HL Deb 13 March 1995 vol 562 cc555-7

2.51 p.m.

Lord Spens asked Her Majesty's Government:

Whether they have assessed the long-term consequences of the decision to allow Barings Bank to be put into "administration" on the earning capacity of United Kingdom financial institutions.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley)

My Lords, the directors of Barings applied for administration when they formed the view that the bank was unable to continue trading. The Bank of England took the view that the problem was specific to Barings and would not result in major systemic risk to the financial system. The Governor did not recommend the use of taxpayers' money to rescue Barings, and subsequent events vindicated that approach.

Lord Spens

My Lords, while thanking the Minister for that Answer, does he and the Treasury realise that a second Wimbledon has been created in the City of London? It is now a place where it is wonderful to come and play as a foreigner to win the large prizes that exist, but not much good if one is British. Does the Minister realise that 40 per cent. of that business is already in the hands of overseas companies and will rapidly increase. As I understand it, last week the Japanese banks decided to remove all their deposits from London banks, other than the major ones, and put them with German, Swiss, French, American and other banks of that ilk.

Lord Henley

My Lords, I do not accept the analysis of the position as related by the noble Lord, Lord Spens. It was a sad and regretful episode but the circumstances which brought Barings down were unique to that bank and ought not to apply to other banks.

Lord Eatwell

My Lords, is the Minister aware that the 1987 Banking Act defines the Bank of England's Board of Banking Supervision as an advisory and not an investigative body? Is he aware also that the Economic Secretary to the Treasury, Mr. Anthony Nelson, described the Board of Banking Supervision as a, cosy club of Governor's appointees"? Is it not clear that the board is an entirely inappropriate body to investigate the role of the Bank of England in the Barings affair? Only a fully independent inquiry will enjoy the confidence which is so vital to the economic future of the City of London. Why are the Government afraid of an independent inquiry?

Lord Henley

My Lords, the noble Lord's point in relation to my right honourable friend the Economic Secretary to the Treasury is a silly one. My right honourable friend made that comment when he was a Back-Bencher in another place. At the time he was concerned about the number of independent members on the board. Following his intervention in that Bill, the number was increased. At the time he agreed that the increase would enhance the weight and power of the Board of Banking Supervision. As a Treasury Minister he is fully confident that the board can fulfil the tasks set for it by the Chancellor. The board was set up by the 1987 Act and its role is to advise the Bank of England on the discharge of its supervisory responsibilities. It will produce a report in due course which my right honourable friend the Chancellor of the Exchequer will consider.

Lord Eatwell

My Lords, can the Minister say why the Government are afraid of an independent inquiry?

Lord Henley

My Lords, the Board of Banking Supervision is independent. It consists of nine members—I can list them if the noble Lord wishes me to—six of whom are totally independent. The other three are ex officio—the Governor of the Bank of England and two other members of the Bank.

Lord Monkswell

My Lords, will the Government advise the House, and thereby the nation, as to which British banks are secure for the deposit of money belonging to individuals, local authorities and charities and will be safe and guaranteed by the Bank of England?

Lord Henley

My Lords, I presume the noble Lord is aware—he tabled a similar Written Question—that I shall shortly be answering his Question. I can give a preview of that Answer. No lists of such banks exist. Local authorities are responsible for making their own decisions on the creditworthiness of deposit takers.