HL Deb 03 March 1987 vol 485 cc522-34

3.2 p.m.

Lord Beaverbrook

My Lords, I beg to move that this Bill be now read a second time.

The purpose of the Bill is to bring up to date and improve the statutory framework for the supervision of deposit-taking institutions in the United Kingdom. When enacted, the Bill will replace the existing system of supervision provided by the Banking Act 1979. It is an important though not controversial measure. The Bill has been welcomed and given broad support in another place, and has been given swift passage to your Lordships' House.

The banking and financial sector is of great importance to the United Kingdom's economy. In 1985, the year in which the Government's proposals for this legislation were first published, the City's foreign earnings amounted to £7.6 billion, and the income of the financial and business services sector accounts for a total of some 14 per cent. of GDP. That sector employs 2 million people. Banking lies at the very heart of the financial sector.

There are about 300 recognised banks and just over 300 licensed deposit-taking institutions in the United Kingdom. Most of the world's major banking enterprises are represented here, as are many smaller overseas institutions. London has a leading position among the world financial centres. The banking industry itself is becoming increasingly international, with a continuous market round the world, aided by complex electronic methods of communication and trading.

It is a fast-moving and fast-changing market place. The relevant legislation must endeavour to keep pace. This Bill deals with the authorisation and supervision of banks and with the protection of their depositors. It is the third major strand of government legislation on financial supervision, following the enactment last year of the Financial Services Act and the Building Societies Act.

Banks have been subject to some degree of prudential regulation by the Bank of England at least since the 19th century. The Banking Act 1979 was however the first introduction of a comprehensive statutory framework for the authorisation and supervision of deposit-taking institutions. In the eight years since that legislation was formulated much has changed in the banking world and much has been learnt of the task of supervision; and 1987 is not too soon to reflect the lessons of experience in a new system.

The Bill also draws on the lessons learnt from the near collapse in 1984 of Johnson Matthey Bankers. Following those events, my right honourable friend the Chancellor of the Exchequer established a committee under the chairmanship of the governor of the Bank of England, and including representatives of the Treasury and the commercial banking sector, to review the operation of the 1979 Act and to make recommendations.

That committee reported in June 1985, and in December of that year the Government published a White Paper, the proposals of which are now reflected in the Bill. Experience has shown the need to strengthen the powers of the supervisors and to impose more exacting duties on the institutions they supervise. Those are major objectives of the Bill. At the same time, the statutory framework needs to remain sufficiently flexible to avoid unnecessarily rigid rules and regulations that will only hamper British institution with no supervisory benefit.

As under the 1979 Act, the Bill places the task of supervision on the Bank of England. To assist in that task, a new Board of Banking Supervision is created to advise the Bank of England on the exercise of functions under the legislation. The Government believe that the board will be of great value to the bank in providing a source of skilled and independent advice at the highest level. The supervisory powers of the Bank of England itself are being strengthened and improved. And the existing two-tier system of authorisation and supervision is to be abolished so that the obligations of authorised institutions and the powers of the supervisors will apply equally to all institutions.

New requirements are introduced to regulate the ownership and control of authorised institutions. Improvements are made to the provisions for obtaining information about the business of authorised institutions and also for the communication of information between supervisory authorities and between the supervisors and banks' auditors, who have an important role to play.

Many of the provisions of the 1979 Act are however retained, either unchanged or with only modest technical improvements. The arrangements for appeals against decisions of the supervisors are retained in much the same form, as are the detailed arrangements for the Deposit Protection Board and the compensation scheme that it administers. As your Lordships may be aware, the maximum level of protection provided by the Bill under these arrange- ments has however been doubled—from a maximum protected deposit of £10,000 to one of £20,000—as a result of amendments brought forward by the Government in another place.

I will not describe all the provisions of the Bill in detail but I will say a few more words about some of the main provisions in the Bill. I have referred to the new Board of Banking Supervision and its important role in advising on the exercise of the Bank of England's supervisory functions. The key element of the board is of course the presence of a majority of independent, expert members with the duty to provide advice to the board's ex officio members, comprising the governor of the Bank of England, as chairman, and also the deputy governor and the director of the bank responsible for supervision. This will enhance the depth of experience available to the bank both in formulating broad policy and in dealing with individual cases.

The significance of the board is reflected in the changes brought about in another place, which further strengthen the independent role of the board by bringing the total number of its independent members to six, out of a total board of nine members, and by providing safeguards to ensure that the voice of independent members will be heard.

I have mentioned the fast-changing financial markets that are the background to this Bill. Like the 1979 Act, the new Bill is based on regulation of the activity of deposit-taking. The definitions of "deposit" and of a "deposit-taking business" are broadly as in the existing Act. But in order to enable the statutory framework to adjust to the changing market place, provision is made for these definitions to be amended by statutory instrument if it proves necessary to do so.

The characteristic feature of the system of authorisation and supervision under the 1979 Act was the so called two-tier system of recognised banks and licensed deposit-taking institutions. For largely historical reasons, it was thought appropriate to distinguish the authorisation of more traditional banks from that of other deposit-taking institutions and to apply to them a more informal system of supervision; so that, for example, not all of the statutory powers and obligations under the 1979 Act were applied to what was often thought of as the senior category. At the same time, in order to qualify for recognition as a bank, subjective tests such as a high reputation and standing in the financial community had to be met, involving difficult questions of judgment that did not lend themselves to a consistent application of policy.

Experience has shown that this two-tier system is not suited to our times. Johnson Matthey Bankers was a recognised bank. The Bill eliminates the distinctions and provides for all institutions to be subject to the same statutory powers and requirements. There is wide support for the introduction of this single system of supervision. The Government have, however, been aware of concern that a single system of supervision should not result in the elimination of all former restrictions on the use of banking names, the use of such names being previously confined to recognised banks. The Bill therefore includes a new objective test for the use of banking names based on a minimum capital requirement. The test provides reasonable assurance against the possibility that members of the public will be misled.

At the same time, and as a result of concern expressed during proceedings in another place, the Bill now contains provisions to put right the injustice created by the 1979 Act in depriving small, reputable institutions of their existing names, and also provides transitional arrangements for the retention of banking names currently in use.

The Bill breaks new ground in providing explicitly for an appropriate number of non-executive directors to be included on the board of directors of authorised institutions. The Government believe that where appropriate the presence of non-executive directors can make a substantial contribution to the proper running of a banking business. The provisions, which form part of the criteria for authorisation under the Bill, are novel and have been added during the course of proceedings in another place. The Government are, however, satisfied that in their present form they are workable and a welcome addition to the statutory framework.

The supervisory process depends crucially on the supply of relevant, accurate and timely information that is available to the supervisors. Although most such information will continue to be supplied on a voluntary basis, the Bill now enables the bank, if necessary, to obtain information under statutory powers from all authorised institutions, with criminal penalties for non-compliance. The supervisors will also have a right of entry to obtain such information on the spot where a request to provide it has not been complied with or in exceptional cases if it is suspected that papers might be tampered with or destroyed. Particular attention is paid to the question of large exposures—in simple terms the lending of proportionately large sums to a single person or group of connected persons.

Risk-taking is inseparable from the business of banking. But experience has shown that large exposures are a characteristic feature of banking problems. The Bill therefore contains new proposals requiring exposures above 10 per cent. of an institution's capital base to be reported to the supervisors and for the supervisors to be notified in advance where an exposure exceeding 25 per cent. of the capital base is undertaken. Criminal sanctions will attach to deliberate non-compliance with these provisions. In addition, there is to be a new criminal offence of knowingly or recklessly providing any information to the supervisors which is false or misleading in a material particular.

The provisions of the Bill that apply to the acquisition of controlling shareholdings in authorised institutions have been the subject of extensive debate in another place. I believe that the Bill now before this House is substantially improved as a result of that debate.

Anyone proposing to acquire, or substantially increase, a controlling interest in a deposit-taking business will have to give adequate notice to the Bank of England, which will then have the power to object to the transaction if the intended controller does not meet its prudential standards. Failure to notify the bank under such circumstances will be a criminal offence, and powers are included in the Bill for restrictions to be applied to the shares in question if these procedures are contravened. The same powers will be exercisable where any controller of an authorised institution is found to be unfit to hold that position.

In addition, the Bill now builds upon the reciprocity provisions incorporated in the Financial Services Act to make them applicable to cases where the acquisition of control of a UK bank would be objectionable on reciprocity grounds; that is, where the controlling interest would be acquired by an institution whose country of origin did not allow reciprocal access to its own financial markets.

The Government have also responded to concern that the Bill as originally drafted did not deal adequately with the acquisition of shareholdings which, while not amounting to "control", as defined—that is, a holding of 15 per cent. or more of voting rights—might nevertheless provide significant influence. In future it will be necessary for any shareholding of 5 per cent. or more to be notified to the supervisors, who will be empowered to obtain information from, or investigate, such a shareholder.

I have mentioned the contribution to the work of the supervisors that can be made by the auditors of banks. The provisions in the Bill concerning auditors are parallel to those contained in the Building Societies and Financial Service Acts. Auditors and reporting accountants will be entitled to communicate information about their client company to the Bank of England without breaching any obligation of confidentiality or loyalty that they would otherwise owe to their clients. The accountancy profession is undertaking the task of formulating guidance to specify the circumstances in which such information should be communicated. The Bill also contains a reserve power for the Treasury, if necessary, to bring forward regulations for such a system in the event that professional guidelines are not forthcoming.

In his introduction to the Government's White Paper which foreshadowed this Bill, my right honourable friend the Chancellor of the Exchequer said: ."An effective system of banking supervision is as important as the banking system itself. For without it there will not be the confidence on which sound banking depends—from the confidence of the individual depositor that his money is safe, to confidence in Britain as one of the foremost financial centres in the world". This Bill seeks to provide such a system. I believe that it is a good Bill. I commend it to your Lordships.

Moved, That the Bill be now read a second time.—(Lord Beaverbrook.)

3.17 p.m.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for having taken us briefly through the Bill. I am pleased to inform him that, provided the noble Lord, Lord Young of Graffham, extends to us his usual flexibility when dealing on their merits with the questions asked and with possible amendments that may be put down, we for our part will be pleased to smooth the passage of the Bill through the House. In general terms, and subject to those qualifications, which I am quite sure the noble Lord, Lord Young of Graffham, will understand, we welcome the Bill.

As the noble Lord, Lord Beaverbrook, said, the Bank of England is pivotal to the whole financial structure of the country. It has more immediate control because of the applications of immediate sanctions if its will is not obeyed. It has fairly good control of the joint stock banks themselves—control which I am happy to observe in at least one case has not prevented the profits of one leading institution exceeding for the first time £1 billion. The control therefore of the remainder of the City becomes translated down through the banking system.

Noble Lords will be aware that in the banking statistics published in the Financial Times some 10 days ago the indebtedness to the banks of this country had reached some £208,000 million, of which £197.000 million was in sterling. Much of that, although by no means all, went to building societies, investments in unit trusts, insurance, leasing and property companies. Therefore, through the joint stock banks the ultimate control and prestige of the Bank of England becomes all pervasive.

In the old days what the Bank of England wanted, by a series of nods and winks, good practice and association in the then coffee houses, could speedily be translated by the joint stock banks, the acceptance houses, the merchant banks and so on further down. Matters have progressed a little since those days. More and more institutions—although, 1 hasten to add, certainly not the majority—have seen fit to try and kick over the traces, much to the detriment of the good reputation of the City of London generally. I was therefore pleased to note from today's Guardian newspaper that the Bank of England is leaning severely on some City brokers who, in the Bank's view, have been party to deceiving certain local authorities. That is a very proper attitude for the Bank to take.

Therefore, subject to some observations concerning enforcement which I may venture to lay before your Lordships at a later stage—and that is a very important question—we think that it is wise that the Bill, in its generality and subject to certain detailed criticisms which we may make, should be brought before us.

The Bill also raises the question of the status of the Bank of England relative to the Government. Over recent years, particularly the past six or seven years, the Bank of England has sometimes given the impression that it is a law unto itself. I seek to make no party point about the matter; but perhaps that situation has been encouraged by the general hands off attitude of the Government towards free enterprise generally. The Government have very largely disclaimed responsibility for the conduct and guidance of the economy by saying that all it needs to do is create the climate and the rest is up to free enterprise and free competition. Beyond that the Government are not powerful enough—and they do not wish to be powerful enough—to do anything.

That situation arises in respect of two matters in the Bill to which I shall refer briefly in the hope that the noble Lord will respond. Clause 1(3) states: The Bank shall, as soon as practicable after the end of each of its financial years, make to the Chancellor of the Exchequer and publish in such a manner as it thinks appropriate a report on its activities under this Act in that year; and the Chancellor of the Exchequer shall lay copies of every such report before Parliament". When I was in another place I liked to feel that I was a good servant of the other place. Now that I am here I like to feel that I am a good servant of your Lordships' House; and, above all, a servant of Parliament. I do not like the idea of the Bank being required to make a report to the government, which may vary from time to time in its political complexion. We do not yet know who that government may be, and the noble Lord, with all his party-political broadcasts, cannot be absolutely certain. I do not like the idea that any subordinate institution should report to the Government as it thinks appropriate. I do not much care for that proposal.

Although we on these Benches welcome the establishment of a Board of Banking Supervision, your Lordships will note that at Clause 2(2)(b) it refers to: Six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor, being persons having no executive responsibility in the Bank". I do not like the phrase "appointed jointly". In effect it means that that body has a veto over any appointment that the Chancellor of the Exchequer. in his wisdom, might make. For this purpose he might belong to any political party or to none. I do not care for that proposal.

I should like to draw your Lordships' attention to the provisions of the Bank of England Act 1946 under which the Bank of England was placed under national ownership and control. How the Bank of England has remained in that position I do not know because the party opposite believe only in nationalising institutions that make considerable profits. I marvel at the fact that the Bank has so far escaped their notice, but it is a nationalised institution. Clause 4 of the Bank of England Act 1946 states: The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest". On checking the matter, I found that that clause has not been repealed by any subsequent enactment and that still remains the position. I am therefore a little curious as to why the two particular matters to which I have referred seem to derogate from the authority of the government of the day. Further evidence of that (of which the noble Lord, Lord Young of Graf/ham, is well aware) came to light at time of the Johnson Matthey affair. As noble Lords will recall, the Chancellor of the Exchequer was very annoyed—and he expressed his annoyance—that the Bank of England bailed out Johnson Matthey to the tune of £100 million without even notifying him of its intention to do so. I should not wish to call it arrogance because that expression would be entirely inappropriate; but it indicates a degree of self-consciousness of superior status which regards the Government with some indulgence as governments come and governments go.

I consider that those matters, although very marginal, should be corrected by the Government. At Committee I shall be tabling an amendment to the particular subsection to which I have referred in order that we can ventilate the matter. I am hopeful that the Government, on reflection, will wish to re-assert, however mildly, the authority which any government of the United Kingdom ought to have over any of those institutions.

Turning to another part of the Bill, we welcome the provision requiring qualifications in order to become an authorised institution. We have no particular comment to offer between the differentiation of the provision of £5 million capital in order to qualify as an official bank and the lower qualification of £1 million to become an authorised institution. There are very few matters of detail that need concern us here.

However, one is a little concerned—perhaps unnecessarily—although I should not wish to register any contentious point at this stage. We are a little worried about the possible ability of overseas interests to establish themselves in the United Kingdom as either banks or authorised institutions without adequate safeguards. For example, we know that Clause 9(3) states: In the case of an application by an applicant whose principal place of business is in a country or territory outside the United Kingdom the Bank may regard itself as satisfied that the criteria specified … are fulfilled if'. We wonder whether that is sufficiently comprehensive. In particular we are doubtful about the provision of subsection (3)(b): the bank is satisfied as to the nature and scope of the supervision exercised", by the overseas authority in which the actual company is domiciled.

I should like to put a leading question to the noble Lord which he may not be able to answer. If, for example, one has a character in a place like the Netherlands Antilles who owns a majority shareholding in a company in Geneva which in its turn establishes a front company in the United Kingdom headed by a perfectly reputable person, well known and respected in the City, but who nevertheless may not necessarily be what the Bank would at a later stage in the Bill describe as a fit and proper person; how is the Bank going to be able to monitor matters of that kind'?

I should also like to ask the noble Lord whether he would agree on the basis of his present information that the authority in the Netherlands Antilles should be regarded as a proper supervising authority for the purpose of this Bill. Similar observations may be passed about a number of other tax havens; I am merely mentioning the Netherlands Antilles by way of illustration.

We also welcome the investment regulation proposals in Clause 32 and the provisions in a later clause relating to unsolicited calls, as well as those regarding fraudulent inducement in Clause 35. The takeover situation that was described by the noble Lord in the course of earlier remarks where he referred to the 15 per cent. limit has given some cause for query in the City. I understand from the Financial Times of 9th February that there is a desire—the noble Lord may be familiar with this—that there should be given to the Bank of England powers to act in the national interest irrespective of the 5 and 15 per cent. provisions that are in the Bill itself. The noble Lord has probably had some opportunity of reflecting on that since the Financial Times of 9th February was brought to his attention, as it must have been, and I should like to have his observations on that.

In general terms we also approve of the deposit protection scheme. There may be certain modifications which we may suggest and which may be of further assistance, but in general terms we support it.

I should now like to draw your Lordships' attention to Clause 94 of the Bill, which relates to enforcement. We have found in the whole series of Acts of Parliament that have come through another place and this House over the past 20 or 30 years that Acts of Parliament and their criminal enforcement provisions are one thing but enforcement is very often another.

Clause 94(5) indicates that, no proceedings for an offence under this Act shall be instituted in England and Wales, except by or with the consent of the Director of Public Prosecutions or the Bank". These cases, as well as those that may be brought in under the Financial Services Act itself, tend to be rather complex. We shall be required to be satisfied that there is a real will to enforcement behind this. The contrary impression has been heightened by some remarks that fell from the lips of the noble and learned Lord on the Woolsack yesterday in answer to a question of mine relating to the possible institution of proceedings against those involved in the Minet affair; alleged offences have been revealed—and they have certainly not been challenged—in the report of the inspector, and also in the report from the council of Lloyd's, on particular individuals who were specifically accused by the council of the misappropriation of funds. Those of your Lordships who may have been present yesterday will recall that the noble and learned Lord the Lord Chancellor said this in answer to me: In order to show the kind of resources involved in these cases and he was referring to the cases of the type which are likely to be involved— the House will perhaps be interested to learn of a fact which, I must say, surprised me when 1 read of it this morning. In the civil proceedings arising out of one of these cases the defendant engaged 15 solicitors, working full time in-house, and no less than 30 counsel were briefed. That shows the kind of work that is involved. We do not yet have anything like those numbers at our disposal".—[Official Report, 2/3/87; col. 439.] It is fair to say that the noble and learned Lord did indicate at the same time that steps were being taken to reinforce the Fraud Squad, and, as I understand it, also to reinforce the investigation departments in the Department of Trade and Industry.

The question which I must ask the noble Lord and to which I hope he may be able to give some preliminary reply—though it would be unfair to ask him to reply in detail—is this. On the assumption, which regrettably these days appears to be quite likely however much one may deplore it, that there will be offences against one or other of the provisions of this very necessary Bill, is the noble Lord satisfied that there are adequate means to enforce it, and, if necessary, will the Director of Public Prosecutions be reinforced, and will the other departments of state involved also have suitable reinforcements to enable action to be taken in the event of infringements taking place? We all know that infringements of the Companies Acts take place day by day without anybody even bothering to enforce their provisions. For example, the insider dealings provisions under the Companies Acts are very difficult to enforce, and I am not yet satisfied that proper endeavours are made or resources provided in order that this may be done.

I have one final point only, and it arises from a Bank of England press notice that was issued on 8th January last, on the question of the convergence of capital adequacy in the United Kingdom and the United States. Apparently some alteration is envisaged, although no proposals have yet been made, to some bank accounting standards in the United States and in the United Kingdom.

There is, I am afraid, a considerable difference in present practice. We all know the state of the international indebtedness of the third world, and particularly South America, at the present time, and we know of the possibilities of non-performing loans and, yes, even default which will imperil the banking structure unless they are very firmly dealt with. We are aware that accounting standards in terms of the accounting treatment for P and L and balance sheet purposes of non-performing loans is a little different from that operating in the United Kingdom, where, I am happy to say, we adopt the most conservative standards. I should not like to think that the Bank itself would be prepared to agree to any relaxation of the guidelines that we have in the United Kingdom. If they are constrained to agree with the United States at banking level, I should like the noble Lord's assurance that, before any such agreement is reached, the Government themselves will have been informed and will have concurred in any arrangement that the Bank desires to bring into operation, and that the House itself is informed about these matters before vital questions of that kind are dealt with lower down.

Having said that, on this side of the House we wish the Bill well. At a later stage of the Bill I shall be fortunate in being assisted by my distinguished noble friend Lord Williams of Elvel, who is a banker. I hope that this will be for the assistance of the House. It will certainly be of very great benefit to me.

3.41 p.m.

Lord Boardman

My Lords, I start by declaring an interest as chairman of one of the clearing banks. I am always happy to follow the noble Lord, Lord Bruce of Donington, particularly when I know that the points which he has raised will be so ably responded to by my noble friend Lord Young of Graffham. In his closing remarks the noble Lord touched on one point to which I should like to refer; that is, convergence. I think the noble Lord has misunderstood the position in regard to the American and British attempts to converge at an understanding on the essential capital ratios. That is extremely healthy for international banking and for the safeguarding of funds in banks here which will also benefit the United States.

As I understand it, there is no intention to lower standards in any way or to have any reduction in the ratios which may be required. My wish is that this convergence could spread much wider than between the United States and Great Britain, and that it should extend to Japan in particular, and to many other countries. I am sure that when the noble Lord studies the papers in full he will come to a somewhat different conclusion.

I support the Bill very strongly. It brings up to date measures which have been overtaken by developments and under the Bill procedures are updated, which I welcome. As has been said, banking is very much a matter of confidence and any measure that adds to the confidence can only be valuable. As my noble friend Lord Beaverbrook said in his opening speech, this Bill has been brought about in part by the somewhat sensational presentation of the case of Johnson Matthey Bankers. There were many criticisms raised at that time as to why the trouble was not spotted earlier, why things were going wrong, and as to the way matters were then handled. It is easy to be wise after the event and to make those criticisms with the benefit of hindsight.

I do not think anyone should overlook the way in which the Bank of England, on discovering the situation, dealt with and covered it overnight—I mean literally overnight: during the early hours of the morning—and rallied the support of the major banks and financial institutions so that that bank could open its doors again the next morning. Had it not done so, the potential knock-on effects could have been very serious. It says much for the influence and the skills of the bank and the senior officers—the governor, the deputy governor and those who were concerned—that they managed to achieve that result. It also says much for the responsible support of the banking system which was supplied by the City in effecting that rescue operation.

The Bill contains a number of relatively minor points which will be raised in Committee. As a marker, perhaps I should refer to three points very briefly. I do not ask my noble friend to respond to them. First, I think that it will be a matter of some concern as to how the non-authorised subsidiaries are to be treated in reporting large exposures, but there is some concern, particularly among merchant banks, as to whether non-executive directors of subsidiaries, which are themselves authorised institutions, must be directors of those subsidiaries or whether they may be directors of the parent bank. There is also some concern about the use of the name "bank" being extended to a threshold as low as £5 million, which seems very low against the volume of turnover. Those are Committee points and I shall not detain your Lordships on them.

The most controversial issue raised in discussion of the Bill, and in another place, concerns the change of control. As chairman of one of those banks it would be quite improper of me to seek to deny shareholders of my bank the right to receive bids from any quarter. I should be sorry if they had them; I believe it would be unfortunate because I do not think anyone can run that bank quite as well as the present management. However, I do not think it is right for me on their behalf to seek legislative protection from such an event. Having said that, I am somewhat surprised that the Government themselves are not far more concerned at the possible consequences that could flow from takeover of one of the major clearing banks by a foreign bank or foreign institution.

The present proposals give an element of protection. They have the reporting limits of 5 per cent. and 15 per cent. There is a right to object if the acquirer or potential acquirer is not a fit and proper person, or on grounds of prudence. There is the question of lack of reciprocity, to which I will return later. There is also the possible reference under the monopolies and mergers legislation. I am sure that those provisions will keep out those who are obviously undesirable. However, from the Government's point of view I wonder whether the provisions go far enough. I can visualise a major foreign institution which is in every respect fit and proper and which is certainly prudent, whose country of origin grants the necessary reciprocity, seeking to acquire one of our major banks. The only answer, delaying tactic or anything else that the Government could apply, or the Bank of England could apply, would be to refer the matter to the monopolies and mergers legislation, as happened in the case of the Royal Bank of Scotland.

I query whether that would give the protection that the Government may wish they had. The monopolies and mergers policy changes frequently. Since the days of the Royal Bank of Scotland there has been emphasis on competition. At one time that was said to be the sole criterion as to whether a matter should be referred or a bid should be rejected. If that is so, then it would be quite improper and impossible to use that to reject such a takeover. Perhaps my noble friend will be able to say—at this stage he may not—whether the public interest element in the monoplies and mergers legislation extends beyond competition, and whether it extends as widely as it did when the Royal Bank of Scotland case occurred some years ago. If it was felt unnecessary or perhaps improper, or that there was no power for that bid for one of the big British banks to be stopped and it went through, then it would inevitably whet the appetites of other foreign banks, either from the same or from different countries, to acquire other clearing banks. I believe that very soon one could find a major part of the British banking system in foreign hands. This would be unfortunate.

I think that the priorities would be different. Whatever critics say of British banks—and there are a number of them always—they are massive supporters, by inclination and by interest, of the British economy. I wonder whether that same emphasis would be available if the ownership were overseas.

Can my noble friend say with confidence today that, on the basis of the restraints in the monopolies and mergers legislation, he is confident that in a year or two years' time a number of the British clearing banks—in which I include the Scottish clearing banks—may not be in foreign hands? If he says that he feels confident of that, I would ask him how he reckons that under the provisions that exist today this would be achieved.

I said that I should return briefly to the question of reciprocity. There are various shades of reciprocity. I am sure that my noble friend will say—I shall certainly agree with him if he does—that the most open market for acqusitions is the United States of America. No doubt the United States would conform with the criteria in the Bill regarding the country of origin of a potential acquirer.

There are significant differences which would apply as between the United States banking system and ours and which would be relevant in such a case. The United States has some 14,000 banks. There are severe restrictions upon them and upon foreign banks that are operating there concerning expansion over state boundaries and certain product lines. It would be quite impossible for any British bank, or, indeed, any other foreign bank, to acquire a share in the United States banking market comparable with the share of the UK market possessed by any one of the major clearing banks.

If one turns to the Common Market, I am sure that within the Community it must be said that there is reciprocity. Perhaps I may tell my noble friend of a conversation that I had with a distinguished French diplomat recently. I asked him in connection with the privatisation of the French banks—I refer to the question of Paribas—whether France contained within its legislation any prohibition or anything else that would make it difficult for a foreign bank to acquire control. His answer to me was, "But we have a golden share—of course". As a distinguished banker who was present on that occasion said to me afterwards, the fascinating words were "of course". The question of reciprocity in regard to some of these other countries is perhaps not as easy to apply as we might like.

I have raised the question of change of control with considerable diffidence. I must make it clear that I am not seeking protection for the sake of the shareholders of my own bank and of banks in a similar position against fair competition. We live with it, and I like to believe that we also thrive on it. I refer here to my short experience many years ago as a Treasury Minister. Incidentally, this was at a time when the banking system was being heavily used for the recycling of petrodollars, which have found their way into Latin America. But that is another story. I had experience there of the banking system, with the liaison that was necessary between the Treasury and the banks and with the Bank of England, and now I have experience as a commercial banker who works, I hope, closely with, and in support of, the aims and ambitions of the government of the day and of course of the Bank.

Because of the experience that I had there, I urge my noble friend to exercise a little caution in looking at the problem. It is their problem; it is a question of whether the Government feel that they are safely protected against something that could indeed be damaging to the economy of the country.

Having said that, I say, as I did when I started, that I support the Bill, which is right, is helpful and I am sure will be generally welcomed.