter. May I just point out to the Committee what the effect would be if we were to delete the words "or in the public interest." It would mean that the circumstances in which the Bank could pass information to the Treasury would be restricted to those where it was in the interests of depositors; but there might be circumstances where it would be difficult to argue that the interest of depositors as such was involved, and there would certainly be a case where the wider public interest was involved.

An instance was given in another place and perhaps I should repeat it: I think it carried some weight and was so accepted by the Opposition there. That was that it may come to the attention of the Bank, through its scrutiny of information which it had obtained, that an institution it was supervising was being used either to finance terrorist groups in this country or being used somehow by terrorist groups for the channelling of funds. That is one instance; there may be others. It is to be hoped that such cases would be extremely rare, but it comes to this, that in taking the practical decision it is the Bank which must judge of the public interest. I find it rather difficult to see, given the character of the supervision and the fact that the information is channelled through the Bank, who else can be called upon to do it— unless the Bank is required to go to someone outside and say: "We want you to decide whether this is in the public interest." Of course, that involves the Bank itself first of all taking a decision that it will get the answer "Yes"; so they are taking very much the same decision. I hope, having said that, that I have given the noble Lord the assurance he looks for; but at the end of the day the Bank must be in a position to put this information, to which it uniquely has access, in the way the Bill allows, knowing that if it does so wrongly it can be visited with criminal penalties.

Lord SELSDON

I am very satisfied with that. If it really is true that it is within the judgment of the Bank and one could trust the Bank, I think we would accept that. However, I would point out that there are occasions when the judgment of the Bank may not be as precise and accurate as all that; for instance, as in the recent issue of longterm stock, where the hallowed halls of the Bank of England were rather more reminiscent of an Eastern bazaar selling whisky on the last day before prohibition! However, having said that, I beg to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 19 shall stand part of the Bill?

Lord McCLUSKEY

I think that the noble Lord, Lord Selsdon, thought that if he made his point and then quickly withdrew the Amendment there would be no reply to it. I think we are talking about entirely different circumstances.

Clause 19 agreed to.

Clauses 20 to 26 agreed to.

Clause 27 [Maximum and minimum contributions]:

Lord POLWARTH moved Amendment No.10: Page 27, line 1, leave out subsection (2).

The noble Lord said: We now come to Part II of the Bill relating to the deposit protection scheme. I am afraid I must again declare my interest as a director of a bank which will be affected by the scheme. I hasten to say that none of the major banks—English, Scottish or, so far as I know, any others—are in favour of this scheme for the reasons that were given on Second Reading by many noble Lords, including myself. Clearly this is a major prop of the Bill and a central part of it. It has been passed in another place and, accordingly, I think we would be wrong to challenge any further the principle of having a scheme. But that does not mean that we should not endeavour to make it as fair in operation as possible. That is the purpose of my Amendment and I am afraid it may take a little time to explain.

The point concerns the allocation or spreading of the contributions to the fund. This is basically governed by Clause 23(5) on page 24 of the Bill, which states: … the amount of the contribution of each institution shall be ascertained by applying to the institution's deposit base"—

that is, the total of its deposits as laid down in the Bill— …the percentage determined by the Board …".

That seems quite straightforward, but we immediately come to the exceptions. I should remind your Lordships that the initial contributions are required to amount in total to between £5 million and £6 million, with the provision for topping this up in further stages if so required later on.

When We come to Clause 27 we find two qualifications to the percentage formula. The first one is to the effect that the maximum contribution from one institution shall be £300,000. This was inserted, I think, at the instance of the London clearing banks—that is, the Big Four, as we know them—who felt that with their undoubted standine and record it would be unreasonable for them to carry the full percentage amount of the fund. There is another exception at the bottom end. Originally this was a minimum fee of £5,000 per institution, regardless of how small—I think, partly on the grounds of an entry fee to the club, if one may call it that; perhaps, partly, as deterrent against frivolous applications; partly to cover administrative costs and so on.

Even at that stage there was a feeling among the middle-size banks—that is, those that fell neither into the big category nor into the very small category—that they would be hard put upon under this formula. They would be carrying the percentage necessary to make up the balance in between. Those banks comprise, notably, the three Scottish banks, a number of others such as Williams and Glyn Mills, the Yorkshire Bank, the Ulster Bank, the Co-operative Bank and. I suspect, quite a number of the leading merchant banks as well.

When the Bill was going through another place, some impassioned pleas were made on behalf of the smaller institutions. I recollect, in particular, my honourable friend the Member for a south of Scotland constituency who brought tears to the eyes of his audience with his tales of the hardship to the Lockerbie Savings Banks in having to contribute £5,000 to the fund. The Minister was so moved by those pleas that he agreed—I think, on the spot—to reduce the figure from £5,000 to £2,500. But you cannot tamper with one factor to an equation, without affecting the rest of it, and I am not sure that he considered how the remaining £2,500 was going to be made up and by whom. With a maximum contribution, it could he made up only from the middle-size institutions, subject to the percentage formula.

It is difficult to be precise as to the figures, because not even the Bank of England can tell for certain until all the institutions have registered and been through the process. But it has since been elicited from them by the Scottish banks that the working of the formula could result in initial contributions by the percentage contributors in the neighbourhood of 0.02; that is, two one-hundredths of 1 per cent. of their deposit base. Applying that in the case of the Scottish banks, this would produce an average figure of about £200,000 each. Bearing in mind that the maximum for one of the Big Four is £300,000, and that the Scottish banks are on average about one-tenth of the size in deposits of an English bank, this seems highly inequitable.

I challenge your Lordships to find customers of a Scottish bank who would admit to their record of management of property and experience being in any way inferior to that of their albeit larger English brethren. After all, they have survived for a considerable time the vicissitudes of banking, the fortunes of trade and so on, two of them for over 250 years. Nor, I imagine, would a Yorkshireman, an Ulsterman or a member of the Co-operative Society feel otherwise about the banks associated with their parts of the world or that movement. It seems to me that if we are to suffer under the demands of this protection fund, then we should suffer relatively equally. That is the reason for my Amendment, the effect of which would be simply to remove the upper limit and apply the percentage formula right upwards above the basic minimum entry fee.

I appreciate that, on the face of it. this Amendment has not been very popular with our English colleagues of the Big Four. Nevertheless, I hope they will feel that we have a case of some kind here and may help us to seek redress. Since I put down this Amendment— indeed. it was only yesterday—I have heard that there may be moves afoot, behind the scenes between the banks, to try to devise a formula which is a little less inequitable, and perhaps to commend it to Her Majesty's Government before the Bill completes its passage. I should be very happy if this could come about. The last thing I should want is an unseemly brawl, between us of the Scottish banks and our very good friends of the English banks, probably with the Bank of England having to act in the unpleasant position of referee. If these talks are now afoot—as I know they are—and if the noble and learned Lord, Lord McCloskey, feels able to indicate that his cars would not be closed to further representations on the make-up of the deposit protection fund from those of us involved, then of course I should he most happy not to press my Amendment. I beg to move.

4.47 p.m.

Lord KINROSS

I am grateful to the noble Lord, Lord Polwarth, for putting down this Amendment and I give it my full support. While I do not have an interest to declare, in the generally accepted meaning of that word, I should perhaps mention that for a short period of years I was a director of the British Linen Bank, which was then a wholly owned subsidiary of Barclays Bank, who sold their interest to the Bank of Scotland. They, in turn, have kept the British Linen Bank alive and it is still. I am glad to say, very much a flourishing organisation. It was founded in 1746, some 50 years after the Bank of England and the Bank of Scotland, and your Lordships will note that the British Linen Bank was formed one year after the rebellion of 1745. Perhaps with a view to placating the victorious English, it was called the British Linen Bank instead of the Scottish Linen Bank, which would have been more natural.

But to return to the Amendment, I welcome the concept of this Bill and, though I should have thought that the control and supervisory powers of the Bank of England would mean that bank failures in future were most unlikely. I accept that from the point of view of the public image of the Bill the establishment of the deposit protection scheme, which is set out in Part II. may be desirable but certainly not essential. Having said that, however, it seems to me that the method of calculation of contributions to the fund, as the noble Lord, Lord Polwarth, has said, in terms of Clauses 23 to 27 of the Bill, and particularly Clause 27(2), must inevitably lead to an inequitable and unfair division of contributions by contributory institutions.

Clause 24(3) of the Bill states that where an institution has a deposit base, then, subject to the minimum contribution of £2,500, which is provided for in Clause 27(1), the amount of an initial contribution levied shall be such percentage of the deposit base as the board consider appropriate to put the institution on a basis of equality with the other contributory institutions",

having regard to the initial contributions which produce, in aggregate, a total of not less than £5 million nor more than £6 million.

If the matter remained there, all the institutions would be assessed on a basis of equality with the other contributory institutions, subject only to the minimum contribution of £2,500, and I should be content. But that is not the position, because Clause 27(2), which this Amendment seeks to delete, provides that: the initial contribution … levied from a contributory institution shall not exceed £300,000".

I have no idea what will be the deposit base of the various institutions which will be contributing to the deposit protection scheme. However, it is quite apparent from the figures which my noble friend Lord Polwarth has quoted that, if the maximum contribution remains, the Scottish Banks—and no doubt others—will be contributing, on a percentage basis, sums which can in no way put them. to quote the Bill again: on a basis of equality with the ether contributory institutions

and which are quite out of proportion to the size of the institutions which will contribute the maximum sum laid down by the Bill: namely, the English clearing banks.

If this Amendment is carried and if, as a result, the maximum contribution is deleted from the Bill, then an equitable balance between the contributory institutions will be preserved. The same maximum of between £5 million and £6 million will be achieved by adjustment of the rate of interest, and the basic minimum sub- Scription of £2,500 for the smaller banks will be preserved. In this way, a true proportional contribution, according to the deposit rate of the various contributors, will be preserved and equity will he achieved.

The Bank of England has a reputation for being fair-minded and I am sure that the same can be said of the English clearing banks, all of which will. I hope, collectively realise that if this maximum contribution remains in the Bill a grave injustice will be done to the Scottish banks and other institutions with a smaller deposit rate than the English clearers. The same reputation for fairness in such matters applies to the noble and learned Lord, Lord McCluskey, the Solicitor General, who will, I hope. think again on this matter before it comes back to the House on Report.

4.53 p.m.

Lord McCLUSKEY

The two noble Lords who have spoken made out a very reasonable case, but the problem is that one can make out just as reasonable a case both for the figure of £2,500 at the one end and for the figure of £300,000 at the other. As the noble Lord, Lord Polwarth, said, the case made at the Committee stage in another place on behalf of the Lockerbie Bank in the South of Scotland moved my right honourable friend Mr. Denzil Davies almost to tears, although he is a Welshman, and he accepted an Amendment. One has to acknowledge, as was pointed out during the course of earlier proceedings here, that the banks least likely to fail—because if failure happened it would have very little to do with the Deposit Protection Fund—are the biggest banks, including the London clearers.

The effect of the Amendment would be that their contribution to the cash fund would rise from 22 per cent. of the cash fund, assuming a fund of £5½ million, to about 51 per cent. of the cash fund, and there would he a corresponding reduction in the contributions made by the middle institutions. However, the real point is that everyone who is concerned with this matter recognises that one cannot achieve perfect justice, given the many considerations other than pure parity in terms of the size of the deposit base. The Government believe that they have gone as far as they can reasonably go, but my ears, and those of the Government, are certainly not closed. If, as a result of the initiative which the noble Lord, Lord Polwarth, has taken in the matter and the discussions which he has spoken of, the scheme can be modified in a way which satisfies and meets with the agreement of the clearing banks and the Scottish banks, I am quite certain the Government would be very favourably disposed towards such an agreed scheme.

Lord POLWARTH

I am very grateful to the noble and learned Lord for his reply. I appreciate the difficulties over securing absolute equity, which probably will never be achieved. I am glad that the noble and learned Lord has recognised my case and the case of the Scottish banks and other similar institutions. With his assurance, I shall be very happy to withdraw my Amendment at this stage.

Lord McCLUSKEY

Before the noble Lord withdraws his Amendment, may I, with the leave of the Committee, point out that there is not much time, as he will no doubt recognise, and that the Government would like to consider whether there are other implications in the case of any proposal which comes forward. No doubt those who are considering the matter will bear this point in mind when considering the timing.

Lord TAYLOR of GRYFE

I very much welcome the assurance which has been given by the noble and learned Lord, Lord McCluskey. It is obvious that there is some inequity in the distribution of the contributions to the fund. Although the noble Lord, Lord Polwarth, anticipated some opposition from our English friends, I hope this will not be so. In view of their substantial involvement in the Scottish banks, I hope they will see that there is a certain interest in reducing the contribution of the Scottish banks to the fund.

Amendment, by leave, withdrawn.

The DEPUTY CHAIRMAN of COMMITTEES (Lord Maybray-King)

I think that takes care of the next Amendment, Amendment No.11, which is linked with Amendment No.10. Therefore I call Amendment No.12.

4.58 p.m.

Lord REDESDALE moved Amendment No.12: Page 27, line 23, leave out from ("order") to end of line 27.

The noble Lord said: We come back to a point which was given a fair amount of airing at Second Reading. It relates to the increase in the size of the fund. Again this is a matter of principle. Perhaps I may briefly go back over the ground. I tried to make the point at Second Reading—I shall not weary your Lordships with what I said then, because it is in Hansard—that the amounts of money which would be called upon as a result of the various levels of collapse would vary. If we reached the stage where the fund was called upon to go up to the maximum amount, I think I showed reasonably clearly—for I believe that the noble and learned Lord, Lord McCluskey accepted the point—that we should have reached such a state of national financial crisis that we would be well into the lifeboat stage, let alone into the operation of the fund. If this were to be the case, the pooling of the fund and increasing it would cause more harm than good because it would drain a certain amount of additional money away from the lifeboat— which would stop people losing money altogether—and allow banks to go into liquidation just when money would be called from the fund.

I think it can be accepted that if the requirement reached the stage where we had to go up from a call of 0.3 per cent. to a call of 0.6 per cent. matters would be so very serious that it would take very much more than a Statutory Instrument order to increase the size of the fund. I summitted at Second Reading, and I submit again, that if we had reached that stage we should require much more action than a Statutory Instrument order. We should require primary legislation.

This is a very simple, clear-cut case. The noble and learned Lord said earlier that we do not want to put unnecessary bits and pieces into the Bill. This paragraph is unnecessary; it will not do us any good to leave it in the Bill if we reach the stage where we have to double up on the call. What will then be necessary will be some very strong primary legislation. On that basis, I beg to move.

Lord JACQUES

This Amendment relates to the net cumulative limit on contributions. This is initially set at 0.3 per cent. and the subsection gives the Treasury power to increase the net limit to 0.6 per cent. of an institution's deposit base. We have already accepted the Bank's representations that there should be a limit on the overall liability to contribute, and have also accepted that there should be a limit to the extent that this liability can be increased by secondary legislation. The exercise of the Treasury's power is subject to safeguards—I would say, excellent safeguards. First, the Treasury must consult the board, on which contributory institutions will he represented. Secondly, the power is subject to the Affirmative Resolution procedure so that it must have the approval of both Houses of Parliament. where again contributory institutions will be able to make their views known. They are quite capable of doing that.

On present calculations, 0.3 per cent. would produce about …140 million. This is equivalent to the maximum payout on less than 20,000 protected deposits. The board will be under a duty to pay out to depositors as soon as possible, before the liquidator will have been able to pay dividends from any of the assets of the institution; so that the board will need to have at its disposal in the early stages amounts well in excess of the eventual net payout. It is a question of cash flow. Dividends which are paid to the board later must, under Clause 32(2), he repaid to the contributory institutions.

Of course, we hope that circumstances will not arise in which the 0.3 per cent. limit would be reached even in the case I have outlined above; and still more do we hope that the limit would not need to be increased. But we believe that it would be wrong to ignore this possibility and that the procedure we have proposed gives proper safeguards. I see no reason therefore to remove the right in secondary legislation to increase the limit beyond 0.3 per cent. or to go to less than 0.6 per cent.

I can see a difference in the position taken up by the noble Lord, Lord Redesdale, and the position which I am taking up, and I find it difficult to explain: but it seems to me to he something like this: there is the small case where the 0.6 per cent. would cover it, but I think the noble Lord went to the other extreme and almost took it for granted that one of the clearers had fallen down, which we dare not contemplate. I think he went too far. I am concerned with those which are just a little above the small ones and I think they should be covered by secondary legislation. but once again I wish to stress the importance of cash flow. It is for the reasons of cash flow that the secondary legislation may be needed in order to increase the amount which is required to meet the losses that have been incurred.

Lord REDESDALE

There arc two points that I wish to take up with the noble Lord. He raised the question of cash flow, but l do not really accept that point because we were covering the 20,000 and I think at Second Reading we showed that one clearer has, I believe, 20,000 accounts over £10,000. I accept that one a little smaller—perhaps one of the Scottish banks that we were talking about—would have slightly less; but at Second Reading I asked to he given some idea as to what size of institution was envisaged as having to go down. Was it in fact a whole series of the smaller banks all going down simultaneously? If it was, then it would be a major financial crisis such as I have already spoken about and everybody would be affected.

The other point is this. The noble Lord has said: "Right, we have the chance of an Affirmative Resolution going through Parliament". But that only allows that amount to be either agreed or rejected; it cannot be varied. It is either right or it is wrong, and that is one of the weaknesses. That is why I am saying that if we were in that stage we would need primary legislation, because it needs much more than what has been stated already.

I do not accept the cash flow situation unless the noble Lord can give us a slightly better idea of what would be required. At Second Reading I rehearsed at some length the situation that so far no depositor had lost money in a British bank. I say it again. So it comes back to the point of whether the fund is really necessary. I do not think it is necessary, but if we are going to have it let us at least keep it sensible and reasonable. All right, we are going to have a fund, so that if something happens action can be taken quickly and there is enough money to cover the situation. I do not accept the noble Lord's argument on cash flow; I do not think it holds water and I wish to press this Amendment.

Resolved in the affirmative and Amendment agreed to accordingly.

5.8 p.m.

On Question, Whether the said Amendment (No.12) shall be agreed to?

Their Lordships divided: Contents, 100; Not-Contents, 51.

CONTENTS
Airedale, L.	Ebbisham, L.	Nugent of Guildford, L.
Alexander of Tunis, E.	Eccles, V.	O'Brien of Lothbury, L.
Allan of Kilmahew, L.	Effingham, E.	Orr-Ewing, L.
Alport, L.	Elles, B.	Pender, L.
Amherst, E.	Elliot of Harwood, B.	Polwarth, L.
Amory, V.	Emmet of Amberley, B.	Rankeillour, L.
Auckland, L.	Exeter, M.	Rawlingson of Ewell, L.
Avon, E.	Ferrier, L.	Redesdale, L.
Balerno, L.	Glasgow, E.	Reigate, L.
Banks, L.	Glenkinglas, L.	Robertson of Oakridge, L.
Barrington, V.	Gowrie, E.	Rochdale, V.
Belstead, L.	Gridley, L.	Rochester, L.
Berkeley, B.	Hankey, L.	Romney, E.
Birdwood, L.	Harvey of Tasburgh, L.	St. Aldwyn, E.
Boothby, L.	Henley, L.	St. Davids, V.
Burntwood, L.	Hornsby-Smith, B.	Sandford, L.
Camoys, L.	Inglewood, L.	Seebohm, L.
Campbell of Croy, L.	Killearn, L.	Selsdon, L.
Carr of Hadley, L.	Kinnaird, L.	Skelmersdale, L.
Carrington, L.	Kinross, L.	Somers, L.
Cathcart, L.	Lauderdale, E.	Spens, L.
Chitnis, L.	Linlithgow, M.	Strathclyde, L.
Clifford of Chudleigh, L.	Lucas of Chilworth, L.	Sudeley, L.
Cockfield, L.	Lyell, L.	Swansea, L.
Cork and Orrery, E.	Macleod of Borve, B.	Tanlaw, L.
Cornwallis, L.	Mais, L.	Terrington, L.
Cottesloe, L.	Mancroft, L.	Teynham, L.
Daventry, V.	Merrivale, L.	Trefgarne, L.
Davidson, V.	Mills, V.	Ward of North Tyneside, B.
De Freyne, L.	Mowbray and Stourton, L.	Westbury, L.
Denham, L. [Teller.]	[Teller.]	Willoughby de Broke, L.
Denman, L.	Norfolk, D.	Winstanley, L.
Donegall, M.	Norrie, L.	Young, B.
Drumalbyn, L.	Northchurch, B.

NOT-CONTENTS
Ampthill, L.	Henderson, L.	Raglan, L.
Aylestone, L.	Jacques, L.	Rhodes, L.
Blease, L.	Janner, L.	Ritchie-Calder, L.
Blyton, L.	Leatherland, L.	Sainsbury, L.
Boston of Faversham, L.	Lee of Newton, L.	Segal, L.
Brockway, L.	Leonard, L. [Teller.]	Stewart of Alvechurch, B.
Collison, L.	Listowel, E.	Stone, L.
Cooper of Stockton Heath, L.	Llewelyn-Davies of Hastoe, B.	Strabolgi, L. [Teller.]
David, B.	Lloyd of Hampstead, L.	Taylor of Mansfield, L.
Davies of Leek, L.	Longford, E.	Wallace of Coslany, L.
Elwyn-Jones, L. (L. Chancellor.)	McCluskey, L.	Walston, L.
Gardiner, L.	MacLeod of Fuinary, L.	Wedderburn of Charlton, L.
Gordon-Walker, L.	Mishcon, L.	Whaddon, L.
Greene of Harrow Weald, L.	Oram, L.	White, B.
Hale, L.	Peart, L. (L. Privy Seal.)	Wilson of Radcliffe, L.
Hanworth, V.	Plant, L.	Wynne-Jones, L.
Hatch of Lusby, L.	Ponsonby of Shulbrede, L.	Young of Dartington, L.

Clause 27, as amended, agreed to.

Clauses 28 to 30 agreed to.

Clause 31 [Liability of insolvent institutions in respect of payments made by the Board]:

5.16 p.m.

Lord ORAM

moved Amendment No.13: Page 34, line 13, at end insert— ("(8) The provisions of the foregoing section and of sub-section (6) of section 28 hereof shall apply to any scheme which affords protection to transactions prescribed for the purposes of section 2(1) above by regulations made by the Treasury but so that on each occasion where "the Board" is referred to reference shall instead be made to the managers of the scheme or schemes in question.").

The noble Lord said: I beg to move the Amendment to Clause 31 standing in my name. The need for this Amendment arises in connection with the preparation of a scheme for the protection of loan deposits in retail co-operative societies. Therefore, I think I should declare a modest personal interest since I have a small loan deposit in a retail co-operative society. I hasten to add, however, that the sombre words such as "insolvency", "liquidator", and so forth, that one reads in Clause 31 do not strike any terror in my heart concerning the safety of that modest deposit, because the cooperative movement and its constituent societies have throughout their long history an impeccable record of securing the interest of' members in these matters.

In the White Paper (Cmnd. 6584) which preceded the Bill there appeared at paragraph 17 an indication that the Government would consult with institutions which might not fit easily into the proposed legislation. It cited credit unions, certain retail co-operatives, municipal or local banks and the Scottish uncertified savings banks. The Co-operative Union Limited entered into such consultations on behalf of its member societies and I must say that the talks went well; I acknowledge the helpfulness of the Treasury officials during the preparation of the scheme. It was to be a scheme under which co-operative societies would not need to be licensed as deposit-taking institutions.

However, when the Bill appeared and it was possible to examine the scheme for joint stock banks which is to be set up under Part II of the Bill, it was seen to contain this Clause 31 which makes a provision for a relationship automatically to be set up between the failed institution and the protection fund, and it does away with the liability of the failed institution to the original depositor. The Co-operative Union then suggested that, if such an assignment of liability was necessarily included in the Bill so far as the joint stock banks are concerned, it would equally be necessary to make a similar provision in the Bill so far as co-operative societies were concerned—and, moreover, not just co-operative societies. It would, in the view of the Co-operative Union, be necessary to make such a provision for any other scheme by other deposit-taking institutions such as are mentioned in the White Paper.

It is as regards that matter that the discussions failed to reach agreement and it is for that reason that I submit my Amendment today. I hope it will give my noble and learned friend an opportunity—if for any reason he finds my Amendment unacceptable—to give more attention than seems to have been paid so far to the need for statutory assignment in respect of co-operative societies.

It is true that, during the course of the discussions, Treasury officials suggested an alternative method of achieving the objective we have in mind—namely, that the fund proposed to be set up by the Co-operative Union would obtain an undertaking from the creditors of the failed society to repay to the fund any dividends received from the liquidator up to the amount of the insolvency payment made by the fund. Although one appreciated the advice that was given, I feel bound to tell my noble and learned friend that I cannot find that to be a satisfactory solution. Indeed, I am advised that, as the law now stands, the fund will not be protected in respect of its recovery from the insolvent society until it has taken legal proceedings and secured the court's authority. Clearly that would be a lengthy, cumbersome and expensive procedure.

Therefore, in moving the Amendment, I feel bound to ask my noble and learned friend who is to reply, why should the Bill enable joint stock banks to avoid such difficulties, but not co-operative societies? If the alternative method that has been suggested is good enough for co-operative societies and similar bodies, why is it not good enough for the banks—or, to put it the other way round, if Clause 31 of the Bill is necessary for the banks, why is not something similar necessary for cooperative societies? I hope that my noble and learned friend will address himself to those questions.

I understand that counsels' opinions have been obtained about the need for this Amendment, or something like it, in respect of the law in England and Wales, Scotland and Northern Ireland separately. Those opinions are unanimous in support of the necessity for the Amendment. I also understand that copies of those opinions have been furnished to the Treasury. Therefore, I hope that my noble and learned friend has taken those submissions fully into account in reaching his conclusions. I hope that his conclusions on the basis of those submissions will be favourable to what I am proposing. But, if not, I hope he will take the opportunity to examine the submissions before the Bill reaches a further stage of consideration in your Lordships' House. I shall listen with considerable interest to what he has to say at this stage and shall see what action is necessary in consequence of his remarks. I beg to move.

Lord McCLUSKEY

I understand, and of course those members of the Committee who have listened to the remarks of my noble friend Lord Oram also understand, the object of the Amendment. However, in the course of his remarks my noble friend spoke of the need for the Amendment and I am certainly less convinced about that. The result which is desired in relation to what is achieved under the Bill by Clause 31, is one which we believe can be achieved without statutory provision. Under existing bankruptcy law it is possible for a creditor of an insolvent institution to assign his rights to someone else. Therefore, the provisions of any scheme which is set up for the protection of depositors could provide that any payments to depositors made under the scheme would be made only if the depositors assigned to the scheme their rights to dividends. Such a contract could of course provide that, if the scheme recovered from the insolvent institution more than it had paid out, it would pay the balance over to the original creditor. As a result, one can achieve under the scheme assignments or assignations and, in terms of the scheme, one can achieve the result that is desired.

Therefore, apart from saying that it is not necessary to do what the Amendment proposes, there are other objections to what is now put forward. The relevant clauses in the Banking Bill already represent quite a considerable change in the normal procedures of winding up and bankruptcy. That, I would submit, is acceptable in a statutory scheme where all the details are set out in the legislation itself. But we should not regard it as acceptable in a non-statutory scheme. At present, of course, the only candidate in view is the scheme of the co-operatives, but it cannot be ruled out that some other scheme might be devised and the Amendment is wide enough to cover any other scheme. If such a scheme were one to cover deposit-taking transactions exempted under Clause 2, it would automatically be able to take advantage of this clause as amended as proposed by my noble friend. It would not even be necessary for the Treasury to approve the form of the scheme; and, under the Amendment as drafted, the scheme might have virtually nothing in common with the deposit protection scheme set up under the Bill.

However, having listened carefully to what my noble friend has said, I must confess that I have not myself seen the counsels' opinions to which he referred, and I shall certainly accept his invitation to look at what is put forward to see whether those views share the view that I have urged upon the Committee that it is not necessary to do what is proposed. If, having considered counsels' opinion, and taken the advice of Treasury officials, I form a different view, then of course we shall reconsider the matter.

Lord ORAM

I am, of course, grateful to my noble and learned friends for the undertaking that he will look at the documents to which I referred. However, before seeking leave to withdraw the Amendment I should like to ask him also to look into the point that I mentioned in my opening remarks—that is, that the satisfaction he said could be achieved under existing law can only be achieved if the fund has taken the matter to the courts. That may not be included in the counsels' opinions, to which I referred, but I hope that he will consider that point as well. As regards the point that any amendment to the Bill would need to take into account not only the Co-operative Union's scheme but any other schemes, of course I entirely agree. I understand that there might be difficulties in that respect. But, I have considerable faith both in the capacity of my noble and learned friend for getting round awkward corners of the law and in the capacity of those who advise him in the Treasury. I believe that, although one needs to recognise that other schemes need to be taken into account, that should not be entirely an obstacle to reaching the proper conclusion. Therefore, as I have said, I shall look forward to hearing from my noble and learned friend about his re-examination of the situation. In the meantime I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 31 agreed to.

Clauses 32 and 33 agreed to.

Clause 34 [Control of advertisements for deposits]:

5.30 p.m.

Lord REDESDALE

moved Amendment No.14: Page 36, line 33, at end insert— ("( ) Regulations under this section shall not prohibit the use of the words "licensed for limited banking services" in any advertisement inviting the making of deposits.").

The noble Lord said: I beg to move the Amendment standing in the name of my noble friend Lord Selsdon. I raised this point on Second Reading. The Amendment covers a number of institutions, including a number of finance houses. The present situation will prevent them using the word "bank" or even the words "banking business". The situation has become very restrictive due to the Bill. I hope that the Minister will not take me amiss on this, but I believe there is a slight misconception underlying how this was worded. We cannot now have such a thing as a bank; we can have only a recognised bank. It is a pity that we cannot just have a bank and that if you are not a bank, you are not a bank; but if you are not a recognised bank, you are not now a bank, which is a rather different situation.

However, there are different degrees of banking. An argument was advanced for several tiers within any legislation of this kind. I appreciate that the idea was to prevent a secondary banking crisis again. All right, but the situation is now slightly different because under Part I of the Bill we now have a fully operative regulatory system run by the Bank of England. So we have recognised banks and licensed institutions, which are licensed to take deposits. However, I believe that those institutions are granted what is called a full banking licence, but are not allowed to call themselves banks. But in any law case they are allowed to describe themselves as banks. That gives them a certain degree of protection, but by law they are prevented from calling themselves banks.

Let us try to reach a reasonable compromise. Hence the point of this Amendment. I submit that those licensed institutions which provide fairly full banking services but which do not meet all the criteria laid down in the Bill in order to fulfil the title, "bank", ought to be allowed to continue to trade as they have done; that is, to provide banking services. They are prohibited from using the words "banking business"; they are not allowed to call themselves bankers; but they still issue cheque hooks and, should they prosper, are still allowed to grow to the stage where they can become a fully recognised bank—or they should be allowed to. However, as the Bill stands, that will he virtually impossible.

Although we accept that we do not want to allow everybody to call themselves a bank, I have put forward a form of words which I believe is reasonable and which allows them to say that they are "licensed for limited banking services", although they cannot call themselves bankers. It is a form of words which limits the description. I believe that that meets the Government's requirement and it is also correct because they provide limited banking services. I do not ask to use the words "banking business". I have never quite understood why that phrase is so much worse than the phrase "banking services", but I am sure the Minister will be able to tell me.

Consequently, I hope that some consideration can be given to this point. I am afraid that again due to being frozen in up North, I did not check but there is another point I wish to raise later, which perhaps I could just mention now. In advertising, if these institutions are allowed to publish a leaflet, they certainly would not he allowed to display it. I think that there arc one or two areas here to which consideration should be given. It may be that I do not have this quite right; perhaps we can return to it at a later stage. However, I am trying to meet the Government's stricture that we cannot say "banking business". At the same time I am trying to give these institutions a little more freedom, which is only reasonable. I look forward to hearing what the Minister will say in reply.

Lord JACQUES

In introducing, in response to representations, the concession relating to the use of the words "banking services"—now Clause 36(4)—the Government made plain that they had in mind certain specific contexts where a total embargo on the use of banking descriptions might create genuine difficulties for licensed institutions. These might occur, for instance, in international contexts, such as the finance of foreign trade, in private correspondence with potential or existing customers and with business connections such as correspondent banks. All these contexts are covered by Clause 36(4).

But the concession was certainly not designed to satisfy institutions which claimed that they rely heavily for their flow of deposits from the public on their use of banking descriptions. The use of the phrase "banking services", even where qualified as proposed in the Amendment, could mislead the public into depositing money with the institution in the belief that it is a bank. Consequently, the Government have made plain that they intend to use the regulation-making power under this clause to ban use of the phrase "banking services" in advertisements for deposits.

Lord SELSDON

We are all grateful for the concession which the Government made in another place, but I must admit that I am still confused. My confusion is based upon the belief that I thought that the Bill was about protecting depositors; that is, about people who have money or savings which they wish to deposit.

As I said on Second Reading, we forget that only 50 per cent. of adults have accounts with clearing banks; that is, roughly 35 per cent. in the way of households. What do the remaining people do with their money'? They save it; they invest it in building societies and in other bodies. However, over a period of time many of them have been led to believe that those other bodies into which they place their money are banks or provide banking services. I shall not say that there is something mystical about the word "bank", but to use the word "bank" gives a feeling of confidence.

I am worried about saying to many people who have deposited their money or who may have cheque books with some of the members of the Finance Houses' Association and who actually treat them as banks—and they provide them with banking services—"Sorry, the body you use is no longer a bank. It is a licensed deposit institution". I have raised this with a few people already and many people do not know what I am talking about. They say "It can't have been a bank yesterday and not a bank tomorrow. Surely it must continue to provide the same services as banking services. Surely if it is allowed, to some extent, to refer to itself as providing banking services, why can't it at least advertise or announce them? "One is worried about the fact that these organisations and institutions may lose business, either now or in the future.

I declared my own interest on Second Reading, in that the group I work with has interests, investments and owns subsidiary companies in all spheres of banking. Thus, what one side might lose, one might argue, the other side might gain. If members of the Finance Houses' Association or those who would become licensed deposit institutions cannot actually attract depositors by using or making some reference to the words, "banking services", there could be an increasing tendency for polarisation to take place among the clearing banks themselves. There was a case with UDT—on which the noble and learned Lord, Lord Denning, ruled—about what people think a bank is. One cannot define a bank it is almost people's image of it. I would not say that is retroactive legislation, but I cannot help feeling that there is a case here. The noble Lord, Lord Jacques, has pointed out that the Government have made some concessions. I think we would still like to ask for a little more of a concession here.

Lord JACQUES

The Government are determined that, so far as they are concerned, they will not accept any Amendment which would allow a deposit taking institution to use the term "banking services". In our view that could mislead the potential depositor. One of the purposes of this Bill is to prevent that kind of—not misrepresentation but the kind of advertisement which deceives the public.

Lord SELSDON

The noble Lord has not taken my point. I was more worried about misleading existing depositors.

The Earl of GOWRIE

I should like to ask the noble Lord, Lord Jacques, one question. He talks about the potential depositor. He owes it to my noble friend Lord Selsdon to answer his point about misleading existing depositors. What is this class of potentially vulnerable depositor that the noble Lord has in mind? As my noble friend Lord Redesdale said, we cannot document a single case where a depositor has lost money in an English bank.

I know that the wider intentions of the Bill are not in dispute between us, and I do not want to get on to the wider philosophy of the Bill, but it is damaging to the economy, to the banking industry, if in Parliament we somehow make suggestions that there is a class of potential depositor in some way at risk unless severe legislative provisions are enacted. We must try and use every occasion we can to disabuse people, both here and abroad, that this is our purpose with this Bill.

Lord JACQUES

I change the words. Instead of "potential depositor" I say "the public". One purpose of this Bill is that the public shall not be misled. We think that they could be misled by the use of "banking services" when such an institution is seeking deposits, and it is that kind of situation that we want to avoid.

Lord REDESDALE

The noble Lord says that they would be misled. I think he ought to make a case. He has not made one yet. Misled in what way—misled because they provide limited banking services, or because they take deposits? They are entitled to take deposits, whatever the noble Lord may try to say. They are entitled to take deposits if they are a licensed deposit-taking institution. That is the first point. The second is that they have a cheque book, and presumably this does not stop them from having a cheque book. If they have a cheque book, and they are allowed to take deposits, and the licence is limited to certain services, then, all right, at a later stage we can put in a provision such as might be found in the Trade Descriptions Act. It can be laid down that information may be given only in a certain way. We can write in all those provisions later, but the noble Lord ought to give a little on this. After all, in some respects they are allowed to refer to it as a banking service under the Bill, but not in terms of an advertisement. All I say here is that where they provide this service they ought to be allowed to be described as providing a limited licensed service. This is perfectly reasonable. Unless the noble Lord can give me at least an indication that he will consider it, then I shall have to press it. I hope that he will look at this a little more reasonably.

Lord O'BRIEN of LOTHBURY

Before the Minister replies, may I say a word or two on this particular subject. The noble Lord, Lord Redesdale, has said—and said it several times—that no depositor in the British banking system has lost his money. This is indeed true. However, many depositors in the fringe institutions have had their money, but at the cost of an enormous rescue exercise in the banking system proper. Part of the purpose of this legislation, as I understand it, is to ensure that such a situation does not recur. It occurred in the first instance because, as I said in the debate on the Second Reading, the main banking system over many years was so restricted that fringe institutions grew up around it which did the business which the banks were prevented from doing. Many of those institutions purported to be banks and took deposits while at the same time doing business which was far removed from banking proper. The purpose of this legislation now is to distinguish between such institutions and proper banks. The Government have my full support in maintaining that distinction. I hope they will do so.

Lord SELSDON

I have certain sympathy with that comment from the noble Lord, Lord O'Brien. The reason for putting down this Amendment was, and I say it again, that half the population do not use recognised banks, or will not use them. I am merely concerned that they should not feel that their current savings, or deposits, or relationships are in any way inferior to what they were before the Bill. I would ask the noble Lord, Lord Jacques, to take account of this as we move on, and I would propose not to move further Amendments that I have under this heading. I would propose that, if my noble friend Lord Redesdale agrees, we should withdraw this Amendment.

Lord REDESDALE

I am still not happy with this because I think that it perpetuates a number of unfairnesses which this Bill creates, especially in the name section. You cannot be fair to everybody. At this stage I am prepared to withdraw the Amendment although I may reinstate it at another time. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clauses 34 agreed to.

Clause 35 agreed to.

Clause 36 [Restriction on use of certain names and descriptions]:

5.48 p.m.

Lord REDESDALE moved Amendment No.15: Page 38, line 1, at end insert ("or its wholly owned non-trading subsidiary.").

The noble Lord said

I raised this Amendment at Second Reading. It covers two of the clearers. It is a situation in which Lloyds and Barclays are prevented from using the titles they wish to use for their management companies. It means that a limitation will have to be put on the companies doing the operation, or the supervision of the United Kingdom banking arm. It would seem to me to be reasonable that those management com- panics should be allowed to call themselves the banking name without the prefix "management or management services" having to be tacked on at the end. This is because the structure they operate with allowed Lloyds or Barclays to use the full footings when describing themselves as a bank in international trading.

The noble and learned Lord, Lord McCluskey, at the Second Reading took the point and said that it was something that could be considered in slightly greater depth at this stage of the Bill. These companies have management companies, and I do not see why they have to have this long cumbersome title which confuses employees and institutions. I do not see why these wholly owned subsidiaries have to have this management section tacked on. I should like to see this Amendment freeing them from that and allowing them a cleaner management structure. I beg to move.

Lord McCLUSKEY

The philosophy here is that we should call a spade a spade—and if a thing is not a bank it should not be called a bank. The Bill 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, and they are to be found specified in Clause 36(7). Where the subsidiary is itself a deposit taker, then Clause 36(7)(a) specifically provides for the use of the parent's name. Where the subsidiary is not a deposit taker—and that is the kind of case the noble Lord has in mind—then so long as its title makes plain the nature of its activities, it would not come within the scope of the prohibition in Clause 36(1)—for instance, XYZ Bank Computer Services or XYZ Bank Management Limited.

I should have thought that the noble Lord, who is entirely reasonable in these matters, would recognise that a management company should call itself a management company; and if the Bill accords it the privilege of calling itself the XYZ Bank Management Company, so much the better. He should be grateful for that rather than carp at the Government for requiring it to call its management company a management company. Thus, the Government can see no case at all for allowing a total exemption from the prohibition in Clause 36(1) to a company which does not carry on a banking business.

Lord REDESDALE

Really!

Lord McCLUSKEY

I see that point causes the noble Lord some pain, but perhaps he will explain to us how he can justify institutions which are not banks being called banks when other institutions which he is prepared to accept under the terms of the Bill provide some banking services are not to be allowed to call themselves banks. It may he a little like a game of ping-pong, but at the moment the ball is on his side of the net.

Lord REDESDALE

Perhaps I might ping back at the noble and learned Lord on this point. The management company would be responsible for the United Kingdom operation and, should anything happen to the United Kingdom operation, it would be responsible. Thus, although they are not actually taking deposits, they are managing the bank and I should have thought that that was banking.

Lord McCLUSKEY

I wonder? All I can say is that I would not. In essence, it has been argued—and it certainly carries conviction—that banking is the provision of banking services. If one is providing management services then one is providing management services. I cannot rehearse these arguments in greater detail. I have done my best and, if I have not satisfied the noble Lord, then I am afraid I never can.

Lord REDESDALE

I am grateful to the noble and learned Lord for dealing with this matter gain. I am not entirely happy with the situation, but I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

5.53 p.m.

Lord SELSDON moved Amendment No.16: Page 38, line 1, at end insert— ("( ) A wholly owned subsidiary (within the meaning of section 150(4) of the Companies Act 1948) or any subsidiary of that subsidiary of a recognised bank.")

The noble Lord said: With the Committee's permission, I will speak at the same time to Amendment No.25 and I begin by warning the noble and learned Lord, Lord McCluskey, that if I do not receive some satisfactory replies to the points I shall make I will press Amendment No.25, without necessarily having obtained support from all sides of the Committee, because I believe I may have discovered a principle of unfairness that I believe it would be right to pursue.

Lord McCLUSKEY

Before the noble Lord proceeds, perhaps I should tell him that it was our intention that my noble friend Lord Jacques would reply to Amendment No.16 and I would reply to Amendment No.25. While that need not inhibit the noble Lord, he might bear that in mind as he addresses himself to the two Amendments.

Lord SELSDON

It has been said that a brace of partridges is often heavier than a single pheasant. Amendment No.16 would have made it unnecessary for my noble friend Lord Redesdale to have moved the previous Amendment. I do not necessarily believe this Amendment will be accepted by the Government in that it is quite far-reaching, but it is tabled because there is some concern that the Bill, although principally intended to protect depositors, may limit the expansion, both domestically and internationally, of the bigger British banking groups.

We are back again on the question: When is a bank not a bank and what is the point of being a bank? The argument goes that, if something is owned by a bank, surely it carries with it the credibility of its owners and its owners would stand fair and square behind it on any major default or major issue. I have tabled the Amendment because of one issue which I wish to raise, and I should declare an interest in that I am about to speak of Thomas Cook, which is currently owned by the group for which I work.

Where we have a strange anomaly is that Thomas Cook is an international bank; it may not be regarded as a bank in the United Kingdom but it has been a bank for over 100 years and has a banking licence in France and the United States. The Government of the day sold Thomas Cook to the private sector as a travel agency and as a bank, but this legislation would withdraw the banking licence; almost certainly it would remove from Thomas Cook the right to have a banking licence in the United States and France, and I will come to the consequences of that shortly. In its sale, the Government also required that the new owners, who initially were a consortium, should look after the interests of the employees. It is therefore inevitable that, in seeking to oppose legislation that would remove effectively the banking licence from Thomas Cook in the United States and France, one would be pursuing the interests of the employees. Thomas Cook is a strange animal. Its banking licence in the United States is, I am advised, particularly important to it because, without it, it may put in jeopardy to some extent or another approximately 1,000 million dollars of foreign currency business through its travellers cheques. It is fighting as a British-based institution to compete with the larger American groups, many of which would willingly like to take over its business.

It was a bank, but of course it is not a deposit taking institution. Therefore, under the Bill it will no longer be a bank, and the Treasury and the Bank of England have both made that clear. They have virtually said, "Although the French say you are a bank in France, and you are a bank in the United States, we, the United Kingdom, say you are not a bank, and therefore you will almost certainly cease to be a bank in France and the United States." Once upon a time Thomas Cook was a deposit taking institution. This goes back to the time before the war, and then, after 1939, Thomas Cook's business was appropriated by the Custodian of Enemy Property and shortly after that it ceased to be a deposit taking institution.

The principle I am advancing is whether it is fair that domestic legislation of this sort should so limit the potential for growth of one of the major companies of its kind in the world which is a bank and which, without banking status in the United States, would lose many advantages, and those points have already been made to the Treasury. The same thing would apply in France, and not wishing in any way to say anything against our French cousins, they have a tendency to exploit every possible loophole which may be to the advantage of their own banking system

Amendment No.25 would take into account almost only Thomas Cook, and one is really looking at what has been described in the United States at the principle of what people call "grand-fathering" in the United States it is a well-established principle in banking legislation to protect established rights against retroactive legislation. It could be of benefit if we could adopt that in the United Kingdom, but I have been exploring as a total amateur whether Thomas Cook is the only institution that would be so treated under the Bill and whether there is not some case of what one might call "hereditary hybridity".

Suffice to say that if the legislation goes through without either Amendment No.16 or No.25, Thomas Cook will certainly lose its banking licence in both the United States and France. It might be argued that the firm could make up for this in some way in the States, but I am advised that this would not be the case and and that we would be handing over to our American and French competitors a considerable advantage for the future.

I have declared my interest in this matter; I am in no way a professional in this respect. I am not quite sure where we go from here. I should like to press Amendment No.25, but I should probably propose withdrawing Amendment No.16, depending on the Government's attitude regarding other institutions and organisations, such as foreign banks and others—and in this case I am widening the whole scope to entitle subsidiaries of subsidiaries of recognised banks to be treated almost in the same way as if they were themselves recognised banks. I should be most grateful to hear from the noble Lord, Lord Jacques. I beg to move.

6.1 p.m.

Lord JACQUES

The Bill already permits companies to use a banking name where it is believed that this would be justified and would in no way be misleading. First, the Bill does not prevent an institution which does not take deposits from using a banking name, so long as it is clear from the title that it is not purporting to be a bank; an example would be, "South Bank Laundry". This equally applies to a non-deposit-taking subsidiary of a recognised bank which wishes to indicate the group connection; for example, "XYZ Bank Computer Services". Secondly, the Bill specifically allows a licensed institution which is a wholly owned subsidiary of a recognised bank to use the parent bank's name in its title for the purpose of indicating the group connection.

The Amendment before the Committee would allow the free use both of banking names and of banking descriptions to virtually any company within a group, regardless of the nature of the company's activities; nor would the company have to use its parent bank's name—it could use any it chose. Thus, under the Amendment its name would not need to indicate either the true nature of the company's activities or the group connection. It would be unreasonable to allow this use of banking names and descriptions to companies within a recognised bank group which might not even take deposits, and restrict severely their use by licensed deposit taking institutions. The latter would have justified grounds for complaint. As it is, during the Second Reading in the Commons the chief Opposition spokesman accused Part III of the Bill of being a charter for the existing banking establishment. The Amendment would make it even more so.

It remains the Government's view that banking names and descriptions should essentially be confined to recognised banks in order to clear up once and for all the past confusion. The only exception which the Government regard as justified, so far as companies associated with recognised banks are concerned, is where this is necessary to indicate the group connection. Clause 36(7) already provides for this in the case of wholly owned subsidiaries and holding companies, and we see no reason for any further extension.

Lord SELSDON

The noble Lord, Lord Jacques, has very helpfully described to me the effects of Amendment No.16, which are even more far reaching than I had at first anticipated, and it would not be my intention that they should be so far reaching. I wish to ask a very simple question. If the Bill goes through without the Amendments proposed, will Thomas Cook Bankers be able to go on being Thomas Cook Bankers or will it not? I am advised that if it is not allowed to continue to be so named, all the unfortunate consequences that I mentioned earlier will occur.

Lord McCLUSKEY

I should like to reply on that point in view of the fact that we were expecting that the position of Thomas Cook would be raised in relation to Amendment No.25, because of the more tightly drawn character of that Amendment. As we understand the position, Thomas Cook Bankers Ltd. is a wholly owned subsidiary of a wholly owned subsidiary of the Midland Bank, with an agency in New York, and is primarily involved in the issue of travellers cheques and bulk trading in notes and coins. As the noble Lord has said, the firm is not a deposit taker either here or in New York, and so under the Bill it would be required to drop the word "Bankers" from its title and to cease using any banking descriptions.

Having said that, I should point out that there is nothing specific in the Bill which would require the firm to change its name in New York; that situation would depend upon the effect of the law in that city. I understand that it is claimed by the company that the loss of the word "Bankers" from its title would affect its international operations by reducing its prestige in the minds of its trading partners overseas, but we should have thought this rather unlikely since the name "Thomas Cook" has a worldwide reputation in its own right, as does the quality of its services. It does not seem that the word "Bankers" is material in this respect. However, in relation to New York, surely it is likely that the immediately relevant factor here would be not so much the deletion of the word, "Bankers" from the title, but that Thomas Cook would have no deposit taking status under the Bill. In any event its business in the United States could be conducted— and this is an important point—on the basis of a money transmissions licence, as is the business of American Express.

The noble Lord is perhaps wrong in what he said relating to France—that Thomas Cook Bankers (France) Ltd. is another member of the Cook family which takes no deposits in the United Kingdom. It has a deposit taking branch in Paris, and it is not to be expected that the French banking licence will be affected in any way by the change of name. The noble Lord did not develop the hybridity aspect, but I shall certainly consider what he said in that regard to see whether there is any point of hybridity which seems to arise.

Lord CARR of HADLEY

The noble and learned Lord has not really addressed himself fully to the commercial reality of the situation. If Thomas Cook did not at present have the word "Bankers" in its title, perhaps it would never have needed to introduce it. The noble and learned Lord was quoting American Express as an example where it was not necessary for such an organisation to have the words "bank" or "bankers" included in its title, but it is a quite different situation where a firm has such a word in its title and has to withdraw it. I cannot help feeling that if after all these years Thomas Cook in the United States or in France suddenly has to change its name and withdraw the familiar word "Bankers" from it, many members of the public in both countries—though no doubt not the sophisticates in the field—will believe that there has been an actual change of status in the Thomas Cook business and in its backing, and perhaps they will be that much less willing to do business with the firm than would otherwise be the case.

This is a matter to which the Government should address themselves a little more. I cannot speak for my noble friend Lord Selsdon, but perhaps the Government can say that they realise that there is a problem here and that they will give a further opinion on it at a later stage. I do not know how my noble friend would react to that. I cannot help feeling that the commercial reality and the commercial difficulty which Thomas Cook faces has not yet been fully appreciated by the Government.

6.10 p.m.

Lord BIRDWOOD

My noble friend has just made a point which I would have loved to make and was exactly what I was going to say, but I want to make two further points. I feel that this Committee should examine with considerable care the element of precedence in the clause to which this Amendment pertains. We are in danger of petrifying a number of commercial entities, and surely this can be no good thing. The other point I want to make is that anything which, in commercial terms, reduces the speed of response that the clearers can make is to be deplored. Already the clearers are in danger of becoming monolithic, but they have taken massive steps to ensure that they have high speeds of response. Anything which slows this down is to be deplored, and unless this Amendment or at least the Amendment that derives from it, No.25, is accepted, I consider that that slowing down will take place.

Lord GLENKINGLAS

May I add one very short word to what my noble friend on the Front Bench has said about the commercial realities of the situation? The travel industry as a whole, of which Thomas Cook is an important part, is perhaps one of the most competitive types of industry which exist, and I have absolutely no doubt at all that if you have to withdraw the word "bankers" from your description in New York or Paris, then a great deal of use will be made of this by the opposition, however fair or unfair it may be, and therefore a great deal of damage may be done.

Lord CAMOYS

I must declare an interest in that I work for another clearing bank group than that referred to by my noble friend Lord Selsdon, but I should again like to emphasise this point about commercial reality, having worked for American Express—and I want to be very fair to them. I have no doubt at all that the commercial reality of this situation is extremely serious, and I beg the Government to listen very carefully to what has been said.

Lord REDESDALE

I should like to make one other point which I in fact raised on Second Reading but on a slightly different matter. I said that I thought the Government were being a bit blinkered in their attitude (and it stems from something which I am going to raise later) in the use of the word, "bank". It is all very well to say that only deposit taking institutions are banks, but I submit that this is not the way it is in the big financial world—and that means outside the United Kingdom. Presumably this Bill is going to provide some protection to some depositors and is going to give a degree of recognition. All right, that is acceptable to the banks; but if the cost of doing this is to be that it is going to damage our balance of payments situation by harming a number of our organisations operating overseas, it seem to me a great pity. The Minister poured scorn on the phrase "investment bankers". This is a term which is used widely in America. It is used in the whole of the North American continent; and it is used, of course, in a lot of other countries. It is said that these institutions can call themselves what they like overseas but they must not call themselves by that name here. This again means that that sort of company will be damaged. All I would do is add my plea that before we damage a number of institutions for little good we ought to give it much more careful consideration.

Lord McCLUSKEY

Certainly the Government will consider the terms of the debate and the arguments which have been put forward, but the Government are firmly of the view that banking names should be confined to recognised banks, and if one starts to make exceptions and perpetuate anomalies, one begins to create problems. I wonder whether, while the Government are considering the arguments, noble Lords opposite might consider whether or not, given the fact that the Bill will not have any legal effect outside the United Kingdom, there is some alteration or restructuring which may be done in order to preserve the name, if it is permitted, in the United States; that is, to retain the word "bankers" despite the fact that it becomes no longer usable in the United Kingdom.

There is, of course, the point that if one preserves this particular anomaly and allows Thomas Cook to call themselves bankers when they are not a recognised bank, then others will come along wanting to set up the same kind of institution or a similar kind of institution, or having the same relationship with a parent or grandparent, and will say that there is discrimination in the Bill because they cannot use the term which has been allowed to the subsidiary which existed on 9th November 1978.

Lord SELSDON

I suffer from two disadvantages: I am neither noble and learned nor noble and gallant, but I have taken ignoble (if that is the word) learned advice, which is contrary to that which the noble and learned Lord, Lord McCluskey, has given to me. I am advised that almost certainly Thomas Cook would lose in the United States, and that means that it would lose membership of banking institutions, that it would lose associate membership of the New York clearing house, that it would be unable to invest in US Government securities directly with them rather than through brokers, and that there would be a loss of access to the inter-bank lending market. It is a question of who is recognising whom. I think everyone would agree that, under the terms of the Bill, in the United Kingdom Thomas Cook would not be a recognised bank; but, surely, legislation introduced into this country which affects (unwittingly, perhaps) commercial interests on this scale in the United States and in France is worth amending. I would obviously propose to withdraw Amendment No.16, but I should like to return to this matter when we come to Amendment No.25 because I believe that under that Amendment the only company affected would be Thomas Cook, because it is a dated Amendment, giving the date when the Bill was issued.

Lord McCLUSKEY

Before the noble Lord sits down, I wonder whether he could make something clear for me. Is he saying that the consequences that he mentioned at the beginning of his intervention would follow simply because the name was changed, or would follow from something other than a change in the name?

Lord SELSDON

No; it would, I am advised, follow from the fact that Thomas Cook would no longer be a bank in the United Kingdom, not a recognised bank. From this, I am told, the name would be put in jeopardy in the United States; and because it was not a bank, the parent company, it would therefore lose these rights in the United States and in France. It is a matter of opinion, but the reason for putting down Amendment No.25 is because I believe that it would affect only Thomas Cook; it would in no way jeopardise or affect other aspects of the Bill, or other people, so I believe.

Lord McCLUSKEY

The reason I asked that was that Clause 36 is concerned only with the use of names, rather than with the actual character of the institution. But perhaps the noble Lord might want to think about that further and deal with it when we come to Amendment No.25.

Lord SELSDON

I beg leave to withdraw Amendment No.16.

Amendment, by leave, withdrawn.

Lord REDESDALE moved Amendment No.17: Page 38, line 3, leave out ("and")

The noble Lord said: We are well into the question of definition, and 1 now come to Amendment No.17. I would be grateful if we could take No.18 with it, because No.17 paves the way for No.18. The object of the Amendment is to restore to those branches of banks which have already called themselves banks here, and which are recognised as banks overseas, the right to retain "bank" in their title. If I may permit myself a pun after the one which was used before about the South Bank, there are a number of banks here. There is the Banque du Rhone, and I wonder which side of the South Bank that one is. However, this Amendment seeks to do this only when the bank itself is of such a size and status that it can satisfy the Bank of England that it meets in full the minimum standards for recognition in its parent country. In other words, it treats the bank and its branch quite sensibly as one entity, and does not require the branch on its own to meet the full criteria.

There are a number of banks here which are affected. In another place an Amendment was moved to exclude banks, and it was limited because of the directive to EEC banks to call themselves banks if they were called a bank in their own country. This Amendment restores a degree of fairness to the situation. If I may do so, I should like to speak at the same time to Amendments Nos.27, 28 and 29 because I believe that one can take these two points together. It affects this group of banks which have been challenged. From an article written in the Banker recently, I believe that there are 30 banks who would probably lose the right to call themselves a bank should this legislation come in. The purpose of these Amendments Nos. 27, 28 and 29 was to prolong the period in which they could perhaps seek to increase their operations in this country to the point where they would be recognised. I feel that the increase of time from 12 to 18 is only fair.

I do not want to go much further at this stage, but there is the point that, if these banks were to lose the status of the name "bank", there would be a conflict with the reciprocity of the requirements of other countries. The Swiss, for example, require a degree of reciprocity between sovereign States under which these banks establish branches in the other country. I look foreward to hearing what the noble and learned Lord has to say on this. I beg to move.

Lord McCLUSKEY

Although I may he wrong, I think I detect a certain confusion. We are talking here about names, and there is reference to status as well. I think it may be that some confusion is creeping into the argument. But let me try to reply to Amendment No.17—and to No.18 which, I agree, should be taken with it for the moment. The Government have always accepted that branches of overseas institutions should he able to use in the United Kingdom a banking name by which their head office is registered in its country of origin, provided that the name is suitably qualified. This was reflected in a provision contained in the Bill as introduced and which was removed by the noble Lord's honourable friends in another place, by the Opposition, on the ground that it discriminated against the domestic institutions in the licensed sector. That left the Government with the problem of obtempering their obligations under the EEC Directive. Accordingly, at Report stage, the Government sought to reinstate—and succeeded in doing so— the substance of the same provision, but in respect only of EEC licensed institutions to which the Directive applied.

What the proposed Amendment seeks to do is to restore the concession in respect of certain third country institutions; but it is much wider than the provision which was deleted earlier. It would allow those overseas countries the free use of banking descriptions and it would not require them in any way to qualify their names. It would also oblige the Bank of England to make a difficult determination about the range and quality of an institution's services provided abroad. It would be somewhat inconsistent also with that provision on EEC licensed institutions in Clause 36(8) to which I referred. The result is that the degree of freedom allowed under the Opposition's Amendment would do that which was criticised in another place: it would discriminate against our own British institutions, and the Government cannot accept it. However, as I said earlier, the Government remain of the opinion that an overseas licensed institution ought to be able to use in the United Kingdom its banking name provided that its status is made plain. That would apply not just to the banks referred to in the article in the Banker but to the Commonwealth banks to which the noble Lord, Lord O'Brien, made reference earlier.

If noble Lords opposite and the Opposition generally are now agreed that the Government policy is the right one, that the overseas licensed institutions ought to be able to use in the United Kingdom their banking names providing the status of the institution is made plain, then what the Government can do is to bring forward at Report an Amendment which would extend to third country licensed institutions the concession now allowed to EEC licensed institutions. But the trouble is that the Government are faced with opponents who are going round in circles—and we are becoming dizzy with it. If the Opposition would now tell us that they have settled on a particular solution and that that would satisfy them, then I should be happy to recommend that it be brought forward at Report.

Lord REDESDALE

I do not think I have gone quite full circle. I may have got off a few stops before arriving at the destination. I believe that this Amendment provides the Bank of England with a greater degree of discretion than was allowed for earlier. Therefore, I should be happier to stay with this Amendment than to go back to the Amendment which the noble and learned Lord said that he would propose to restore the Bill to its original state. It says in Amendment No. 17: … and provided that it can satisfy the Bank that it meets, in full, in its country of incorporation, the minimum criteria for recognised banks in Part I of Schedule 2 to this Act". Therefore, that is the area which prevents me from having gone full circle on this point.

Lord McCLUSKEY

I did draw attention to the problem that would face the Bank if it had to make this kind of inquiry or if this kind of inquiry had to be made and the Bank had to be satisfied. As the noble Lord himself will realise from looking at the banks listed in the Banker as likely to be affected by the present provision, there is a wide spread. There are banks in Pakistan, Oman, Teheran, Korea, and Cyprus; there are the Jamal Trust Bank, the Korea First Bank, the New Nigeria Bank, the Punjab National Bank. the Somali Bank and so on. There are a good many of them. It would create substantial problems.

Furthermore, the effect of this Amendment would be to create a third tier of deposit taking institutions. One would have licensed banks and licensed deposit-taking institutions and this third tier of deposit taking institutions which, although belonging to the licensed sector, would appear from their names to be recognised banks; so that they would then have a foot in each camp. The absence of any indication as to their status as licensed deposit takers and the ability to make free use of banking descriptions would discriminate against the domestic licensed institutions. That would run counter to the policy of the Bill and therefore I must repeat that the Government resist this Amendment and ask the Opposition to ponder about the wisdom of accepting what I have proposed as being the best that the Government are willing to allow—although Parliament decides.

Lord REDESDALE

I am grateful to the noble and learned Lord for going over the ground on that. I readily agree with the noble and learned Lord that it is a difficult situation. I do not particularly wish to go along with him on his proposed Amendment and he does not wish to go along with me on mine as it stands. Therefore, I propose at this stage to beg leave to withdraw the Amendment.

Amendment, by leave withdrawn.

[Amendments Nos. 18, 19 and 20 not moved.]

6.30 p.m.

The Earl of GOWRIE moved Amendment No. 21: Page 38, line 19, leave out ("necessary") and insert ("expedient").

The noble Earl said: The Bill, as we have been discussing, introduces the concept of "recognised banks" and provides that deposit takers other than "recognised banks" may not in general describe themselves as banks, even though they undertake a range of banking services. This is why we have had considerable trouble with nomenclature in this Committee stage because nomenclature of course is closely associated with function. The Bill does not seek to prevent non-recognised banks from carrying on the banking services that they presently offer. It therefore recognises that there are anomalies and the noble and learned Lord, Lord McCluskey, has done this. The Bill recognises circumstances may arise in which non-recognised banks may wish to describe themselves as offering banking services. We on this side, as has been made clear already, think the much simpler way of handling all this would be to continue to use the words "bank" and "banking". Nevertheless, we see that the Government recognise the difficulty in their own Bill and under Clause 36(2) we have a limited exception for the purpose.

As examples of such circumstances which could lead to an exception, we may instance a non-recognised bank as suing on non-payment of a cheque. In the pleadings it would have to say that it was a bank and was in a position to offer banking services. Similarly, we would have a comparable case if a non-recognised bank sought to claim a banker's lien.

We feel that the Government need not have found themselves in this position in the first place if they had been clearer on their nomenclature; but we recognise that this exception is welcome. What I submit in this Amendment is that it does not really go far enough. We feel that as drafted Clause 36(2) is unsatisfactory from the point of view of an unrecognised bank which might wish to exercise under the enactments of the Bill its privileges as an institution which carries out recognised banking services; in other words, let us call it for the sake of convenience a "common law" bank. By virtue of paragraph (b) of subsection (2) one of the criteria for exemption from subsection (1) is that the use of the expression "bank" or "banker" is necessary—and "necessary" is the word in the Bill—for the purposes of complying with or taking advantage of the enactment in question.

It seems to us that these words are misconceived: a person is surely bound to comply with, or entitled to take advantage of, any such enactment by virtue of being a "bank" or a "banker", not by virtue of using that expression, as my noble friend Lord Selsdon said and as in a recent famous judgment the noble and learned Lord, Lord Denning, appeared to confirm, if I understood the judgment correctly. One is a bank if people use one for banking services and think of one as a bank. The use of the expression may be desirable or convenient for the purpose of complying with or taking advantage of any such enactment; but it can never surely be necessary for that purpose.

There is another objection to paragraph (b) of subsection (2). It seems to us to imply that a person cannot come within the exemption afforded by that subsection unless that person is in law bound to comply with or entitled to take advantage of the particular enactment. If this is the effect of paragraph (b), it will place some of the institutions which become "licensed institutions" in a most invidious position because of the real difficulty as exemplified, I am advised, in a recent case, United Dominions Trust v Kirkwood, of being quite certain (in the absence of a decision by the court) that a given institution is or is not a "common law" bank. This difficulty will not disappear when the Bill becomes law. Accordingly, if a licensed institution wished to exercise or to claim to be entitled to exercise, in all good faith, any of the statutory privileges or common services of a "common law" bank it would not be able to do so without risking an infringement of Clause 35(1) and therefore incurring criminal liability.

It is therefore clear that some institutions may take advantage of the exception in subsection (2) but it is not clear which those institutions are. If an institution in good faith claims to take advantage of that exception which the Government have written into their Bill but nevertheless as things turn out claims wrongly, it now for the first time is subject to criminal sanctions. I accept that it is a rather technical argument, but all this flows from the use of the word "necessary" and, accordingly, we should like to suggest that we substitute for the word "necessary" the word "expedient". I beg to move.

Lord McCLUSKEY

I shall certainly study what the noble Earl has said; in fact, I shall need to do that. If the noble Earl rises to reply, perhaps he will confirm that his reference to Clause 35(1) should have been to Clause 36(1). I see that he confirms that. I should reply briefly to say this. The wording of the Amendment in its context here would in effect destroy the object of the policy on banking descriptions, since there are a wide range of circumstances including the promotion of its business, where it might be expedient for a licensed institution to claim that it was entitled to take advantage of or comply with a statute. That is the kind of abuse which we are attempting to prevent. The present provision confines the use of such expressions to circumstances where it is necessary and thereby prevents an institution from gratuitously using the phrase.

Also a considerable problem arises on the question, who judges expediency?— if one allows that particular word to come into the Bill. The purpose of subsection (2) of Clause 36 is to enable the bank or banker to use the expression "bank" or "banker" in circumstances which are not related to the purposes of the Act. That is made clearer than I have made it if one looks at the wording on page 38 of subsection (2). A bank will be able to take advantage of any relevant provision of law or custom, and the particular statutes that are of importance in this context are the Cheques Act which gives protection to bankers in relation to defective cheques, and Section 54(2) of the Income and Corporation Taxes Act 1970. The concession which is enshrined in subsection (2) of Clause 36 only relates to circumstances where it is necessary for the institutions to use the expression. If one introduces the word "expediency" one opens this up very much wider and makes a much greater inroad than the noble Earl recognised in presenting his argument in favour of the Amendment.

The Earl of GOWRIE

I said that my remarks were somewhat detailed and technical; and, indeed, so in a way they were because we were rather worried about a technical difficulty that might arise. My brief was based on an opinion by learned counsel. I hope that the noble and learned Lord is not merely using a form of words when he says that he will look at my remarks because they are made with appropriate legal advice. We are bothered by something here; but since he said he would look at this I am happy to beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.39 p.m.

The Earl of GOWRIE moved Amendment No. 22: Page 38, line 21, at end insert— ("( ) Nothing in this Part of this Act or in the proceeding Parts of this Act affects the determination of any question whether a licensed institution or other person is a bank or banker for the purposes of any Community obligation or under any Community instrument.").

The noble Earl said: With the leave of the Committee, I should like to discuss Amendments Nos. 22 and 23 together. Clause 36(2) provides a limited exception, as we have said, to the general restriction in Clause 36(1) on the use of the words "bank" and "banker". A bank, not being a "recognised bank", a common law bank, may take advantage of that exception in order to comply with or take advantage of certain provisions of law or custom. Clause 36(3) identifies those provisions of law or custom. We welcome this but we have a doubt. Does the exception that we have been discussing extend to the European Communities legislation? We wonder whether an EEC Directive or regulation would be beyond question comprised in the list set out in Clause 36(3).

Nor is it simply an academic question: for example, the Fourth Company Law Directive of the EEC regulates the form and content of company accounts but excludes the accounts of banks. There is a separate draft directive now under consideration relating to the accounts of banks. Might a United Kingdom bank, not being a recognised bank, say it is a bank in order to comply with or take advantage of the European legislation? We think it should be able to do so but the point is not certain, and if the institution cannot do so then it could be at a competitive disadvantage. It could be excluded from the provisions of the banking directive and might be compelled to comply with the provisions of an inappropriate directive not directly applicable to banks. I beg to move.

Lord McCLUSKEY

In the Government's view, the two Amendments Nos. 22 and 23 are unnecessary. Clause 36(2) makes plain that for purposes other than the purposes of the Bill itself the word "bank" is not to be taken as meaning "recognised bank". Community obligations are included within the description of, and I quote— purposes other than those of this Act". They are also covered by the existing definition of relevant provision of law or custom", which is contained in subsection (3) of Clause 36, so in the Government's view these Amendments are quite unnecessary.

The Earl of GOWRIE

The Government may take that view. I think certainly it is logical, but I personally see rocks ahead. I think that probably this is the kind of thing one would have to return to after the Bill had been enacted, in the light of European directives as they arise. would say that there might be some probable trouble ahead here, but in the meantime I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 23 and 24 not moved.]

Lord SELSDON moved Amendment No. 25: Page 39, line 41, at end insert— ("( ) Subsection (1) above does not prohibit the use by any wholly owned subsidiary (within the meaning of section 150(4) of the Companies Act 1948) or any subsidiary of that subsidiary of a recognised bank of a name under which

the subsidiary was carrying on business on the 9th November 1978.").

The noble Lord said: This is the Amendment to which I referred in connection with Amendment No. 16. It is one I should like to press because the noble and learned Lord has not managed to give any reassurance that the banking business of Thomas Cook in the United States and in France will not be adversely affected. I think the way that this Amendment is drafted is far, far tighter than Amendment No. 16; and since I believe. or am advised, that if the Bill goes through in its present form Thomas Cook (Bankers) Limited will have to change its name in the United Kingdom with severe effects on overseas business, I should like to press this Amendment.

Lord McCLUSKEY

I can follow the example of the noble Lord. We have of course discussed this very fully on the previous occasion when we were looking at the other Amendment to which he spoke, and I think there is no great value in repeating the arguments at this stage. For the reasons I gave in relation to Amendment No. 16, I would invite your Lordships not to accept this Amendment.

Lord SELSDON

I should like to press this Amendment.

6.44 p.m.

On Question, Whether the Amendment (No. 25) shall be agreed to?

Their Lordships divided: Contents, 78; Not-Contents, 42.

CONTENTS
Abinger, L.	Drumalbyn, L.	Masham of Ilton, B.
Alexander of Tunis, E.	Elles, B.	Monson, L.
Allan of Kilmahew, L.	Elliot of Harwood, B.	Morris, L.
Amherst, E.	Elton, L.	Mottistone, L.
Amory, V.	Emmet of Amberley, B.	Mowbray and Stourton, L.
Ampthill, L.	Ferrier, L.	Norrie, L.
Avon, E.	Glenkinglas, L.	Northchurch, B.
Balerno, L.	Gowrie, E.	Nugent of Guildford, L.
Birdwood, L.	Hampton, L.	O'Brien of Lothbury, L.
Brougham and Vaux, L.	Harvey of Tasburgh, L.	O'Neill of the Maine, L.
Buxton of Alsa, L.	Henley, L.	Orr-Ewing, L.
Caccia, L.	Hornsby-Smith, B.	Polwarth, L.
Carr of Hadley, L.	Killearn, L.	Rankeillour, L.
Carrington, L.	Kinnoull, E.	Rawlinson of Ewell, L.
Cathcart, E.	Kinross, L.	Redesdale, L.
Chorley, L.	Lauderdale, E.	Rochdale, V.
Colville of Culross, V.	Linlithgow, M.	Rochester, L.
Cork and Orrery, E.	Long, V.	Romney, E.
De Freyne, L.	Lyell, L. [Teller.]	St. Davids, V.
Denham, L.	Macleod of Borve, B.	Seear, B.
Denman, L.	McNair, L.	Seebohm, L.
Selsdon, L. [Teller.]	Strathcona and Mount Royal,	Trefgarne, L.
Sherfield, L.	L.	Tryon, L.
Skelmersdale, L.	Sudeley, L.	Tweedsmuir L.
Somers, L.	Swansea, L.	Vernon, L.
Strathclyde, L.	Tanlaw, L.	Ward of North Tyneside, B.
		Westbury, L.
NOT-CONTENTS
Aylestone, L.	Hatch of Lusby, L.	Peart, L. (L. Privy Seal.)
Bacon, B.	Henderson, L.	Pitt of Hampstead, L.
Blease, L.	Houghton of Sowerby, L.	Raglan, L.
Boston of Faversham, L.	Jacques, L.	Rhodes, L.
Brockway, L.	Janner, L.	Segal, L.
Collison, L.	Leonard, L. [Teller.]	Stone, L.
David, B.	Listowel, E.	Strabolgi, L. [Teller.]
Davies of Leek, L.	Llewelyn-Davies of Hastoe, B.	Taylor of Gryfe, L.
Elwyn-Jones, L. (L. Chancellor.)	McCluskey, L.	Taylor of Mansfield, L.
Gaitskell, B.	MacLeod of Fuinary, L.	Wallace of Coslany, L.
Gordon-Walker, L.	Milner of Leeds, L.	White, B.
Goronwy-Roberts, L.	Morris of Borth-y-Gest, L.	Wilson of Radcliffe, L.
Gregson, L.	Northfield, L.	Wynne-Jones, L.
Hale, L.	Oram, L.	Young of Dartington, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

[Amendment No. 26 not moved.]

Clause 26, as amended, agreed to.

[Amendments Nos. 27 to 29 not moved.]

Clause 37 agreed to.

6.54 p.m.

Lord SEEBOHM moved Amendment No. 30: Before Clause 38, insert the following new clause: Regulation of Interest rate quotation —In granting recognition under section 3 of this Act the Bank shall certify whether a bank provides, as a substantial part of its banking services, current account facilities and finance in the form of overdraft, in sterling, for members of the public and bodies corporate. (2) Where a bank is certified as providing the services specified in subsection (1), sections 52 and 53 and Part V (other than s. 56) of the Consumer Credit Act 1974 (entry into credit or hire agreements) shall not apply to agreements enabling a person to borrow from that bank on an account on which interest is calculated and charged not more frequently than quarterly on the outstanding daily balance on that account.

The noble Lord said: I again declare my interest in having been nearly 50 years in Barclays Bank. In fact, I still am employed by them—just. The subject of this Amendment is very similar to that of one we discussed at great length about five years ago: in fact, on 2nd May 1974. The point is that, under the Consumer Credit Act, current account loans and overdrafts, if agreed in writing, are treated on the same footing as hire purchase agreements. The borrower has to be given a quotation, which includes exact details of the amount and rate of interest payable, and, under Section 60, regulations are to be issued which will prescribe the form and content of agreements. What these will be, we do not yet know.

But the quotation of interest rate costs is not practicable for current account loans and overdrafts. They are calculated on a day-to-day basis, they are charged in arrears and they are charged on the net balance. In the six months which is the normal period after which interest is charged, you can have many changes in base rates, in money market rates, so that any quotation of an accurate amount or rate is quite impossible to give in writing. So it seems to me that the implementation of the Consumer Credit Act, if it comes, will be quite impossible to comply with.

As this matter was so fully discussed previously, I do not think I need go into any great length or detail today. But perhaps it would be pertinent to state that there must be something of the order of 20 million current account holders in this country, and they are the people who will be inconvenienced. I believe that my best way of dealing with this question is to recall to your Lordships what the noble Lord, Lord Jacques, said in winding up the discussion on the Amendment which I moved on 2nd May 1974. It was fairly brief, and he said: All institutions which had current accounts would have to be given the same facility of offering separate current account loans. Therefore the door would be opened much wider; and while we have good reasons for giving the concession in the case of overdrafts, because they may be created inadvertently, we can see no reason for granting a concession regarding a current account loan. This is something which is negotiated".

That was a clear misunderstanding, because although overdrafts are occasionally taken inadvertently, there is basically no difference between what the noble Lord referred to as "negotiations", and which we refer to more as "making arrangements", for a current account loan and for an overdraft. One is simply stated in the form of an amount, and the other gives a limit within which the customer can operate. But the terms are normally the same.

The noble Lord went on to say: We believe that if we were to open this door it would then be opened very wide indeed, because one might get the position where some institutions who did not grant overdrafts but who are at present, and would be in the future, granting personal loans, could say, 'Deposit £1 with us and open a current account '—and then they would give a current account loan, and because of the exemption of current account loans they would be able to get outside Part V".—[Official Report, 2/5/74; col. 244.]

The whole point of the Banking Bill is that registered banks are now the only people who can operate current account loans and overdrafts. Therefore, that door which so worried the noble Lord in the last debate five years ago is now firmly closed, and I can see no reason why this Amendment should not be passed.

Mr. Telford, who, as your Lordships may remember, was for 10 weeks the manager of the Dover branch of Knight's Bank, could explain much more dramatically than I the horrible situation which would arise for a poor branch manager should this clause ever be implemented. I know that time is getting on and I shall be very brief, but I believe that there is more in this, and in other things in this Bill, than meets the eye. I believe very strongly that there is a danger signal here and that if we go on chipping away at the flexibility and the old customs of the City, which are based on trust and flexibility more than anything else, we shall sooner or later find that the City loses its paramount position as the financial centre of the world. It will be a sad day for me anyway, if I am still alive, when the saying that one minute in London equals one hour in any other financial centre in the world ceases to be true. I beg to move.

Lord O'BRIEN of LOTHBURY

Is it in order for me to make a few remarks before the Minister replies to my noble friend Lord Seebohm? Those of your Lordships, who were here for the debate on the Second Reading of this Bill, will be aware that I then spoke strongly in support of the Amendment which he now proposes, and which he then put forward in general terms. I should like to reaffirm my support for what the noble Lord wishes to be done. It would be possible for the Government to say that this matter is extraneous to the purpose of the Bill and that it should not be brought into our discussions upon it. I hope, however, that the Government will not take that line.

As I said during my speech in the Second Reading debate, I regard the Consumer Credit Act as an Act which contains many imperfections. One of those imperfections—and it is very serious—is the way in which the Act brings normal bank overdrafts within its purview and requires banks to go in for a lot of bureaucratic documentation which they do not now have to deal with. It would be very serious if this were to happen.

Nowadays we have to think about what the requirements of the EEC will be. When they look at our consumer credit legislation, they are certainly inclined to follow its tenor in the regulations which they eventually produce. I hope that they will have greater wisdom when it comes to doing this job. I am told by my advisers who are participating in the discussions that there is no intention to require the calculation of an annual percentage rate of charge in respect of overdrafts. If we in this country allow that to persist and to be implemented, we shall be at a serious competitive disadvantage compared with our sister banks in the Community.

Once a major piece of legislation has been passed, it is not easy to find time to amend it. We have a God-given chance, by means of this Bill, to do just that, since the Bill provides us with the definition of "a bank", the lack of which made it impossible to do justice to banks in the Consumer Credit Act. I think that we should take this opportunity so that when the Consumer Credit Act is brought into force this serious imperfection will not be perpetuated. Therefore I hope very much that the Government will pay heed to what my noble friend Lord Seebohm wishes should be done.

7.3 p.m.

Lord JACQUES

I can say from first hand experience that the point which has been raised by the Amendment was given very thorough consideration when the Consumer Credit Bill was before the House. To exempt the overdrafts and loans on current account of recognised banks alone would be contrary to the philosophy of that Act, for it avoids exemptions on an institutional basis. It would arouse opposition from licensed deposit-taking institutions which may provide overdraft facilities. Indeed, I have already received a few letters from finance houses; they objected to this Amendment before its consideration by the Committee. That is an indication of the controversy which lies behind the Amendment. For the first time it discriminates on an institutional basis. If you are a certain kind of bank, that is all right, but if you are not a certain kind of bank it is not all right. That is contrary to the philosophy of the Act.

Under the Amendment, not all recognised banks would be able to take advantage of this exemption. The Bank of England is required to specify those which provide current account facilities and overdrafts as a substantial part of their services. Inevitably there would be hard cases. On the important principle of avoiding discrimination between institutions and, so far as possible, treating all consumer credit transactions alike, overdrafts and loans on current account have been left within the scope of the Act. However, in view of the representations made by the clearing banks that the documentation provisions would put an end to the present simplicity and flexibility of the overdraft system, a provision was made in Section 74 for the Director-General of Fair Trading to make determinations exempting overdrafts where he considers that this is not against the interests of the debtors. So the Director-General of Fair Trading was given very full powers under the Act to try to meet the wishes of the banks and keep the overdraft system flexible.

I understand that the banks have expressed concern that Section 74 is inadequate to meet their problems. There is clearly some uncertainty in their minds as to how this important section will work in practice. I can assure the banks that the Office of Fair Trading is ready to hold consultations with them on this matter. The Government are hopeful that these preliminary consultations will remove much of the concern of the clearing banks, but my right honourable friend the Secretary of State for Prices and Consumer Protection will be ready to arrange further meetings with his Department if these should, in the event, prove to be necessary.

It goes without saying that the Government do not wish to see an end to the flexible system of overdrafts as we know it in this country. Our difference with the banks is not one of principle; on this there is nothing which divides us. The difference arises on the question of interpretation, and in particular on how Section 74 can best be operated in the interests of consumers and bankers alike. The Government believe that the section can be operated so as to achieve this end and trust that in further consultations with the banks a mutually satisfactory arrangement can be achieved.

In view of the Government's clear determination to make a serious attempt to resolve the position fairly and satisfactorily, I hope that the mover of this Amendment will withdraw it. If he does not, I hope that the House will say that there are very good grounds in this case for supporting the Government.

Lord SEEBOHM

On the question of the institutions, may I say that I cannot accept the noble Lords argument. The rule has already been completely breached by Section 16 of the Consumer Credit Act, which specifically exempts consumer credit agreements where the creditor is a local authority or a building society. Those are two institutions which I should have thought were already excluded. This Amendment simply puts it in the court of the registered bank; it is not creating a new institution. I do not think it is good enough to wait for what another officer may or may not agree to. There is no reason why that should happen. It seems to me that this proposal is entirely logical. It is a very serious matter. Indeed, to me it is the most serious matter in the Bill.

Lord REDESDALE

I was grateful when the noble Lord, Lord Jacques, smiled as we started our discussion, because I remember that he made those points all that time ago. And that is just the point—all that time ago, in 1974. The Act has still not been implemented because many of its sections are incapable of being implemented. If the noble Lord, instead of saying that talks will take place, could give a firm undertaking that the situation will change, then one could go along with him rather more. For the noble Lord to turn round and say, after all these years, that we are going to have talks is a change of tune, but it is not quite strong enough a change of tune. May I remind him again of the evidence which was given to the Wilson Committee by the Trustee Savings banks, for this clearly spells out the inadequacies of the current legislation.

Lord JACQUES

The noble Lord has got it wrong. The delay is entirely in keeping with what the Government have said. We have not been in a hurry to get the banks to follow the Consumer Credit Act in the case of overdrafts. We have been lenient. We have been holding back, hoping that we might obtain complete agreement. We have not acted inconsistently in any way. We have acted wholly consistently because the banks

CONTENTS
Abinger, L.	Elliot of Harwood, B.	O'Neill of the Maine, L.
Alexander of Tunis, E.	Elton, L.	Polwarth, L.
Allan of Kilmahew, L.	Exeter, M.	Rankeillour, L.
Amherst, E.	Ferrier, L.	Rawlinson of Ewell, L.
Amherst of Hackney, L.	Gowrie, E.	Redesdale, L.
Amory, V.	Hampton, L.	Rochdale, V.
Ampthill, L.	Hanworth, V.	Romney, E.
Auckland, L.	Harvey of Tasburgh, L.	Seear, B.
Avon, E.	Henley, L.	Seebohm, L. [Teller.]
Balerno, L.	Hornsby-Smith, B.	Selsdon, L. [Teller.]
Brougham and Vaux, L.	Killearn, L.	Skelmersdale, L.
Buxton of Alsa, L.	Kinross, L.	Somers, L.
Caccia, L.	Kissin, L.	Strathclyde, L.
Carr of Hadley, L.	Linlithgow, M.	Strathcona and Mount Royal,
Carrington, L.	Long, V.	L.
Cathcart, E.	Lyell, L.	Sudeley, L.
Chorley, L.	McNair, L.	Swansea, L.
Colville of Culross, V.	Morris, L.	Tanlaw, L.
Colwyn, L.	Morris of Borth-y-Gest, L.	Tryon, L.
Cork and Orrery, E.	Mottistone, L.	Tweedsmuir, L.
Denham, L.	Mowbray and Stourton, L.	Vernon, L.
Denman, L.	Norrie, L.	Ward of North Tyneside, B.
Diplock, L.	Northchurch, B.	Young of Dartington, L.
Drumalbyn, L.	Nugent of Guildford, L.
Elles, B.	O'Brien of Lothbury, L.

could carry on in their own sweet way as they did before, so long as there was no action taken. I cannot understand why the noble Lord thinks that, because there is a delay, it is against my argument; I would suggest that it is entirely for it. We want to settle this in a fair way to the banks, in a fair way to the consumer and also in a fair way to other institutions. If this Amendment is carried, that will not be done.

Lord SELSDON

I do not think anyone would accuse the noble Lord, Lord Jacques, of lacking spirit, but it is almost a question here of sacred cows. There seems to be a conflict of interest between the Consumer Credit Act and the Amendment. I think it is in the interests of both the consumer and the bank that this Amendment should go through. Objections can reasonably be countered, particularly since this Bill has now defined, against my own better judgment, a recognised bank and others. I should have thought there could be no reason for delay and I would urge the noble Lord to press this Amendment.

7.11 p.m.

On Question, Whether the said Amendment (No. 30) shall be agreed to?

Their Lordships divided: Contents, 72; Non-Contents, 41.

NOT-CONTENTS
Aylestone, L.	Hale, L.	Peart, L. (L. Privy Seal.)
Bacon, B.	Hatch of Lusby, L.	Pitt of Hampstead, L.
Blease, L.	Henderson, L.	Raglan, L.
Boston of Faversham, L.	Jacques, L.	Rhodes, L.
Brockway, L.	Janner, L.	Segal, L.
Collison, L.	Leonard, L.	Stedman, B.
David, B. [Teller.]	Listowel, E.	Stewart of Alvechurch, B.
Davies of Leek, L.	Llewelyn-Davies of Hastoe, B.	Stone, L.
Elwyn-Jones, L. (L. Chancellor.)	Lloyd of Hampstead, L.	Strabolgi, L. [Teller.]
Gaitskell, B.	McCluskey, L.	Taylor of Mansfield, L.
Glenamara, L.	MacLeod of Fuinary, L.	Wallace of Coslany, L.
Gordon-Walker, L.	Milner of Leeds, L.	Wilson of Radcliffe, L.
Goronwy-Roberts, L.	Northfield, L.	Wynne-Jones, L.
Gregson, L.	Oram, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

Clauses 38 to 42 agreed to.

Clause 43 [Evidence]:

7.19 p.m.

Lord McCLUSKEY moved Amendment No. 31: Page 47, line 1, after ("evidence") insert ("and, in Scotland, shall be sufficient evidence").

The noble and learned Lord said: I beg to move this technical Amendment which is simply to take account of the law of corroboration in Scotland. I beg to move.

Clause 43, as amended, agreed to.

Clauses 44 and 45 agreed to.

Lord RAWLINSON of EWELL moved Amendment No. 32: After Clause 45, insert the following new clause: Application of Law Reform (Contributory Negligence) Act, 1945 The Law Reform (Contributory Negligence) Act 1945 applies to all cases in which the negligence of a bank has to be considered to establish a liability upon that bank.

The noble and learned Lord said: I beg to move Amendment No. 32, but in order to do that 1 must refer to Amendment No. 47 in the name of my noble friend Lord Colville of Culross, to insert "and amend" after "repeal" in the Long Title. As it is the first time I have spoken on this Bill, I declare an interest as a non-executive director of a merchant bank. The Amendment I am moving is an Amendment which is purely technical and legal, in the sense that it is to afford bankers a defence which they had in law but which they have not now, owing to the passage of the Torts (Interference with Goods) Act 1977. Your Lordships will see that Amendment No. 33 immediately following this Amendment, in the name of my noble friend Lord Colville of Culross, deals with exactly the same subject. It is, I believe, a better Amendment than the one which I am now moving, and so I would be quite content if the noble and learned Lord is going to say he does not like No.32 but likes No.33; but as he is shaking his head it looks as though he does not like either.

This is an Amendment to remove an unjust and undesirable anomaly, which is one thing I would have thought the noble and learned Lord would like to do. Unintentionally, I believe it was, though I cannot be sure, the 1977 Torts (Interference with Goods) Act removed a defence which was available to a banker when sued in negligence, and a defence which is available to others; therefore, it ought to be, in my submission, restored. Banking law imposes, and properly ought to impose, heavy obligations on a banker. The banker must be liable for paying out a forged cheque, although a perfect forgery, and can be faced with claims for negligence in collection of a cheque. But the situation now is that a banker cannot cross-allege negligence, whereas bankers in the EEC and in the United States of America are not liable unless they have been negligent. I make no claim for the skill of the drafting here, but what I hope the Government will accept is that this anomaly should be put right.

Where a bank has paid out on a cheque purportedly drawn on one of the bank's customer's accounts, and in fact it has not been drawn by the customer but has been drawn by fraud or trick, the customer makes his claim for damages for conversion of the cheque, the face value of the cheque, and a claim for monies had and received in respect of the proceeds. But often the negligence of the true owner, or the plaintiff in those proceedings, has played a very substantial part in facilitating the fraud. Prior to 1945 and the Law Reform (Contributory Negligence) Act, the defendant, whether paying or collecting, was unable to rely upon negligence of the customer plaintiff, though he may have materially contributed to the bank paying out on a fraudulent cheque. One can imagine the circumstances of managing an account, the control over a cheque book or authority given to employees. But prior to 1945 that was alleviated by the courts holding that a customer was bound to exercise reasonable care in drawing to prevent the banker from being misled, and in forgery it was the duty of the customer to disclose to the bank his knowledge of the forgery as soon as it had occurred and as soon as he knew of it. It was held that there was a continuing duty on either side to act with reasonable care to ensure the proper working of the account.

Of course, there is a difference in regard to the paying bank, where the customer and the bank have a contractual relationship. Therefore, the courts were reluctant to introduce a wider concept of contributory negligence for the paying bank. But with the collecting bank, where it has been said there is an army of true owners, there is no contractual relationship, and therefore statutory protection was given to a certain extent by Section 82 of the Bills of Exchange Act 1882 and Section 4 of the Cheques Act 1957. The question turned on whether the bank was in good faith and without negligence. In 1945 came the Contributory Negligence Act, with the concept that where two parties are at fault, with the plaintiff failing to take ordinary care of himself and his property, then each is liable to contribute. In a claim for conversion the question was which of the two innocent parties suffering from the sword of a third should pay, and the answer was that the loss should be divided in such proportion as is just between them. That is, if the plaintiff had been negligent himself he gets reduced damages.

In their 18th Report the Law Reform Committee, of which noble Lords were members, in respect of the conversion of a cheque recommended that the question should be considered in the context of banking law. They accepted that there was a strong case for admitting contributory negligence as a defence. In 1971 in the case of Lumsden v London Trustee Saving Bank Mr. Justice Donaldson applied the 1945 Act, where this point had been expressly considered with regard to contributory negligence, and he held that the drawer of a cheque owes a duty of care towards the collecting banker. So that was the position, and that made us in harmony with the position in the EEC, in France, Germany and Holland, where negligence depends also upon the plaintiff and you can have the contribution from him.

Then, after that, came the Torts (Interference with Goods) Act 1977, which was implementing the Law Committee's recommendation with regard to liability for conversion, detinue and other interference with goods. But Section 11, which I submit is the difficulty, provided that contributory negligence is no defence in proceedings founded on conversion or intentional trespass to goods. There was no reference, therefore, to the 1945 Act, nothing about cheques. It was hardly referred to at all in all the debates either in another place or in your Lordships' House. But the effect has been to destroy the principle which had been in existence up to then which afforded the banks some limitation of their liability and permitted the use of the defence of contributory negligence. I believe that that effect was unintentional, and if that is so this is the right time to put it right. I hope the noble and learned Lord will deal with it on the merits. This Amendment is not going to lay the whole of this Bill wide open for Amendments or introduction of other matters. It is merely, putting right something which I think was overlooked and which is in fact causing considerable injustice, because the banks at the moment are getting increasingly large claims in respect of which a plaintiff has often been guilty of gross want of business care, has given extensive or sole authority to employees to issue cheques in large amounts without safeguards and without independent checks. Defalcations can go on for many months, although this could easily be prevented by ordinary business prudence. Even in those circumstances now, after the 1977 Act, the banks are not entitled to rely on the plaintiff's own negligence to reduce the bank's liability.

I would say that the principle has been that a banker's liability since 1882 has depended on whether the bank has been negligent; and that must be right. Having regard to the Contributory Negligence Act 1945 it would be anomalous if the defence of contributory negligence did not exist for a banker although it does for everyone else. The case of Lumsden shows that it did exist, and the existence of the defence of contributory negligence puts us in harmony with other EEC laws, which is part of what this Bill is about. Therefore, in my submission, we should take this opportunity to put it right, and this is what this Amendment seeks to do. If the Government are going to put forward an alternative we are, of course, willing to accept it, or indeed the alternative suggested by my noble friend Lord Colville, who will move the next Amendment. However, I hope that we shall not be met with any explanation that this will widen the scope of the Bill. It is, in fact, taking the advantage that Parliament ought to take to correct the mistake that Parliament itself has made, to put the position back to what it was and give to the bankers this defence which they ought to have. I beg to move.

Viscount COLVILLE of CULROSS

I think that it would be convenient if I were to speak to my Amendment at this stage because it deals largely with the same matter and it would be silly to have a separate debate. However, the ambit of my Amendment is slightly narrower than that of my noble and learned friend.

Let me first set the scene. I take to my bank a cheque which somebody has paid me and pay it into my account. What I am in fact asking my bank to do is to collect, as agent for me, the cheque which has been drawn by my debtor B on his own bank. If the money is debited on my debtor B's account in his own bank, but the cheque was forged or in some other way defective, he can sue my bank in conversion in the way that my noble and learned friend Lord Rawlinson of Ewell has said. I think that that is right. The question then is: if it is partly Mr. B's fault that the forgery was able to occur, should my bank be able to reduce the damages that it has to pay by proving contributory negligence against Mr. B? At present, the answer is: not in England and Wales, as a result of the 1977 Act about which my noble and learned friend has talked, and for the reasons that he gave. It is worth filling in a few of the gaps that he left in the story.

The action is in conversion and that was a tort which was invented by the courts and, as I understand it, it originally carried strict liability in common law. That would have meant that an innocent handler, such as my bank, through whose hands the property had passed, had no defence. That was thought to be unfair and Parliament came to the rescue. In fact it started a little before 1882–I think in 1876–but in 1882 the matter was consolidated in the Bills of Exchange Act to which my noble and learned friend referred, and it is now enacted in Section 4 of the Cheques Act 1957, which states: Where a banker, in good faith and without negligence—(a) receives payment for a customer of"— I shall say "a cheque"— or (b) having credited a customer's account with the amount [of the cheque] receives payment thereof for himself; and the customer has no title, or a defective title [to the cheque], the banker does not incur any liability to the true owner of the [cheque] by reason only of having received payment thereof". That is a dreadfully complicated piece of legal phraseology, but it means that, in the scene that I have set, my banker has a defence if he proves—and it is up to him to prove—that he acted in good faith and that he did not act in a negligent way. If he cannot do that he is completely liable.

Those Acts, curing the trouble, applied not only to England and Wales, but to Scotland too. Then came the Law Reform (Contributory Negligence) Act 1945 to which my noble and learned friend has referred, which states: Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person … the damages recoverable … shall be reduced to such extent as the court thinks just and equitable". "Fault" is widely defined. It would certainly cover a person suffering the damages of his own negligence. The question then arose: did it cover the contributory negligence in a case of conversion by the banker? That Act applied to Scotland too. My noble and learned friend then mentioned Lumsden's case, which answered that question: yes, the banker could rely on contributory negligence. There was a New Zealand case saying much the same thing in relation to conversion in a different context. Before the Lumsden case was decided, the Law Reform Committee, as my noble and learned friend has said, started looking at this subject and it reported in 1971. It advised that, in general, contributory negligence should not be a defence in an action for conversion and it gave excellent reasons for that in paragraphs 48 and 81 of its report. But in paragraph 101 it dealt specifically with banking and said: It is arguable that, in as much as the bankers' liability is by the relevant statutory provisions linked with negligence,"— "negligence" is specifically mentioned in Section 4 of the Cheques Act— there is a stronger case for admitting contributory negligence as a defence in this particular context, but whether and to what extent it should be so admitted are essentially problems of banking law". In the whole of its report it noted the result of the Lumsden case in footnotes, so it was well aware of that case.

Then in 1977 we passed the Act which reversed the decision in Lumsden and so now there is no partial defence by way of contributory negligence in England and Wales for the banker—it is back to all or nothing—but, of course, the 1977 Act applied only to England and Wales and not to Scotland. There has been no banking legislation meanwhile. There is in prospect, as I understand it, no other banking legislation. Therefore, the banking context for amending the law which was recommended by the Law Reform Committee has not so far occurred nor is it likely to occur.

However, this is a banking Bill. Surely it is fair and proper that the rules should be as they were decided to be by Mr. Justice Donaldson in the Lumsden case—that is, fair to both sides, because one apportions the fault according to how much it is the responsibility of the respective parties. In the Lumsden case it was so largely the bank's fault that it only got off 10 per cent. of the liability.

Apart from the unfairness and the fact that we probably made a mistake in 1977, there is a further reason. Not only are these defences available abroad, as my noble and learned friend has said, but the situation in Scotland is relevant. In Scotland there neither is nor ever has been such a thing as conversion. It does not exist in the law of delict. I tread very carefully on this ground in view of the extreme knowledge of the noble and learned Lord, Lord McCluskey, and I just hope that I have got it right.

I suggest that, certainly so far as Parliament is able to influence the matter, we ought not to bring about intentional differences between the banking law north and south of the Border. And, the situation is that that is exactly what we have done by virtue of the 1977 Act. In Scotland the bank collecting a cheque as an agent was not, and I think is not, liable at all if the bank has acted in good faith. That is the common law situation in Scotland. In those circumstances it is at least arguable that neither the Bills of Exchange Act 1882 nor the current provisions in the Cheques Act 1957 have any effect whatsoever on the law of Scotland, and are simply otiose. I say that it is at least arguable.

What, however, is further arguable is that on the common law definition that I have just spelt out the way to attack a banker is to claim lack of good faith, or mala fides. As I understand it, this is not what one would put as a matter of face value on that phrase. Lack of care and caution in Scots law is called "culpa" and that, of course is "fault". However, we can have circumstances where the person owes such a particular duty of care, because the operation in which he is engaged is particularly sensitive to fraud or something like that, that the lack of suitable care constitutes mala fides. In those circumstances, you would of course have a fault, and you would have a fault on the part of the person upon whose account the cheque was drawn if he allowed the forgery to take place; you would have a fault upon the part of the bank if it did not have due care. In those circumstances, I would envisage that the Law Reform (Contributory Negligence) Act 1945 would, in certain circumstances, be applicable in Scotland, so that it would be counterclaimed—if that is the right word, which I doubt—against the person upon whose account the forged cheque was drawn.

In those circumstances, we would have in Scotland the law as it was enunciated for England and Wales in the Lumsden case, though, in fact, I do not believe that it has ever been before the courts in Scotland. However, if that is right, we have diametrically the opposite position north and south of the Border as a direct result of passing the 1977 Act. My Amendment would apply only to England and Wales because they are the only places where the 1977 Act applies. Therefore, I would suggest that there is no need to make a provision specifically disapplying this clause to Scotland, contrary to what happens to the rest of the Bill. However, I add those remarks because I suggest that this is a narrow point and one which we ought to put right at the first possible opportunity.

Lord DIPLOCK

As a member of the committee upon whose report the Torts (Interference with Goods) Act is based, I should perhaps explain how it came about that in that Act—and I am quite certain that it was inadvertent—the law as it previously was in relation to the liability of the collecting banker for receiving forged or fraudulent cheques, was altered. The committee was set up by the noble and learned Lord the Lord Chancellor for the purpose of considering wrongful dealing with goods. The law in England was in a mess because, for historical reasons, there were three different courses of action—often alternative—which one could lay and for which the remedies were quite different according to which one one chose. That was the problem with which we were confronted; it was mainly that of dealing with goods.

However, it so happens—again because of the historical origin of the common law when mercantile law was received into the common law— that a cheque was one of the goods which you could convert. You were treated as converting the paper on which the cheque was written, but its value was the face value of the cheque. That, of course, was a pure legal fiction. That fiction was mitigated by the Bills of Exchange Act 1882 which, in effect, while still leaving the wrongful dealing with a cheque by the collecting banker within the category of conversion, nevertheless made negligence the gist of the action. When our committee reported—or perhaps I should say more accurately, when our committee wrote the report—we made a recommendation directed to conversion of goods whereby we said" Abolish one of the courses of action; leave the others: conversion, trespass of goods; but rationalise the position as to remedies so that you can get whatever is the most appropriate remedy, never mind which course of action you have taken."

Among the minor recommendations we recommended—and this related to dealing with goods—that contributory negligence should not be available as a defence. As regards this technical conversion by bankers, the position in law at that time was unclear. It was not known; there had been no case to decide whether in this action for conversion of a cheque by a collecting banker, of which negligence was the gist, the Contributory Negligence Act enabled you to apportion the blame and so limit the damages.

That being the unsettled state of the law at the time we wrote the report, we said that it was more appropriate that that problem should be dealt with in a review of banking law, rather than through the general law of conversion and wrongful dealing with goods. When that report had been written the case of Lumsden, to which reference has been made, was decided in the commercial court. It decided that contributory negligence was available as a defence for the collecting banker who had collected a fraudulent or a forged cheque. It is true that it was a decision of a court of first instance and was made by a very distinguished judge of the commercial court. It was made in 1971, between the date we wrote the report and the date the report was presented to Parliament.

It is right to say that over the years between 1971 and 1977 the rightness of that decision was not questioned. I, myself, have no doubt that it was right. Therefore, at the time that the Torts (Interference with Goods) Bill came before the Houses of Parliament, the law was settled and there was certainly no recommendation by the committee on whose report it was based that the law as regards collecting bankers' liability for cheques should be altered. In the course of the debates, both in this House and in another place, no suggestion was ever made that Section 11(1) would affect the law as regards bankers or alter the existing law, because, so far as dealing with goods is concerned, the existing law was preserved by Section 11(1) of the Act. This slipped through quite unnoticed without it being appreciated that the existing law was inadvertently being changed.

Fortunately, that Act came into operation either at the beginning of 1978 or perhaps a little earlier—I have forgotten which—and not much harm has been done. It is fortunate that an opportunity now arises to correct a mistake —what was clearly a mistake — a misunderstanding, about the effect of Section 11(1) of the Act. I would urge the Committee to take the opportunity which is now presented of undoing the harm of which, by mistake, both this House and the other place have been guilty.

7.50 p.m.

Lord McCLUSKEY

I am indebted to those of your Lordships who have spoken, and in particular to the noble and learned Lord, Lord Diplock, for so much background. Despite the disadvantage of not being an English lawyer, I think I understand the points that have been put forward, but my position, speaking for the Government, is that the Government do not regard this Amendment as acceptable. I am really speaking about the second Amendment, the one standing in the name of the noble Viscount, Lord Colville of Culross, because the other one goes very much wider and would apply to the paying banker as well as the collecting banker, and I do not think that that is the one that had the express support of the noble and learned Lord, Lord Diplock. Certainly we would want time to assess carefully the full implications of an Amendment as widely drawn as the one standing in the name of the noble and learned Lord, Lord Rawlinson of Ewell.

I have to leave aside for the moment the question of the Torts (Interference With Goods) Act 1977 and what happened in relation to that as it passed through both Houses of Parliament as a Bill. So far as this matter is concerned, the view of the Government is that this Amendment is quite inappropriate to this Bill. It is not fair to describe this Bill, as the noble Viscount did, as a banking Bill. Of course it is a banking Bill in one sense, but it is a Bill concerned with the establishment of a supervisory system for deposit taking institutions. It is not a Bill concerned with reviewing the whole matter of banking law.

This part of the Bill is concerned only with fairly minor matters which have some relation to that general purpose. Indeed, the later Amendment No. 47 standing in the name of the noble and learned Lord, Lord Rawlinson, recognises the need to amend the Long Title in order to make this point. The point is seen by the Government as quite a complicated one which needs further consideration. I understand that, following the observations of the Law Reform Committee, the implications of the Torts (Interference with Goods) Act 1977 in relation to banking were carefully thought about.

The memorandum which came to me from the Senate, and indeed the arguments today, suggest that the Lumsden case, which decided that a plea of contributory negligence might be available to a collecting banker in some circumstances, might have been overlooked. But I understand that this was not the case. I understand that the Lord Chancellor sought to follow the advice of the Law Reform Committee that has already been referred to; that is, that, in general, contributory negligence should not be recognised as a defence bearing in mind the other recommendation of the Committee, which has also been mentioned, that the particular aspect of contributory negligence in relation to a collecting bank should be looked at in a general review of banking law.

Against that background, the Government's view is that we should not, having in a sense heard only one side of the argument—that of the bankers and lawyers, and without consultation with all the other interested parties—overturn that judgment. One would expect there to emerge a quite different opinion from those who have a different interest; an interest in the opposite direction. Particularly those in commerce and industry. The general body of commerce might well take an opposite view to that which has been urged today. The point which has been raised is one facet of a general issue frequently seen in civil law where there is a choice between, on the one hand, provisions which are finely tuned to the individual fault and circumstance of the parties, and are consequently expensive in operation, and on the other hand provisions which can on occasion cause injustice, but which on the whole are beneficial because of their cheapness and simplicity in operation. While one can understand fully the logic and force of the argument in favour of the first alternative, there are arguments in favour of the second.

It appears to the Government that the matter should be looked at in the context of a general review of banking law and not in the context of this Bill, which is concerned with something quite different. I appreciate that in saying that I shall disappoint the noble and learned Lord, Lord Rawlinson, who asked that I should deal with the matter on the merits. I wish I could simply deal with it on the merits, but that is just the problem. So far, and today, we have really heard only the bankers' and lawyers' side of the argument, and in order to deal with it on the merits we really ought to consult those commercial interests who might have a different submission to make.

It may be, to talk of the difference between Scots and English law—and of course there are many, and one would not seek in this Bill to remedy all the differences in the banking law, or the effect of the common law on banking on both sides of the Border—that at the end of the day, having heard arguments on both sides, that the proper course would be to amend Scots law to bring it into line with the law obtaining south of the Border. Although I accept entirely the analysis of the position in Scotland which the noble Viscount gave, I do not think it follows from that that one should change the law south of the Border. The other conclusion might in fact be the right one. I appreciate that I am not giving much comfort to those who have spoken in the debate, but it is my duty to state the Government's position on this matter. In the light of that, and in the light of the fact that the matter ought to be looked at in a general review of banking law, I would ask your Lordships not to press this Amendment.

There is one other point I want to make because it arises out of something that the noble and learned Lord, Lord Rawlinson, specifically said. He said he hoped he would not hear from me that acceptance of this Amendment would open the door to other Amendments which are not related to the central purpose, or purposes, of the Bill. The trouble with the associated Amendment No. 47 is that it does just that. If that Amendment were to be carried later on, then of course one could see people queueing up with other miscellaneous provisions being matters that they had hoped to put into the Bill, and coming forward and seeking to put them in it at a later stage. That would be very unfortunate.

Lord RAWLINSON of EWELL

That is a disappointing reply from the noble and learned Lord. I felt, because he is such a skilful debater and so persuasive an advocate, that he did not very much believe in his own case when he gave that reply to the Committee. All we are asking is to get the law back to what it was before a mistake was made by Parliament. We are not asking for something new or revolutionary, so that all the banking institutions have to be consulted about it. All we are asking is that a mistake made should be rectified. Everybody accepts that it is a mistake. You have heard the noble and learned Lord, Lord Diplock.

Section 11 of the 1977 Act went through without anyone going into the merits of it. No one consulted anyone about it. It just went straight through with hardly any debate anywhere about it. All we say is that Parliament ought to put right this matter when they have made a mistake. I hope that the noble and learned Lord will go back and think again about this. It is a limited point, and it is correcting something for the bankers that we have got wrong and which we ought to put right. I hope he will do that. In that hope, and because I know that he is a fair and sensible man who would want to do right, I ask leave to withdraw my Amendment in the belief that he will have a deep think between now and the next stage of the Bill. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8 p.m.

Viscount COLVILLE of CULROSS moved Amendment No. 33: After Clause 45 insert the following new clause: Defence of contributory negligence. In any circumstances in which proof of absence of negligence on the part of a banker would be a defence in proceedings by reason of section 4 of the Cheques Act 1957, a defence of contributory negligence shall also be available to the banker notwithstanding the provisions of section 11(1) of the Torts (Interference with Goods) Act 1977.

The noble Viscount said: I have something to say in moving this Amendment but I can advise the noble and learned Lord, Lord McCluskey, that I shall be withdrawing it without him having to rise to his feet. The noble and learned Lord said that we should hear the other side. What was the other side doing in Scotland between 1945 and the present day when, so far as I am aware, there has been a defence in contributory negligence open to the bankers? Has the commercial public in Scotland been up in arms about this appalling prospect before them? What evidence is there that anybody has said anything which criticises that state of the law?

Come south of the Border. Since Mr. Justice Donaldson's decision in 1971, which the noble and learned Lord, Lord Diplock, said has been accepted by lawyers as being right in law, what has commerce said about it as being wrong in commerce up to the time when it was changed in 1977? The noble and learned Lord, Lord McCluskey, has not produced one instance of anybody complaining about that. Nobody has heard a word of complaint and there is no reason to suppose it is not entirely acceptable, and I should have thought it was perfectly fair.

Now the noble and learned Lord says that because we wish to attempt to put right what appears to have been a mistake, we should consult the other side of commerce, which makes no sense at all. I do not intend to press this matter; I shall move the Amendment so I can immediately withdraw it, having said that I do not think the noble and learned Lord can make that point, particularly speaking on behalf of a Government who have a habit of putting in one or two little miscellaneous points at the end of Bills. If the noble and learned Lord wants me to conic back on Report with a catalogue of them to show how totally different they were from the subject matter of the rest of the Bill, I will do so. I could give him two now from the Housing Acts if he wishes to know about leasehold reform and positive covenants running against the subsequent owners of land. The Government do it and I think we should do it on this occasion, but, just in case there is any mistake, let us do it next time. I beg to move. Having said that, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clauses 46 and 47 agreed to.

Clause 48 [Interpretation]:

Lord McCLUSKEY moved Amendment No. 34: Page 52, line 34, at end insert— ("(2) Any reference in this Act to any provision of Northern Ireland legislation, within the meaning of section 24 of the Interpretation Act 1978, includes a reference to any subsequent provision of that legislation which, with or without modification, re-enacts the provision referred to in this Act.")

The noble and learned Lord said: This is a technical Amendment which takes account of a possible ambiguity in the Interpretation Act. I beg to move.

Clause 48, as amended, agreed to.

Clause 49, agreed to.

Clause 50 [Short title, commencement and extent]:

Lord REDESDALE moved Amendment No. 35: Page 53, line 3, at end insert ("and in the case of The Central Trustee Savings Bank Limited, such day shall not be later than eighteen months from the first day appointed.").

The noble Lord said: Let us hope that the noble and learned Lord, Lord McCluskey, is in a more constructive frame of mind, will end his period of stonewall batting and will come out and have some nice shots into open cover. This Amendment concerns the Trustee Savings banks, a point I raised on Second Reading. The point is simple and is rather like the one I raised in connection with the building societies. I believe the Government should make sure that the Trustee Savings banks are brought into the scheme as soon as is reasonably possible. "Reasonable" is the word I have used, and reasonable the Amendment is, because, as with the Amendment about building societies, it would give the Trustee Savings banks 18 months from the first appointed day to come within the ambit of the Act, otherwise they would lose the exclusion they are being granted.

The Trustee Savings banks wish to come into the scheme—they would have liked to come in right at the beginning—but a few technical points must be covered. There are the requirements they have to meet, but apart from that the main onus lies on the Government to assist them to become fully recognised third force banks.

Lord McCLUSKEY

I am going to be constructive, but not yet. I understand that the two Amendments, Nos. 35 and 37, are associated; both deal with the Central Trustee Savings Bank Limited. The intention of the first, No. 35, is to bring that bank within the scope of the Bill within 18 months of the day the Bill is brought into operation. The Amendment to Schedule 1, it appears to us, would bring it within the scope of the Bill from the outset. It is not clear to me whether these Amendments are alternatives or whether the Amendment to Schedule 1 is designed to be consequential to the Amendment to Clause 50, but to show the spirit of construction I can indicate at this stage, without taking up further time, that I should be perfectly content to accept Amendment No. 37, which it appears to me would do all that the noble Lord wants, and in that event it would not be necessary for him to press Amendment No. 35.

Lord REDESDALE

The question is whether the Trustee Savings banks can come within the Bill straight away. Would that be the affect of Amendment No. 37?

Lord McCLUSKEY

Both Amendments deal with the position of the Central Trustee Savings Bank Limited, as I understand it, and neither is dealing expressly with Trustee Savings banks otherwise. The Central Trustee Savings Bank is a wholly owned subsidiary of the Trustee Savings Banks Central Board, which was established in 1973 to provide banking services to the individual Trustee Savings banks. For instance, it employs short-term funds deposited with it by individual Trustee Savings banks in the money market and acts as a clearing house for transfers between Trustee Savings banks. It also provides banking services to some other parts of the Trustee Savings Bank group; for instance, the unit trust and insurance companies. It appears to us that the Amendments are expressly concerned with the Central Trustee Savings Bank Limited, and therefore if I accept the second of the two Amendments I shall have done all that the noble Lord can possibly want. Maybe he has something else in mind, but I do not believe these Amendments are apt to cover anything more than the scope I have indicated.

Lord REDESDALE

I aimed to bring the whole of the Trustee Savings Bank movement within the ambit of the Bill, and by citing the body mentioned in the Amendment my intention was to bring in the whole of the movement. If the noble and learned Lord is saying that I have failed to bring in the whole movement, I should be grateful if he would clarify the point.

Lord McCLUSKEY

I have consulted with officials and I am advised that I am right; namely, that the Amendments do not bring in the whole movement but are related simply to the body referred to in them.

Lord REDESDALE

Obviously the noble and learned Lord has a smug answer on this occasion, in which case I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 50 agreed to.

Schedule 1 [Exceptions from prohibitions in section 1]:

8.9 p.m.

Lord REDESDALE moved Amendment No. 36: Schedule 1, page 54, leave out line 7.

The noble Lord said: This Amendment is consequential, at least to a degree, on an Amendment we passed earlier. I beg to move.

Lord McCLUSKEY

I do not want to require the Committee to divide again, although I do not see this as exactly consequential upon Amendment No. 1. In fact, I think the noble Lord, Lord Redesdale, would acknowledge that if both Amendments were given effect to, some tidying up would be required. The principle of the matter was voted upon at an earlier stage and Amendment No. 1 was carried. So on that basis I would not oppose the present Amendment.

I wish to take the opportunity to say that the noble Lord, Lord Boyd-Carpenter, kindly told me that he is unable to be present now. At an earlier stage there was some discussion of the provisions of the Post Office Act relating to directions. The provisions which bear upon this matter are contained in the Post Office Act 1969–Chapter 48–and are contained in Section 11 which relates to directions of a general character (as the noble Lord rightly recollected) but there are additional provisions in Section 41 and Schedule 2 relating to matters rather more specifically connected with the banking activities. The side-note to Section 41 reads: The Post Offices' liabilities as banker to be matched by cash and liquid assets. The appropriate Schedule (Schedule 2) relates to that. I wish to put that information on the record merely so that anyone who was interested in the earlier debate can see what the Act contains.

8.12 p.m.

Lord REDESDALE had given Notice of his intention to move Amendment No. 37: Page 54, leave out line 9.

Lord McCLUSKEY

Does the noble Lord not intend to move this Amendment? Perhaps he has to carry out further work in order to include the Trustee Savings Bank movement generally, but I should have thought that he would wish to move Amendment No. 37 in order to get his first bird with his first shot.

Lord REDESDALE

The noble and learned Lord is extremely gallant. I accept his offer, and I beg to move the Amendment.

Lord McCLUSKEY moved Amendment No. 38: Page 54, line 25, at end insert ("or the Credit Unions Act 1979").

The noble and learned Lord said: With the enactment of the Credit Unions Bill 1979 credit unions will be subject to the supervision of the Chief Registrar and therefore can be excluded from the provisions of the Bill. Credit unions in Northern Ireland are similarly excluded. This is what will be achieved by the Amendment. I beg to move.

Schedule 1, as amended, agreed to.

Schedule 2 [Minimum criteria for deposit-taking institutions]:

Lord SELSDON moved Amendment No. 39: Page 56, line 8, leave out ("two") and insert ("more").

The noble Lord said: I rise to move the Amendment standing in the names of my noble friends and myself. It is a relatively simple Amendment, and to deal with it should take hardly any time at all because, noting that the noble and learned Lord now has more support among officials than he does from Members of his own Benches, I am sure that he will be willing to concur with us. Schedule 2, paragraph 3 recognises that although five criteria are required to determine the status of a recognised bank, the Bank of England may at its discretion reduce that number. Of the five criteria listed as the Bill stands, the first two cannot be waived by the Bank, but it may waive one or two of the remainder, though not all three. That is to say that institutions seeking recognised bank status will normally be expected to fulfil all five of the criteria, but in the case of a specialised institution it may suffice, though at the Bank's discretion, if the first two and at least one of the remaining three criteria are fulfilled. The Amendment simply says, "Stick to the first two, but give the Bank greater discretion on the remainder". I beg to move.

Lord McCLUSKEY

I accept that what the noble Lord says would be the effect of the Amendment, but the result would be that to satisfy the one criterion for recognition of a wide range of banking services an institution would need, at the Bank's discretion, to supply only the two basic services of taking deposits and extending credit. This would make little sense of the concept of a wide range of services. In practice it would have little significance because it is not to be expected that the Bank would disregard all three of the services in paragraphs (c) to (e) of the sub-paragraph. However, the difficulty is that it would be wrong—if we were to accept the Amendment—to lead potential applicants to suppose that they might satisfy this criterion on the basis of such a restricted range of services as mentioned in paragraphs (a) and (b) of the sub-paragraph only. From that point of view, and bearing in mind the fact that even in the presentation by the noble Lord, Lord Selsdon, it was admitted that the proposal would not make any practical difference as he sees it, I would ask him not to press the Amendment.

Lord SELSDON

It would in fact make no practical difference. The point of pressing this is that in my view an unnecessary piece of legislation would be added, and the noble Lord has pointed out earlier today that the Bank of England is a very discreet body and is most competent at exercising its discretion. However, I do not wish to press the Amendment, and so I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

Schedule 3 [Transitional licences]:

Lord McCLUSKEY moved Amendment No. 40: Page 59, line 35, at end insert—

("PART II

TRANSITIONAL GRANT OF RECOGNITION 8. The provisions of this Part of this Schedule apply to an institution which—

1. (a) on 9th November 1978 was, and at the time of its application for recognition continues to be, either a company within the meaning of the Companies Act 1948 or any other body corporate having its place of central management and control in the United Kingdom; and
2. (b) does not, apart from this Part of this Schedule, qualify for the grant of recognition.

9. Notwithstanding anything in section 3(3) of this Act, the Bank may grant recognition to an institution to which this Part of this Schedule applies (whether or not it would otherwise qualify for the grant of a licence) if the Bank is satisfied—

1. (a) that the institution carries on, and has since 9th November 1978 continuously carried on, a deposit-taking business but that the whole or substantially the whole of that business is and has been carried on outside the United Kingdom; and
2. (b) that, with the exception of the criteria in paragraph 2 of Schedule 2 to this Act, the criteria in Part I of that Schedule are fulfilled with respect to the institution; and
3. (c) that the criteria in paragraph 2 of Schedule 2 to this Act would be fulfilled with respect to the institution if the reference in sub-paragraph (1) of that paragraph to the provision of a wide range of banking services were not limited to the provision of that range of services within the United Kingdom.").

The noble and learned Lord said: I spoke to this Amendment at an earlier stage when the related Amendments were accepted. I beg to move.

Schedule 3, as amended, agreed to.

[Amendment No. 41 not moved.]

Schedule 4 agreed to.

Schedule 5 [The Deposit Protection Board]:

Lord REDESDALE moved Amendment No. 42: Page 63, line 10, leave out from beginning to ("and") in line 11 and insert— ("(a) to cause accounting records to be kept in accordance with the provisions of section 12(2) and (3) of the Companies Act 1976, subject to the modification that for references to the company there shall be substituted references to the Board and that for references to directors there shall be substituted references to members of the Board;").

The noble Lord said: I wish to give Amendment No. 42, along with Amendment No. 43, a quick airing to see what reaction I can get from the noble and learned Lord. The Amendment is fairly self-explanatory, and I expect that I might be told that it is not necessary. However, the same argument applies here as that which applied to the Amendment I raised on the question of accountants and of having a more positive definition of what is required. Here we are considering the records that are to be kept, and I believe that the Amendment, together with Amendment No. 43, would help in the preparation of accounts and would make the situation a little clearer. I beg to move.

Lord McCLUSKEY

I certainly accept that the provisions in the Schedule relating to the Board's accounts are not elaborate, but they are sufficient to ensure proper accounting. It is the Government's hope and expectation that the deposit protection scheme will have to be activated only infrequently, if at all, and in these circumstances relatively simple provisions in the Bill relating to accounts would seem to be appropriate. In another place my right honourable friend the Minister of State said during the Committee stage that he did not think it necessary to go into this kind of detail, and we see no reason to change our position on that. The provisions of the Companies Act 1976, which would be imported by the Amendment, are of course appropriate for companies, but they are unnecessary in the case of the highly restricted powers and duties of the Board which are set out in detail in the legislation. In the light of what I have said, I hope the noble Lord will not feel it necessary to press this Amendment or the related one.

Lord REDESDALE

I am a little disappointed because I feel that, once again, we are just letting it go by default. However, the hour is late and I will withdraw the Amendment.

Amendment, by leave, withdrawn.

[Amendment No. 43 not moved.]

Schedule 5 agreed to.

Schedule 6 [Consequential amendments]:

Lord McCLUSKEY moved Amendment No. 44: Page 64, line 24, after ("means") insert ("the Bank of England"). The noble and learned Lord said: With leave, I should like to speak to Amendments Nos. 44 and 45 together. Section 5 of the Agricultural Credits Act 1928 and Section 9 of the corresponding Scottish Act in 1929 allow a farmer to create a charge on farming stock and other agricultural assets in favour of a bank. The English Act requires the Minister of Agriculture to approve banks for these purposes; in Scotland, the relevant definition refers to note-issuing banks. The opportunity has been taken to standardise these definitions, to include recognised banks, Girobank, the Trustee Savings Banks and licensed institutions. Although the contingency may be remote that the Bank of England would wish to loan money to farmers in this way, it is undesirable that it should be statutorily barred from doing so. These Amendments remove that statutory bar, and the Bank of England has requested them. I beg to move Amendment No. 44.

Lord McCLUSKEY moved Amendment No. 45: Page 64, line 33, after ("means") insert ("the Bank of England").

Schedule 6, as amended, agreed to.

Schedule 7 [Enactments repealed]:

Lord McCLUSKEY moved Amendment No. 46: Page 70, line 6, column 3, at beginning insert— ("In Schedule 1, the paragraph amending section 432(1) of the Companies Act 1948.").

The noble and learned Lord said: This is a technical Amendment which repeals the paragraph in Schedule 1 to the Companies Act 1976 amending Section 432(1) of the Companies Act 1948. Section 432 of the 1948 Act is itself repealed by Schedule 7 to the Bill, and therefore the reference in the 1976 Act is rendered obsolete. I beg to move.

Schedule 7, as amended, agreed to.

In the Title:

Lord REDESDALE had given Notice of his intention to move as Amendment No. 47: Line 10, after ("repeal") insert ("and amend").

The noble Lord said: I rise just to give notice, as my noble friends did, that we shall be coming back to this at a later stage of the Bill. I do not intend to move this Amendment now.

House resumed: Bill reported with Amendments.