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Lord McIntosh of Haringey: The first point I should like to make may appear semantic. The Select Committee on Delegated Powers and Deregulation noted that the procedure contained in the Bill was the common emergency procedure, which seems appropriate here. The period within which the order must be approved is also in line with Cabinet Office guidelines as set out in the statutory instrument practice. They say that the period within which such an order must be approved is usually 28 days, though sometimes it is a month or 40 days, and therefore allowing only 14 days is very unusual.

Clause 19(5)says:

So there need be no fear of anything being different when either House is not sitting.

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The fundamental point is that the order takes immediate effect. It has to be approved within a specific period, but there is no delay in it taking effect, otherwise we could not have such an order. We would have to say, "We are not going to have any extreme economic circumstances during August and September". Bearing in mind that the whole definition of "extreme economic circumstances" is that they are not predictable, that would be tempting fate. So the noble Earl's fears are really unjustified.

The Earl of Home: On the basis of those assurances I accept what the Minister has said; namely, that we shall be informed of these things very rapidly. On the question of period, it is no bad thing every now and then to question what seems to have been set in tablets of stone. I accept, nevertheless, that we have had assurances from the Minister that these points will be taken seriously, and he will no doubt want to bring them before Parliament. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 43 and 44 not moved.].

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

Lord Taverne: I do not know whether this is an appropriate time to mention this, but one of my concerns about the Bill is that there is an important role which still has to be played by the Treasury in the control of inflation. One of the problems which faces the Monetary Policy Committee is that it does not have in any way within its brief--and it is quite understandable why not--any question related to the exchange rate. The problem of the exchange rate might conceivably be a cause of great embarrassment to our economic circumstances. For that reason, it is very important that the reserve powers should be maintained because they give the Treasury overriding powers in certain circumstances.

I agree with what the noble Lord, Lord Peston, said earlier. It is a worrying aspect that again there is no brief for the European Central Bank to have any regard to exchange rates in the future. There may have to be some similar plan, although I accept that exchange rates will be much less important to the European monetary union as a whole than it is to individual countries within the monetary union now.

I want to put down a marker here. It is a grave omission from the five economic tests that the Chancellor laid down when he considered the future of economic decisions on whether or not we should join EMU, that he made no reference to the exchange rate. It is the most difficult of all the problems we face because he may well find that we have a high exchange rate at the time when we enter the two-year period of stability relating to the euro if we want to join EMU. Exchange rate policy will be a very important part indeed of the overall management of the economy over the next few years, something to which very little public attention has been paid.

Lord McIntosh of Haringey: I should love to debate these matters with the noble Lord, Lord Taverne.

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Perhaps we can do so when amendments are tabled to the European Communities (Amendment) Bill, the Amsterdam Bill, which starts its Committee stage next week. However, I am restricted from doing that in consideration of this Bill. All I can do is to refer the noble Lord to the debate that we had yesterday about the possibility of adding stable exchange rates to the objectives to the Bank of England in its monetary policy.

Clause 19 agreed to.

Clause 20 agreed to.

Clause 21 [Transfer]:

6.15 p.m.

The Earl of Home moved Amendment No. 45:

Page 9, line 35, leave out from beginning to ("transferred") and insert ("As soon as the condition mentioned in subsection (2) below is satisfied, the following functions of the Bank shall be").

The noble Earl said: In speaking to Amendment No. 45, I shall speak also to Amendments Nos. 46, 47 and 48.

These amendments are unashamedly probing. In this and future clauses we shall be discussing the Government's intentions as regards the transfer of banking supervision to the proposed Financial Services Authority and the assumption of some other responsibilities by the Bank. I say first that nothing I say in relation to this amendment or any future amendments hereafter should in any way be construed as criticism of the existing management or staff, either of the Bank or the new authority. We are now looking to the future.

The first amendment is designed to ask the Government to define more clearly what happens in the event of the failure of a major British financial institution. My noble friend Lord Stewartby and I raised this point on Second Reading but have not yet received an answer on this point.

The Economic Secretary said in Committee in another place that,

    "it is for the Bank to take the lead with respect to developments in its field of responsibility, which includes not just the stability of the monetary system but payment systems and the financial infrastructure".

Please note the words "the financial infrastructure". The collapse of a major British bank would undoubtedly affect the financial infrastructure, and from what she has said, one can only assume that in that circumstance, the Bank would lead any rescue or lifeboat operation.

Further, Mrs. Liddell went on to say:

    "That means that the other role for the Financial Services Authority is to take the lead where problems in an institution may pose a wider threat".

These two statements seem to be contradictory, and frankly I do not see that at the moment we know who does what in such a crisis.

These amendments also contain something of an exhortation, for in this Bill we are considering only the transfer of one of the nine disciplines for which the authority will be responsible in due course. I am not so concerned that there will not be a carefully prepared critical path analysis of the steps that have to be taken to

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transfer the Bank's supervisory powers to the authority, although obviously to get that right is vital. However, noble Lords will remember the case in the United States when the transfer of the Thrift Institutions Advisory Council from Arkansas to Dallas led to serious problems and confusion. That problem was probably intensified by geography, as a lot of new staff had to be trained from scratch, which one hopes would not happen in this case. However, I am concerned that this transfer must be seen to be done 110 per cent. correctly, otherwise the unscrupulous may well believe that they can take advantage of any slipshod transfers of other regulatory bodies in future.

I am here obviously talking about the increased potential for fraud. Sadly, deliberate attempts to buck the system, however good one might hope that system might be, sometimes succeed. I do not see any particular point here in debating the rights and wrongs of any incident which has happened in the past. But incidents such as the Barings case do flag up the point that even when a system is working, there are ways and means of bucking it. How much more opportunity will there be if the transfer of the supervisory functions of all the regulatory bodies is not done with the minimum disruption.

There is one further point which concerns me about the transfer. One of the great attractions of the City of London--and as a Scot I must mention Edinburgh as well as there seem to be a lot of Scottish Members on this side of the Committee today--is that the Bank has in the past supervised institutions with a much lighter touch than the authorities in other major European cities which would like to compete with us for financial predominance. The UK has several advantages: geography, language and costs to name but three. However, the way that the Bank has regulated institutions in an almost paternal way has been a great advantage.

Traditionally institutions have come very rapidly to heel following a nod and a wink from the Bank, an action which is sometimes referred to as "the Governor's eyebrows". Such action does immediately stop a bank in its tracks, and potential problems have been nipped in the bud. I am not quite sure from the way this is set out, or indeed from the Memorandum of Understanding, who will be responsible for this type of action. Will the authority be the new institution which gives advance warning, in which case it must grow some eyebrows rather rapidly? The danger is that the authority will act more like auditors, with its powers set in tablets of stone, and some of the attractiveness of the UK will be lost.

In the past the UK has benefited from over-stringent regulation elsewhere, and it is vital to achieve a balance between tight supervision to protect the depositor and no supervision such as we see in tax havens. Assurances from the Minister on these topics would be most welcome, and I beg to move.

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