§ Mr. Barnettasked the President of the Board of Trade whether he will make a statement on the exemption of banking and discount companies from some of the accounting provisions of the Companies Acts.
§ Mr. Crosland:Certain banking and discount companies are exempted under paragraph 23 of the Eighth Schedule to the Companies Act, 1948, from many of the requirements of that Schedule as amended by the Companies Act, 1967, as to disclosure of information in accounts. This exemption was reviewed by the Jenkins Committee in their report.
A majority of the Committee accepted the case for continuing the exemption on the grounds that banks were subject to very large fluctuations in the value of their investments and to periodical losses on lending which could be out of all proportion to the profits of a single year and that full disclosure of these fluctuations and losses in the annual accounts might lead to loss of confidence on the part of depositors and the general public.
A minority of the Jenkins Committee were not satisfied that many of the exemptions were necessary except, perhaps, for banks operating mainly overseas. The minority suggested that the banks and discount houses should be invited to submit their full accounts for the last ten or twenty years to the Board of Trade to show how much they had used the exemptions; in the light of these accounts the Board could decide how far the exemptions needed to be continued.
H.M. Government decided to adopt this suggestion and with the cooperation of the various banking associations the accounts of selected members of each 434W association were examined by Government accountants. The whole question of the exemptions was then thoroughly discussed with interested banks and with the Bank of England.
H.M. Government have come to the conclusion that an overriding consideration must be the avoidance of steps which run the risk of damaging the banking system or of weakening monetary controls. They are fully aware that our banking and monetary systems depend for their efficiency on close co-operation between the authorities and the banks. They also recognise that the competitive position of our banks in relation to banks in other countries needs to be safeguarded.
H.M. Government, therefore, believe that it is necessary to move with care on the question of the exemptions. They do not think that they are yet in a position, in the light of the evidence so far available, to take a decision in favour of removing the exemptions. More time is needed to study the full accounts of the banks over a period in order to assess the consequences of full public disclosure.
H.M. Government are, however, requiring, as a condition of continued exemption, those exempt banks and discount companies which are incorporated in Great Britain to provide the Bank of England with full information about their profits and inner reserves. The principal banking associations have been informed of the intention of H.M. Government and have raised no objection to the arrangements proposed.
The information supplied to the Bank of England will be passed to the Board of Trade so that H.M. Government will be able to review after a period of time the need for continuing the exemptions in the light of up-to-date information on movements in the banks' full profits and reserves. The information supplied will be treated as strictly confidential.