Ingibjörg Sólrún: Bankakerfi Evrópusambandsins þoldi ekki Íslandsálagið

Hryðju verkamenn fjár mála 

Sökum ótta sem skapast hefur er þrír íslenskir bankar sem eru núna á hausnum inni í miðju Evrópusambandinu, hefur utanríkisráðherra Samfylkingarinnar, Ingibjörg Sólrún Gísladóttur, tekið þá ákvörðun að bjarga fjármálakerfi þessara 500 milljón þegna. Þessir 500 milljón þegnar eru sagðir búa í einhverju sambandi við eitthvað sem kallast Evrópusambandið

Að sögn Ingibjargar er fjármálakerfi þessa sambands svo lélegt að það muni ekki þola það að þeir samingar sem þetta samband hefur gert við eitt land sem heitir Ísland, og sem er ekki í sambandi við þetta samband, muni standa. Samningar þessir hafa verið grafnir í pappírsdyngjum 170.000 embættismanna í mörg ár. Þessir embættismenn hafa þó verið í stöðugu sambandi við Ingibjörgu og bankamálaráðherra hennar í þessi mörg ár. Þessir samingar segja svo fyrir um að það sé til tryggingasjóður einn á Íslandi sem eigi og muni standa undir greiðslum til þeirra sparifjáreigenda sem voru svo vitlausir að ganga út frá að 170.000 manna embættismannaher þessa sambands sem er í sambandi við Ingibjörgu á Íslandi, muni sjá til þess að þeir fái greidda út peninga sína samkæmt þessum samingum. Athugið að þessi 170.000 manna herafli sambandsins er eini herafli sambandsins. Að sögn sumra er þessi her ávalt í viðbragðsstöðu (high alert) tilbúnir til átaka með blýanta og önnur skrifstofuáhöld að vopni og sem aðeins Sósíal-Demó-Kratar fæðast með af Guðs náð

Evrópusambandið hefur eyðilagt grundvöll heilbrigðrar bankastarfsemi

Það má með sanni segja að 170.000 manna herafli þessa sambands sem kallar sig Evrópusambandið sé mjög áhrifamikill. Á innan við 10 árum hefur þessum her embættismanna tekist að eyðileggja grundvöllinn fyrir heilbrigðum og íhaldssömum bankarekstri í heilum 27 löndum og einnig á Íslandi. En eins og allir vita þarf bankarekstur að vera íhaldssamur ef hann á að geta gengið upp til lengri tíma en hægt er að mæla með reglustrikum Evrópusambandsins. Þannig að núna er þessi rekstur næstum gjaldþrota út um allt í þessu sambandi í Evrópu. Þessum rekstri er núna einungis haldið á lífi með því að láta launþega, börn og gamlamenni gangast í ábyrgð fyrir öllum skuldbindingum þessara banka. Stjórnendur bankanna ganga núna um með bleyjur fullar að peningum skattgreiðenda og míga í þá

En eftir að Ingibjörgu Sólrúnu Gísladóttur og bankamálaráðherra hennar tókst að koma bankakerfi Evrópusambandsins á heljarþröm, þá hefur hún gerst talsmaður fyrir því að Ísland gangi enn lengra og drepi hreinlega sambandið með því að hóta að ganga í það. En þetta eru 27 þjóðir sambandsins og 3 Norðurlönd af 6 mjög hrædd við. Þessi lönd og hafa því leitað til sér sterkari aðila í Bandaríkjunum og beðið þá um að innheimta innistæður samkvæmt engum-samningum við Ísland. Innheimta peningana með vopnavaldi frá Íslenskum launþegum, börnum og gamalmennum. Við þetta urðu Ingibjörg Sólrún Gísladóttir og bankamálaráðherra hennar svo glöð að þau ákváðu að hætta við að gera áhlaup á fjármálakerfi Evrópusambandsins og í staðinn að vinna að því að veðsetja Ísland upp í topp og vinna saman með innheimtustofnuninni alþjóðlegu, stundum skammstafað IMF, við að leggja niður Ísland, enda hefur það verið á stefnuskrá Samfylkingarinnar frá upphafi. Greiningadeildir samfylkingarbankanna (núna á hausnum) hafa nefnilega greint að Samfylkingin gangi með ólæknandi sjúkdóm er nefnist Eurosclerosis

Hvað hefði verið til ráða?

Ef Seðlabanki Íslands og Davíð Oddsson hefðu lagt til að bankarnir hefðu verið reknir úr landi árið 2003 eða að öðrum kosti yrði sett á þá stór bindiskylda og viðeigandi höft, og krafist að sett yrðu á þá lögbundin sjóðamyndun til að mæta stór-töpum, þá hefði hann verið krossfestur opinberlega - bæði Seðlabankinn og Davíð Oddsson, og það alveg persónulega af Ingibjörgu Sólrúnu og bankamálaráðherra hennar. En þessi krossfesting hefði ekki bara farið fram á Íslandi hjá Samfylkingunni heldur einnig í ESB - musteri Samfylkingarinnar erlendis. Þessi sjóðamyndun til að mæta stór-tapi í bankarekstri var til dæmis felld úr dönskum lögum því hún var dæmd sem samkeppnishindrun af Evrópusambandinu (já hvað annað). Núna þarf danska ríkið því að hósta upp ríkisábyrgð þessum vesalingarekstri til hjálpar. Og núna þurfa íslenskir skattgreiðendur að borga stóran hluta af því sem Seðlabanki Íslands var búinn að vara við árum saman. En bankamálaráðherra Samfylkingarinnar er heyrnalaus enda með gular stjörnur í bláum skónum. Seðlabanki Íslands hafði rétt fyrir sér, en ekki var hlustað á hann, enda menn heyrnalausir af peningaglamri samfylkingarbankanna og massífri fjölmiðlun þeirra. Davíð Oddsson varaði við þessu marg marg oft. En bankamálaráðherrann hlustaði ekki. Í staðinn fékk hann eyrnatappa að láni hjá Ingibjörgu Sólrúnu Gísladóttur - og gular stjörnur í skóinn. 

Hvað með alla hina?

Geta bygginameistarar ekki fengið ríkisábyrgð á Íslandi líka, og tískuverslanir einnig? Hvað með pylsusala? Þeir eiga stundum við erfiðleika að glíma í rekstri og hafa kanski selt fleiri pylsur en þeir eiga. Svo gufaði sinnepið einnig upp þegar sólin skein og gasið varð að engu í kútnum. Gosið í flöskunum reyndist vera loft af verri tegund en greint hafði verið í greiningadeildum. En þegar ég hef selt pylsuvagninn minn þá mun ég eiga fyrir öllum þeim pylsum sem ég seldi en sem ég átti ekki. Svo það er góð "von" til þess að allir fái sínar pylsur aftur með rúsínum í endanum á sér. Ykkur er því alveg óhætt að skrifa uppá fyrir MIG. Ég vona nefnilega því ég kann svo vel bankastarfsemi upp á von og ótta, en þó mest ótta - eða var það vonin, ég man það ekki lengur

En núna stakk Evrópusambandið sér á kaf ofaní seðlaveski Íslendinga, um mörg ókomin ár - launþegar, börn og gamlamenni. Rörið sem er haldið hinum óslökkvandi þorsta - það kom sá og sigraði. Til hamingju Íslendingar, núna eruð þið með í sambandinu. Loksins!

Gerum eitthvað annað © Samfylkingin 

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• House of COMMONS MINUTES OF EVIDENCE

Athugasemdir

[Sigurjón Þórðarson, 17.11.2008 kl. 00:24]

Þetta er ekki boðlegur málflutningur hjá Ingibjörgu Sólrúnu og Geir Haarde. 

Gættu að öðru - Allur þessi Evrópusambandsaðildaarvaðall er ekki nein tilviljun en Geir Haarde og Ingibjög Sólrún eru með þessu að reyna að láta umræðuna snúast um allt annað en eigin ábyrgða á hruninu og því að allt  liðið sem klúðraði málum  er á fullum launum hjá ríkinu.

[Loftur Altice Þorsteinsson, 17.11.2008 kl. 00:32]

Hvað ætli margir Íslendingar hafi vitað um þessa 20.000 Evra ábyrgð ? Hvað ætli margir Alþingismenn hafi vitað um þessa ábyrgð ? Hvað vissu margir Íslendskir ráðherrar um þennan bagga ? Ekki vissi ég um ábyrgðina og á ég þó hlut í einum þjóðnýtta bankanum og hef farið á fjölmarga hluthafa-fundi hjá öllum bönkunum.

Það væri annars fróðlegt að vita hvenær ESB læddi inn þessari tilskipun. Var hún nokkurn-tíma samþykkt á Alþingi ? Getur verið að einhverjir Íslendingar leggi til að við sækjum fastar í faðm ESB ? Væri ekki nær að forða sér út af Evrópska efnahagssvæðinu áður en það drepur okkur öll ?

[Fannar frá Rifi, 17.11.2008 kl. 01:01]

Kíktu á útreikningana hjá mér. Þeir skýra hvernig kostnaðurinn leggst á okkur og hversu mikill hann er.

4,5% vextir af IMF og Icesave í 10 ár, greitt einu sinni á ári afborgun, þýðir 2,2 milljarða dala í vaxtagreiðslur. 

[Egill Jóhannsson, 17.11.2008 kl. 01:13]

Þetta er nákvæmlega málið, Gunnar.

Ég hef einmitt verið að velta fyrir mér þessu með bindiskylduna þ.e. afhverju hún var ekki sett á bankana því hún er eitt af fáum tækjum sem Seðlabanki Íslands hafði til að sporna við vexti bankanna.

En þú bendir einmitt á skýringuna. Seðlabankanum hefur sennilega verið hótað með lögsókn byggða á samningum um EES að ef það væri gert þá væri samkeppnisstaðan við lönd ESB ójöfn.

Getur verið að þessi ákvörðun hafi verið afdrifarík sem ég fann á vef Seðlabanka Íslands. Hún var birt á vefnum í mars 2008.

Bindiskylda

Í nýjum reglum um bindiskyldu er gert ráð fyrir því að skuldbindingar erlendra útibúa íslenskra banka myndi ekki grunn bindingar. Breyt­ingin tekur gildi þegar reglulegri upplýsingasöfnun um efnahagsliði erlendra útibúa íslenskra fjármálafyrirtækja hefur verið komið á.

Tilgangur breytingarinnar er að samræma reglurnar þeim sem gilda hjá Evrópska Seðlabankanum svo sem verða má. Þótt tölur liggi ekki fyrir má ætla að breytingin létti talsvert á bindiskyldu þeirra banka sem starfrækja útibú erlendis.

Takið eftir að þarna er sérstaklega verið að létta á bindiskyldu banka sem starfrækja útibú erlendis. IceSave var í útibúi Landsbankans í Hollandi og Bretlandi. Þýðir þetta ekki að í mars 2008 var verið að ýta UNDIR útibú í stað þess að draga úr og stofna dóttturfélög? Úps!

[Gunnar Rögnvaldsson, 17.11.2008 kl. 01:45]

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1008-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TREASURY COMMITTEE

 

 

BANKING REFORM

 

 

Tuesday 22 July 2008

MR MERVYN KING, SIR JOHN GIEVE,

MR NIGEL JENKINSON and MR ANDREW BAILEY

 

KITTY USSHER MP, MR CLIVE MAXWELL and MR EMIL LEVENDOĞLU

Evidence heard in Public Questions 123 - 309

 

 

USE OF THE TRANSCRIPT

1.

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2.

Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

 

3.

Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.

 

4.

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Oral Evidence

Taken before the Treasury Committee

on Tuesday 22 July 2008

Members present

John McFall, in the Chair

Nick Ainger

Mr Graham Brady

Jim Cousins

Mr Philip Dunne

Mr Michael Fallon

Ms Sally Keeble

John Thurso

Mr Mark Todd

________________

Witnesses: Mr Mervyn King, Governor, Sir John Gieve, Deputy Governor for Financial Stability, Mr Nigel Jenkinson, Executive Director, Financial Stability, and Mr Andrew Bailey, Executive Director, Banking Services, and Chief Cashier, Bank of England, gave evidence.

Q123 Chairman: Governor, good morning to you and your colleagues on this evidence session on banking. They are very familiar appearances you are making at the Treasury Committee and you are even making one on 11 September when we are in recess so we look forward to that one as well. Can you introduce your colleagues for the shorthand writer please?

Mr King: Good morning, Chairman. On my right is Sir John Gieve, Deputy Governor for Financial Stability. On his right is Nigel Jenkinson, Executive Director for Financial Stability, who has been working very much on the Banking Bill and the consultation documents under John's leadership, and on my left is Andrew Bailey, Executive Director for Banking, who is very much involved in all relationships between the Bank of England and commercial banks.

Q124 Chairman: Welcome. When you were here in April you mentioned to us that you were determined that the Bank should accept new obligations only if it was granted sufficient powers to meet them. What do you see as your likely new obligations and will your new powers match them?

Mr King: Clearly the new obligation that has been suggested in the consultation documents given to the Bank is the management of the Special Resolution Regime for failing banks. That mirrors in many ways your own recommendations in your report in January. I think the consultation documents that we have seen so far do give the Bank adequate powers to implement that regime, though, of course, we have yet to see legislation and it is yet to be debated in Parliament and to be passed, so, as ever, the devil will be in the detail, but in the broad intentions in the document I think the Bank has been granted the powers to manage that regime.

Q125 Chairman: In practice what difference will it make to the Bank's work when it has a statutory duty for financial stability?

Mr King: I think it will make quite a major difference to the Bank of England. In the period before last summer I think it is fair to say that we adopted the view which was given to us under the Memorandum of Understanding that the role of the Bank of England was really not to get involved with individual institutions at any point. That has now clearly changed. It was not the view which most people seemed to take in the autumn should be our position, and what this regime now gives us is a responsibility not to supervise banks, not to get involved in great detail in banks in peacetime when there are no obvious problems, but as soon as there are potential question marks about the health of a bank we will need - and the FSA have made it very clear that they would share all the data with us - to be involved in understanding the condition of that bank in order that we would be able to make a judgment, a recommendation, if necessary, to the FSA to have the bank be put into the Special Resolution Regime and to take control of that bank in the regime were it necessary to do so.

Q126 Chairman: It is clear from the evidence of Sir John Parker last week that many aspects of the Special Resolution Regime are still to be clarified. Do you think that the Government's thinking is sufficiently advanced to enable legislation to be published in October?

Mr King: It is certainly sufficiently advanced to enable legislation to be published in October. There will, of course, be a great deal of detail that will need to be thought through and examined very carefully. That is your responsibility together with the House and I hope that you will take the time to do that and devote enough resources to it. I think there is a lot of detail still to be discussed, and the precise powers that the Bank will have and how the regime will work I do not think can be fully deduced from the degree of detail that has been published so far, so there is still a lot to play for.

Q127 Chairman: That certainly came out in our evidence session last week and that is what concerns us, particularly when the powers to take public control of banks under the Banking (Special Provisions) Act 2008 will lapse in late February. Given that situation, do you think it will be possible for the powers under the new Special Resolution Regime to be ready by then? I would not like to think that everything has got to be worked up to February because we will get a very complex piece of legislation and in ensuring that we comply by a particular date we may miss the bigger picture in that we have legislation which is fit for purpose.

Mr King: I certainly think it is more important to get it right than to rush it to a fixed timetable. That clearly must be the case. Whether or not that timetable will prove to be feasible I think is too early to judge now. I see no harm in trying to meet that timetable, but whether or not it will be feasible will depend very much on your and your colleagues in Parliament as to whether you feel you have had enough time to debate the details. They must be got right and it would be a mistake to rush it. I would rather take more time to get it right than rush it.

Q128 Mr Todd: One of the areas which certainly requires some further definition is the role of the Financial Stability Committee. You may have read the evidence when we questioned Sir John Parker on aspects of that previously. What do you think the function of that committee is? Is it an executive committee to handle specific circumstances and to drive policy and to direct the executive of the Bank? Is it an advisory body? What exactly is it going to do, do you think?

Mr King: Let me try and spell out how I think it would work in practice and then we can decide what label you wish to attach to it. What I envisage is that, in contrast to monetary policy, where there is a very clear single decision, single instrument and a timetable to make those decisions which need not vary, financial stability is a very different kettle of fish altogether. The issues involved are many and varied. There is no one-dimensional policy instrument. I think you can divide the work into two kinds. We would intend to involve the Financial Stability Committee in discussions of both kinds, and indeed in all the work of the Bank in financial stability, so I think there are two kinds of work. One is the structural work where you are not working to an immediate timetable determined by the problems of a crisis. You are thinking through a structural reform, how would we implement and manage the Special Resolution Regime, how does lender of last resort support work in practice, how would we design the new regime for regulation of payment systems, which is another responsibility that the Bank will be given. We would have discussed with the committee the Special Liquidity Scheme; we did with Court, but we would discuss it in more detail with the Financial Stability Committee and the successor to that scheme. All of these issues are important to financial stability but they are not done to a particular timetable. They are issues that we need to think through. My view of this committee is that the executive and non-executive members on the Financial Stability Committee would sit together and debate at some length all the issues that go into it. I think in the end the executive members will have to take responsibility. I do not think non-executive members of Court are there to second-guess the policy judgments of the executive, and I do not think you can really expect them to be held responsible for a lot of the detail of it; it is not their task to do it, but I do think that they have to be comfortable with it. I would not myself want to proceed with any of these structural issues unless I felt the Financial Stability Committee were comfortable with that. Nevertheless, in the end this committee is going to hold me and the other executive members accountable for what the Bank does. We will be held responsible for it. The accountability of this kind of work of the Financial Stability Committee will be done as other Court committees often do it. All the detail will be discussed with the executive members and the non-executive members will be able to report back to Court as to whether or not they think the executive is doing a competent and professional job. If not they can raise question marks.

Q129 Mr Todd: So, in answer to my question - that was a very helpful answer -----

Mr King: Can I go on to the emergency actions, which is the other part of the work? On that one, again, we would discuss with the Financial Stability Committee each individual case, daily if necessary. You cannot expect Court to do that but I think the Financial Stability Committee would have to be prepared to meet daily if necessary, but we on the executive will be meeting all day dealing with a crisis. There has to be some delegation of decisions in a crisis to the executive, Court understands that, but insofar as possible we would certainly take every decision to the Financial Stability Committee, and I myself would not want to recommend to the Chancellor that the Bank would be willing to support an action if the Financial Stability Committee felt that the use of the Bank's balance sheet was too risky, for example. If the FSC was not willing to support that action I would say to the Chancellor, "Look, if you want to go ahead with this then it will have to be at the cost to the Government, not the Bank". I do think that the Financial Stability Committee has a very big say here, but in the final resort you and others are going to hold us accountable.

Q130 Mr Todd: Indeed, so you have defined a role of forceful, high-powered advice and scrutiny?

Mr King: Yes, exactly.

Q131 Mr Todd: Challenging, probing but not accountable for decisions that may be made? Those are essentially the duty of the executive and the Government?

Mr King: Yes, but I do think that the non-executive members of the FSC will be reporting back to Court on whether they think the executive have handled the matter competently and professionally because they will have seen us in action in some detail in a way that Court will not.

Q132 Mr Todd: So in this slightly unusual body you will also have seen that there was some questioning of your own role?

Mr King: Indeed.

Q133 Mr Todd: How do you define your own function on this body, bearing in mind that you are to some extent being held to account by them and yet you are the Chairman of it?

Mr King: I think the accountability is ultimately with Court, which is, of course, chaired by a non-executive director, not by me, but the way in which Court holds us accountable is because of the information and views provided to it from the non-executive members of the Financial Stability Committee. If this committee is to engage in a serious debate about the structural reforms and issues that the Bank is engaging in and the individual cases that we are involved in it really is going to have a serious input into those decisions. The Governor will have to chair it; otherwise it will not be a committee which really is getting to grips with the policy issues which the Bank is facing.

Q134 Mr Fallon: I do not understand this. You said at the very beginning to Mr Todd that the executives of the Bank led by yourself would be accountable to this committee but you will chair it. How can you be accountable to a committee that you will chair?

Mr King: I said that the committee has both accountability and executive functions. It has both of those. The accountability is the reporting back to Court by the non-executive members of the Financial Stability Committee.

Q135 Mr Todd: This is a beast of a very different kind from the Court and will require rather different membership. You will be aware of the potential conflicts of interest that will arise from the selection of some members.

Mr King: Indeed.

Q136 Mr Todd: You may have heard my line of questioning which was perhaps looking at an international dimension to membership, which I note is already on your Financial Stability Board. You have a Swedish banker, I think.

Mr King: Yes, a former member of the Riksbank.

Q137 Mr Todd: I will say straightaway I am presuming that you will not have a role in the appointment of these members because that would be presumably inappropriate, bearing in mind the discussion we have had.

Mr King: Yes. The non-executive members of the Financial Stability Committee will be drawn from the members of Court. Members of Court are appointed by the Government, or the Crown on the advice of the Government, and Court itself will then choose the subset of members that will serve on the Financial Stability Committee.

Q138 Mr Fallon: Can I give you one more opportunity to explain, Governor, how you yourself can be accountable to a committee that you will be chairing?

Mr King: Because the accountability is to Court. It is through the Financial Stability Committee to Court. If you want this committee to get seriously involved in individual decisions and judgments where it is making a major input into those decisions and it is not simply holding the executive to account; it is actually making an input into those decisions, then it is not just a committee which is involved in accountability.

Q139 Mr Fallon: All right. Let me take you back to something you said to the Chairman on the Special Resolution Regime. You said the Bank would make a recommendation if necessary that a bank be put into the Special Resolution Regime, and I thought you had won this battle with the Treasury but the document says, "The Government proposes that initiation of the regime would be subject to an assessment by the FSA". Have you won this battle or not?

Mr King: I do not think it is a battle. It is true that I would have preferred an outcome in which either the FSA or the Bank of England could have initiated the trigger. We will not have the right to initiate the trigger. We will have a right to make a written recommendation to FSA that they initiate the trigger. That is clearly not the same thing, but in due course I would expect that if there were problems with this you yourself would want to comment on whether or not FSA did or did not respond in a sensible way to the advice that we gave, so I think we have a major say in giving advice as to whether the trigger will be pulled, but it is true that we will not be pulling the trigger.

Q140 Mr Fallon: The Government go on to say, "The Bank of England would be able to make recommendations to the FSA regarding this assessment", about the trigger.

Mr King: Yes.

Q141 Mr Fallon: But you will not be able to make a recommendation independently of the assessment by the FSA, will you?

Mr King: Yes. The FSA have said that all the information and data concerning the bank in question would be made available not only to ourselves but also to the Treasury, so the tripartite authorities which share all that information. That would enable us to make a judgment ourselves as to whether we thought the trigger should be pulled, and if we thought it should we would make that recommendation.

Q142 Mr Fallon: So you could identify a bank that the FSA was not yet ready to identify and say in your view as a recommendation that you thought that was ready for the regime?

Mr King: Yes.

Q143 Chairman: Governor, you mentioned our role. How will we know what advice you have given to the FSA? This will surely be in private. It would only be a post mortem.

Mr King: It would be a post mortem but I do think that the ex post accountability that you engage in is extremely powerful.

Q144 Chairman: In other words, after another possible shambles people will come along here and we will find out what advice you gave to the FSA?

Mr King: That is all the power which I have.

Q145 Chairman: The issue, Governor, on Northern Rock was an issue of clarity of leadership and precision and, as I have mentioned before, every participant came along and said they did their job.

Mr King: As I have said to you, I would have preferred a regime in which we had the power to pull the trigger. The Treasury have decided that is not the power that we will be given.

Q146 Chairman: Okay, so this is the first fuzzy aspect of this?

Mr King: I do not think it is fuzzy. I think it is clear. It is not the one I would have chosen but it is clear.

Q147 Chairman: Okay, it is clear, but it is not in your favour and will maybe not be in the best interests overall.

Mr King: That is for you to judge. We have made our view clear. We lost the argument on that, and that is fair enough. We are not going to keep fighting about that.

Q148 Mr Fallon: Sure, but there would be two institutions potentially still making recommendations -----

Mr King: Yes.

Q149 Mr Fallon: ----- and at the same time a different point, saying a bank could be about to fail?

Mr King: Under the regime which we proposed there would have been two bodies that could have taken that decision. You seem to me to have no problems with that.

Chairman: Okay, clarity, oh, clarity.

Q150 Mr Brady: Just to follow that up, if you write this letter, this recommendation, and the FSA does not agree with you, at what point might that become public?

Mr King: That would depend on how the circumstances panned out. If nothing happened to the bank and it never entered a Special Resolution Regime maybe no-one would discover it, but I imagine that some years down the road eventually you would ask the question, "How many recommendations did the Bank make which were not acted upon?", and then you would find out.

Q151 Mr Brady: I will try to remember to ask the question.

Mr King: I hope you will be around long enough to find out.

Q152 Mr Brady: If the Bank of England has responsibility for the Special Resolution Regime and for the choice of tools to be used within it, do you envisage that would mean having an in-house expertise and capability to run it or would you rely on co-opted people to do that?

Mr King: No, there will have to be some in-house team running the Special Resolution Regime, clearly. I think it is fair to say that all such bodies around the world, whether it is the FDIC in the United States or the equivalent in Canada or elsewhere, operate with a certain minimum level of staff on a permanent basis and then bring in staff quickly when circumstances demand that a bank be put into a Special Resolution Regime. One of the things that we will be doing in the autumn is working out the details of how we are going to manage that organisation, both the permanent staffing of it, which will require rather different kinds of people than we have in the Bank at present, and also the basis on which we know that we will be able to attract people very quickly, often at only a few hours' notice, in order to beef up the staff when dealing with a particular bank to be resolved. That is exactly the way the FDIC operates in the States and we will certainly want as far as we can to take advantage of the expertise and knowledge which those bodies have and have exercised over many years. We have had very useful contacts with them already.

Q153 Mr Brady: Do you have a sense at this point of what kind of additional resource you would need for that minimum capability or is it too soon to say?

Mr King: I think it is too soon. It would just be pulling something out of the air. The Americans have a permanent staff of 200. That is because they have many more banks. They have had five banks fail this year. The big challenge to us in this regime is that we would expect to have many fewer banks in the regime than, say, the Americans, but if it were a bank in the regime it could well be much bigger than the average bank dealt with by the Americans. That I think is the big challenge because they have never had to resolve in terms, say, of paying out depositors quickly, anywhere near the number of accounts that even, say, Northern Rock had, so there is a big logistical challenge in designing a regime which will not be used frequently, we hope, but when it is required has to operate very effectively and on a much larger scale than almost anyone else in the world has done so far.

Q154 Mr Brady: There have already been some questions about the structure and how it will provide accountability, a slightly different aspect of that. How can the Financial Stability Committee provide accountability for the regime when its members will have been parties to the decision-making process in implementing that regime?

Mr King: That is exactly my point, which was that accountability for those decisions, I think, rests directly with you, that the Bank will be directly accountable to you. It will be accountable to Court but in the end the use of the Bank's balance sheet Court itself will want to have a say on, as it did on Northern Rock, and if Court decided to use the Bank's balance sheet then how is Court accountable? It is to you, it is to the Chancellor; it is direct accountability of that kind. If you want the non-executives to be involved in some way in giving advice and being involved in the decisions then you have to accept that they cannot entirely operate a completely hands-off accountability role.

Q155 Ms Keeble: What is your view of the proposals for the new depositor protection arrangements?

Mr King: I think the main proposal, which is that we would move to 100% deposit insurance up to some limit where one of the candidates for that limit is £50,000, is all very sensible. It is what I recommended to you right back in September only a few days after the run on Northern Rock. I think you cannot hope to avoid a run unless you have a regime of that kind in place, because once you have a regime of that kind in place there is a problem because the banks themselves may feel that, to the extent that they can fund operations by raising retail deposits, the risk of those retail deposits now falls entirely on other banks or on the taxpayer ultimately, and that is why we are in favour of risk-based premia for this insurance scheme. We think that the banks, when providing the funds to finance the deposit insurance scheme, should pay a contribution which reflects the riskiness of the bank. In order to do that some element of pre-funding (it does not necessarily have to be enormous but some element of pre-funding) is desirable. That will be consulted on in the autumn and that is for a future consultation. I would hope that that issue will still be on the table. I think it is important. I do not think it is a good idea to offer 100% insurance up to, say, £50,000 without any element of a risk-based premium at all, and to do that you need some element of pre-funding.

Q156 Ms Keeble: I wanted to ask about the pre-funding. In particular do you think that the new arrangements, which are obviously going to be important if a bank does fail in that people will get their money and be able to manage their finances and so on, would also help prevent a further run? Do you think they would provide the assurances that people need to prevent the kinds of things we saw with Northern Rock?

Mr King: I think they will certainly make a very big difference and it will certainly help. In itself it is not enough. There was a very interesting episode that has just taken place in the United States where they have this deposit insurance but when Indy Mac failed they had a run. In fact, they had queues of depositors outside all 33 branches. The reason was not that they did not have the right scheme. The reason was that they had perhaps not communicated enough to all the depositors the nature of that scheme. The lesson from this is very interesting. If you think back to the experience we had in the autumn, FDIC Chairman, Sheila Bair, said, and note this is about America last week, "Nobody anticipated the kind of media that was going to get played and, frankly, in an inflammatory way with some of the networks. This has been pretty non-stop since Friday. There were lines outside the branches for four days. Officials blame the problems on extensive television coverage which heightened the anxiety of the consumers that depositors would not have access to their money." Communication is at least as important as putting this scheme in place.

Q157 Ms Keeble: Is the idea that people can get more money out faster with more assurances not more likely to make them go and get more money out?

Mr King: Sorry?

Q158 Ms Keeble: If you have a scheme which is guaranteed to pay people out more money more quickly -----

Mr King: Then why would you waste your time going to stand outside a bank?

Q159 Ms Keeble: Alternatively you might hurry down more quickly. As you say, it is a question of how this -----

Mr King: If it is paid out by the deposit insurance scheme rather than the managers of the bank, that is the important thing.

Q160 Ms Keeble: Can I ask you about the pre-funding? As I understood it there are two options. One is that there could be a loan taken out against the public sector and the other is with the pre-funding and those are two quite different schemes. I had understood that the balance of opinion was in favour of the first rather than the second but you are arguing for pre-funding. I wonder if you could comment on that and also say if there has been any scoping out of how much money would be needed, because that is obviously fairly critical for the success of any scheme.

Mr King: Yes. On the first, the Bank's view still remains that we think an element of pre-funding would be a desirable part of this scheme. I think it is fair to say we have not convinced all other participants in this debate yet. I think it is rather short-sighted myself to use the argument that the banks should not be asked to put up money now. No-one is suggesting that this year is the time when you would ask banks to put up money, but if you wait until there is a problem that is a pretty bad time to ask the banking system to put up a large amount of money.

Q161 Ms Keeble: I understand that but the case that you were talking about in the States was a bank with 33 branches.

Mr King: Indy Mac, yes.

Q162 Ms Keeble: We are probably looking at something rather different in the UK.

Mr King: That is why I think we have used the phrase very carefully, "an element of pre-funding". We are not necessarily suggesting that you will be able to rely on pre-funding to pay for everything.

Q163 Ms Keeble: What does "element" mean? Has there been any discussion on the amount?

Mr King: There is obviously a choice. You can choose how much you would raise by pre-funding and how much by post-funding. There is no obvious division which is optimal. That is a debate I would like to see. I think some element of pre-funding is necessary in order to enable you to set the premia on the basis of the risk of the bank. That is the important principle.

Q164 Ms Keeble: If you say "an element of pre-funding" how much would it be in percentage terms and what would it be expected to raise because that must be critical in terms of the success of the scheme? Is it X billion, Y billion? I do not know. What percentage and what does that then mean for the premia?

Mr King: There are lots of choices. You can have a small premium of only a few basis points on the level of deposits of a bank or many more basis points. You can choose how much. The size of the fund is something that you could choose, to have a bigger or a smaller fund.

Q165 Ms Keeble: What would you recommend?

Mr King: I do not think I would want to recommend a particular number at this stage but something that would amount to a non-negligible contribution, so that over, say, ten years you would have built up a fund of many billions, so certainly into the billions over ten years.

Chairman: Non-negligible billions, okay.

Q166 Nick Ainger: I do not know if you, Governor, are going to answer this question or one of your colleagues because it is about the detail of how the depositor protection scheme will work for banks that are based in the EEA and have branches here which are deposit taking. We have had a note from the FSA following the evidence session we had with them which explains in some detail how it works. Can you confirm that under the proposed arrangements, if there is a bank which is foreign owned, based in the EEA, that has branches here and gets into difficulties, the first call that a depositor would make would be on the home depositor guarantee scheme, not on the FSCS? Is that correct?

Mr King: The only people who can answer this question are the FSCS themselves; we cannot. It is nothing to do with the Bank of England, but as we understand their position a depositor would have a call on two funds. The first amount would be up to the level of deposit protection offered by the home European state in question, which varies according to the European state. The difference between that and the figure which is the limit for FSCS would be contributed by the FSCS. There would be two contributions if the amount in the deposit account was up to, say, the FSCS limit, and you would have to make two claims for these two different amounts.

Q167 Nick Ainger: But is that not the problem, that we want a scheme which is designed to prevent people creating a run on a bank, in other words, an easy, quick way of an assurance that you can get your money out quickly? If we have a scheme where we have a significant number of branches of foreign owned banks where you have to go and claim in another country for that depositor protection, is that not going to lead to runs on banks because people will believe it is going to be incredibly difficult and complex, whether it is or not, and be time-consuming too if they have to go to the country of origin depositor protection scheme rather than call in straight on the UK one?

Mr King: Certainly, any depositor who decides to put their money into the branch of an overseas bank that is not regulated by the FSA has to ask questions about whether or not it is safe to do so. This is a question really for FSA and FSCS about whether or not UK retail depositors should or should not have access -----

Q168 Nick Ainger: But surely you have a view?

Mr King: No, I do not have a view. It is not my responsibility and I do not like going round telling FSA or the FSCS what regulation they should have. It is true that if foreign banks in the UK have branches in the UK and people can put deposits in those branches, then, unless they are covered by the FSCS, which would be the case if they came from outside the EEA, then you have to apply to two deposit authorities. That is something which is a decision of the European authorities. It is not to do with the Bank of England. It is not even to do with the UK authorities. It is a European agreement. You may want to raise that yourself with the relevant ministers to see whether this is a suitable outcome.

Q169 John Thurso: Governor, in our report The run on the Rock we made it clear that we could not accept the evidence that had been given that the tripartite system operated well. We disagreed fundamentally with that. In your speech to the British Bankers' Association in June you said the Memorandum of Understanding regarding the tripartite arrangements was not so much faulty as incomplete. What was missing and what has been done to plug the gap?

Mr King: I think what was missing were two or three things. One is the set of issues we have been debating this morning, the Special Resolution Regime for banks. The reason why Northern Rock dragged on and on was the absence of any Special Resolution Regime. That bank would have been dealt with immediately under a Special Resolution Regime. It could not be because nationalisation was the only alternative. The second is deposit insurance where there was an incentive to have a run in the absence of a 100% deposit insurance, and, thirdly, it is fair to say that the tripartite arrangements were seen as a communications framework in which people would communicate their own responsibilities to each other. With regard to the lender of last resort facility, clearly mistakes were made, as you pointed out in your report, about the failure to grant the guarantee early enough. That was clearly a failure; it should have been granted earlier, but in terms of communication the things we had to communicate with each other we did. The framework was incomplete in the sense that we were not discussing detailed information about individual banks enough between the FSA and the Bank of England, and since the late autumn that has changed really quite dramatically. There are now regular tripartite meetings at principals' level. There was none before. There are regular discussions between FSA, the Bank and Treasury about individual institutions and contingency planning. All of those things, understandably, in the context of the financial crisis, we have gone into action on and I think it has worked pretty well since then. I think all three parties would say that they feel they have worked together pretty well.

Q170 John Thurso: Would you say that the core function of the tripartite arrangement therefore is to be a communication vehicle between the three institutions?

Mr King: Yes, I think it is. Each of them has very clear specific responsibilities for which this Committee holds us accountable. We cannot devolve those responsibilities onto others.

Q171 John Thurso: Is there any moment at which the tripartite group should become a decision-making body? Is it capable of that? Should it be there?

Mr King: I think it certainly would in the context of the question of resolving a bank where the right solution of resolution involved the use of public money. I think it would be almost impossible to avoid a situation where, if FSA wanted to say to the other members of the tripartite authorities, "In our view this bank is close to failing. We ought to start to prepare for the contingency of going into the Special Resolution Regime", the Bank of England would say, "We have looked at the various options here. Our preferred option for this bank does involve the use of public money for a period and that cannot be done without the Treasury agreeing that". The Chancellor has to have the opportunity to reflect on that and decide whether or not it is an appropriate use of public money. I think in that situation all three bodies have to work very closely together, yes.

Q172 John Thurso: Because the only way in which you can join up the evidence that we had, which was three separate groups of people saying they had all done their job, and the overall view, which was that the job did not get done, was to say that there was something missing in that communication between them or in the decision-making process.

Mr King: No, there is a third possibility, which is that the three bodies between them did not have sufficient powers to deal with the situation and that is my point from the very beginning here. The fact that no one of those three parties had the ability to put Northern Rock into a Special Resolution Regime and the fact that we did not have 100% deposit insurance were major contributors to the problems that we faced.

Q173 John Thurso: So your view is that with these additional tools, if one had an unfortunate circumstance like Northern Rock again, the mistakes or whatever would not occur again?

Mr King: We certainly would handle it differently. I cannot promise you we would not make mistakes, everyone can make mistakes, but certainly these powers would make an enormous difference.

Q174 John Thurso: On another matter entirely, which I asked you about a couple of times ago, Scottish bank notes, we have had a happy resolution to that in that we are going to be able to go on producing our Scottish bank notes. Were you party to the ultimate compromise and were you content with it? Will it do the job?

Mr King: We were certainly deeply involved in all the discussions. The question of how the profits of note issue are divided between taxpayers and note issuing banks is a matter for the Treasury, not for us, so that is a question you must put to the Chancellor, but in terms of the details of how we all managed that agreement, we were closely involved and Andrew Bailey is the man who was responsible and involved in that.

Mr Bailey: The first part of it was as the Governor said. The second part is how you allocate the income received by the note issuing banks from issuing those notes, but the first part of it is all to do with saying there is a set of risk-free assets that are there to back the note issue and are there to protect the holders of notes in the event of a failure of one of the note issuing banks. In the current regime there is, in fact, no ring-fencing so that those assets are, in the event of insolvency, available to the note holders. They would just be in the general pool of assets, and the new regime will achieve that, so yes, we are happy that we are going to get that and that is what we think is appropriate.

Q175 Chairman: Clydesdale Bank were one of the banks that I think had quite major concerns on it and they did speak to me a couple of weeks ago and they seemed very happy with that.

Mr Bailey: That is my sense too.

Q176 Mr Dunne: Can I take you back to the questions that John Thurso was asking in relation to the role of the Treasury in the new tripartite arrangements? It is clearly appropriate that the Treasury and the Chancellor are involved in the design of the regime. We have had evidence from the non-executive directors of the Court that they think it is appropriate not to be involved in the implementation of the tripartite arrangements going forward. How is that possible if ultimately it is the Chancellor's decision whether to commit public money to a situation?

Mr King: It would depend on which tool was used in the Special Resolution Regime. A number of the tools would not apply the use of public money. The way I see it operating is that the Bank would decide what tools were the appropriate tools to use. If they did not involve the use of public money the Bank would simply implement it. If they did involve the use of public money the Bank would have to go to the Treasury and make the case, and the Treasury would certainly be entitled to say, "No, we do not think this is an appropriate use", and the Bank would then have to move down the list of tools until it found one that either did not involve the use of public money or which the Treasury were content to adopt. I think that is a reasonable position. I do not think the Bank can possibly assume the right to determine the use of public money for these things. It has to be decided by the Chancellor.

Q177 Mr Dunne: I agree that that is where the decision needs to lie, but, given that we are talking about exceptional cases and probably large cases here where large amounts of public money may be at stake and therefore the decision for the Chancellor may be a very difficult one, surely it is right that the Treasury and the Chancellor are involved at the very earliest stage in determining whether this is an option or not, because it might influence whether or not the FSA exercises the trigger and you then get involved and go through that decision tree you have just described?

Mr King: That is one of the things which I am sure would be discussed at length in the tripartite arrangements, but the point is that the decision on what tool would be used would in the end be the responsibility of the Bank of England. Therefore, you can hold us accountable for it and we would not want to go ahead with a tool that we felt was inappropriate.

Q178 Mr Dunne: Will that not potentially set up the same disagreement between the Governor of the day and the Chancellor of the day if the Chancellor is determined not to make public money available?

Mr King: No. We will find other ways round the problem if there is no public money available. That is the job of the resolution authority. I do not think we can say to the Chancellor, "You have to give us this money to make it work". We can say, "Our advice would be that public funds be used in this situation", (or not, as the case may be), but he must be entitled to say no, and if he says no we have to work round it. That seems to me to be perfectly reasonable.

Q179 Jim Cousins: Governor, it is clear under the existing legislation that the responsibility for testing whether a bank has adequate financial resources lies with the FSA as the regulator, but is it not also clear from your own presentation this morning that when this new regime is put in place the Financial Stability Committee will be working alongside that, overshadowing that regulatory responsibility of testing adequate resources? Is there not a rich potential for muddle here?

Mr King: I think not but let me explain how I think the regime would work. I think we feel it is helpful to think in terms of banks in a green zone, amber zone and red zone, where red zone is the bank that has already gone into the Special Resolution Regime, green is a bank that is under the normal supervisory regime of the FSA and there are no obvious concerns, and amber is the regime where there is a bank about which there is a concern. I think it is in the amber regime that FSA would want to (and it has said it would) share all the information that it had about the bank with the Bank of England, and that the Bank of England would want to acquire information about that bank in case that bank ultimately got into the Special Resolution Regime. One of the problems we had with Northern Rock was that, having had a regime with a very clear separation of responsibilities, we actually knew almost nothing about Northern Rock and we knew nothing at all about the collateral that it had, which made it more difficult than would otherwise have been the case when it came to us lending the lender of last resort facility against that collateral. We feel that in the run-up to that sort of operation we need to be involved earlier in order to acquire information that would be relevant to us under our own responsibilities, not to second-guess the regulatory judgment of FSA but to prepare ourselves for responsibilities that we might be called upon to meet.

Q180 Jim Cousins: Governor, we have had some evidence from the FSA which casts doubt upon a clear distinction between green, amber and red. When we asked the FSA what they meant by heightened supervision they made it clear they could mean any one of a whole range of different things of varying significance and importance. In a situation where you are operating the clear sense of green, amber, red and the FSA are not, is there not a rich possibility of muddle and confusion?

Mr King: No, I do not think so, because what FSA said when they gave evidence to you was that the distinction between green and amber was not one that was capable of being announced to the world at large according to a certain precise criterion, and it is very important that the world at large not know the distinction between green and amber because otherwise it would be very hard to intensify supervision of a bank without telling the world that the bank was in trouble. It is very important that FSA can change the degree of supervision, whether it is heightened or intensive, of an institution internally in order to deal with cases that it is worried about without having to alert the world at large that it is doing that. That is what it meant by that, but it would certainly talk to us about whether or not it was more or less concerned with an institution, and it has done that all along, so I do not think we would have any difficulty in discussing with FSA whether we felt the bank was in a situation that we ought to take more interest in.

Q181 Jim Cousins: We are now getting a picture of quite a complex process and you yourself have referred this morning and on other occasions to the importance of communication, and you have made it clear that you do not think this amber state, if we are going to use your terminology, should be communicated, but has there ever been any formal inquiry as to how the leak which caused the run on Northern Rock ever took place? Has there been any formal inquiry into that at any stage by anyone?

Mr King: As far as I know no institution has instigated a formal inquiry, no.

Q182 Jim Cousins: Governor, do you not accept that there is a certain moral hazard, if I can use that term, in not carrying out such an inquiry into how that happened because in the absence of such an inquiry how do we know that all these discussions that will be going on in the amber phase between a whole variety of different people in your two organisations, involving the Financial Stability Committee, will not be leaked?

Mr King: All I can say is that if you would like to hold your own inquiry into what happened you would be very welcome to. I do not think any leak inquiry has ever produced a very productive result, and I think it is pretty clear where leaks tend to come from.

Q183 Jim Cousins: But, Governor, this Committee is not the appropriate agency to do that, as you know perfectly well, and you must also appreciate, Governor, because you yourself used the term "moral hazard" on a regular basis, quite properly, that if significant leaks occur and no inquiry is made into those there is an element of moral hazard that results.

Mr King: I am absolutely convinced that no leak emanated from the Bank of England. I have no idea where the leak came from. Others can ask themselves that question if they want to.

Q184 Chairman: Governor, I thought you said it was pretty clear, you thought, where the leak came from. Did I hear you wrong?

Mr King: No, I did not say that.

Q185 Chairman: What did you say was pretty clear then?

Mr King: I said leaks in general are those things which you are more expert in than those of us in public bodies. I think you are much more expert in where these things originate from and how they come out.

Q186 Jim Cousins: I am sorry, Governor, this is a serious issue.

Mr King: It is a serious issue.

Q187 Jim Cousins: It is too important for that kind of by-play. You know perfectly well the credibility of this system will depend on an absence of leaks.

Mr King: I have given you an assurance that no leak came from the Bank of England in any respect of any issue in the last year that has come up. There are a number of issues where leaks have occurred, where things have reached broadcasting authorities. None of it came from the Bank of England. I cannot carry out any investigation into a leak from any other authorities.

Q188 Jim Cousins: But, Governor, what are we on this Committee and in Parliament when we consider this legislation to make of a system where there are inquiries into bottom feeders' leaks, young men at computer terminals, but there are no inquiries into top people's leaks?

Mr King: What top people's leaks are you thinking of?

Q189 Jim Cousins: What occurred last September.

Mr King: I suggest you ask the other authorities involved what they have done about it.

Jim Cousins: Thank you.

Q190 Chairman: Going back to the point about depositor protection earlier on, what we have found is that the banks are very resistant to the rapid payout from depositor protection because that will have a high cost on them upgrading their systems. Do you think that such a cost is worthwhile in order to reduce the possibility of another run on a bank?

Mr King: I do, and I think it is not something that we should insist be done immediately. Banks should be given a period of time over which to do it. The FDIC in the United States gave banks 18 months in order to ensure that their information on depositors was in a conforming standard that could then be handed to the FDIC in the event that the FDIC took control of a bank. There are many things that we could do that would make the management of either payout of depositors or transfer of a deposit book to another bank much faster and more efficient. I think that ought to be part of the regime of protecting depositors and I think the banks should be given time, several years, to get to that point but it is important that we embark on it.

Q191 Chairman: As you know, in our report we were for the principle of prepayment but we have left it to others to work out, but the principle itself is important and work should begin on that because if the principle is not there then institutions could take excessive risks in the future.

Mr King: I agree, and I would be in favour of that work being done and I think it can be designed in a way that over a period of time does not impose excessive costs on banking.

Q192 Chairman: The Bank of England is to be granted immunity from damages in respect of its central bank functions. Why has that not been thought necessary before and why does it matter now?

Mr King: It was thought necessary up until 1997 and I think it was some oversight that it was not extended. I think the assumption was that all of our regulatory responsibilities would be handed to FSA and therefore we did not need an immunity. Now, of course, we will have regulatory responsibilities under the Special Resolution Regime, and indeed on payments systems, and I think most people have commented in the consultation responses that they feel it would be appropriate for the immunity to be given to the Bank.

Q193 Chairman: Will that immunity have retrospective effect as well, do you think?

Mr King: I have no idea. I rather doubt it, but I do not know.

Q194 John Thurso: I have just one question on the general concept of financial stability. We all know we want it and we all know when we have not got it, and the causes of financial instability during the last year are numerous and we have discussed them and they are greed and hubris and inexperience and all sorts of things, but when your new committee sits what tools do you have to do anything about any of those things that are going to have any effect?

Mr King: There are very few tools to deal with greed and hubris and excessive optimism or exuberance, as others have called it. We have in the past, under John and Nigel, produced our financial stability report. We have given speeches. We were very clear on it. Rather than sending our report to banks themselves and asking them to report on behalf of their boards as to what they have done, I think that would just be a rather fruitless box-ticking exercise, it would be better for us if we in future felt hat there were serious concerns to write to the FSA and draw their attention to areas where we felt there was excessive risk-taking and ask them to think clearly about it. In the end I think you can do nothing except rely on people to look to their own long term interests, and one of the problems we have seen over very many years is that people say, "What is financial stability?". I would think of financial stability as a period during which the payment system worked normally and the ability of households to mediate their savings into real investment in the economy at home or abroad operated normally, but the question is, what is "normally"? Is it the case that creating complex instruments like CDO-squareds is normal? Is it the case that encouraging people to borrow sub-prime mortgages when they could not really be expected to repay in most plausible states of the world is normal operation? I think therefore the danger is that financial stability looks like a period in which you are merely sowing the seeds of the next crisis and it appears to be a tranquil time but in fact beneath the surface those seeds are germinating and will produce the crisis down the road. The way to deal with that, I think, is the way I set out in a speech I gave in the autumn, which is as far as possible to ensure that people face the right incentives, and those are incentives that we can influence through public policy, through ensuring that banks have enough capital that they set aside more capital when times are good to deal with problems when times are bad. I think there is a lot to be said along the lines that John has talked about in his speeches and Charles Goodhart and others have talked about, the idea of trying to make the capital requirements increase the longer the period of stability that seems to occur. Those are things that we can try to do. I think the banking system as a whole can think about its structure of remuneration in order to ensure the incentives of its employees are more closely aligned to the interests of the shareholders. All of these things matter but in the end, if people feel that they are prepared to gamble their own savings because someone has offered them a return which seems almost too good to be true and they are greedy and it is too good to be true, they will lose and there is nothing you can do about it.

Q195 John Thurso: But the concern that I have is that if there is really nothing much you can do about it then ultimately you are just being set up to take the fall when it happens.

Mr King: What we are doing is being set up, if you like, to minimise the costs of the crises when they occur. I you go back 300 years you will see financial crises occurring at regular moments. The 1847 crisis had an awful lot of similarities with the debate that took place among regulator, central bank, banking industry and government last autumn. These things occur with depressing regularity. We have not found a way of preventing them. We need to find a way of reducing their severity and frequency and, most importantly, reducing the costs when they do occur. That is the aim of the Banking Bill, but I do not think anyone has found a way of preventing these waves of optimism eventually producing a financial crash.

Q196 John Thurso: Your main tool seems to be communication and perhaps the Chairman might like to think about a regular appearance here to tell us about financial stability.

Mr King: Given the number of times I have been before this Committee, there cannot possibly be a crisis occurring for many years to come, I would have thought.

Q197 Chairman: You do not mind if I do not want to see you too often, Governor, on that. On Jim Cousins' point, I do not want to go on about this leak aspect too much, but maybe for reassurance, how can you be so sure that the leak did not come from the Bank if you did not have an inquiry?

Mr King: Because the number of people who knew about the details of the leak was held very closely within the Bank. I know those individuals. I know they did not leak it.

Q198 Chairman: So the number would be in single figures?

Mr King: Yes. This is not the first occasion when such things have happened. You know the people who receive these leaks and then broadcast them. They are not people who are in communication with members of the Bank of England.

Chairman: Okay, thanks.

Q199 Mr Fallon: We keep being told throughout this process, Governor, that it is more important to get the legislation right rather than to rush it and so on, but we are nearly a year on now and depositors are not properly protected. The banking sector is still fairly weak. Is there not a case for taking the depositor protection and getting on with that?

Mr King: I would have no objection to that. In essence the depositor protection is there now. There is this guarantee which has been extended to Northern Rock and would be extended to any other bank were it in the same position, so my feeling is that in effect we do have that insurance there. It would be given by the Government. Some of these things it would be better if we could move more quickly on. There are other things, like the Special Resolution Regime, where it is fundamental that the detail be got right. This is not something which is easy to do. There are broad policy objectives and there are issues which lawyers and other experts will want to raise and Parliament will want to have a good chance to debate this, given that it is an infringement on property rights.

Chairman: Governor, may I thank you and your colleagues very much for your evidence this morning. We are seeing you again on 11 September and we hope to be producing a report shortly after that in September to inform Parliament when it comes back in October. The evidence has been very helpful to us this morning. Thanks very much.

 

Witnesses: Kitty Ussher MP, Economic Secretary to the Treasury, Mr Clive Maxwell, Director Financial Services, and Mr Emil Levendoğlu, Head of Banking Reform, HM Treasury, gave evidence.

Q200 Chairman: Minister, good morning. Welcome to you, to your first appearance at the Treasury Committee, the main Committee. Is that correct?

Kitty Ussher: I think this is my third.

Q201 Chairman: It was the Sub-Committee you were at, not the main Committee. Welcome to the main Committee. Can you introduce yourself and your colleagues for the shorthand writer, please?

Kitty Ussher: Thank you very much. I have circulated a brief opening remark, but really all I wanted to say was to thank the Committee for the incredibly useful work it has undertaken, both generally in terms of our policy development and in particular looking at what happened in relation to Northern Rock. We find that very useful. To my right, Clive Maxwell is our Director of Financial Stability. To my left, Emil Levendoğlu is the Team Leader on Banking Reform. I should probably also say that we are right now laying in the library of the House of Commons our latest consultation, which is a specific consultation document on the Special Resolution Regime, including some draft clauses, which we committed to doing in time for the summer recess, and obviously that is today.

Q202 Chairman: Thank you, but it is pretty unsatisfactory for us because we have just had the Governor of the Bank here for the previous hour and quite a lot of our discussion was on the Special Resolution Regime, and we are coming out with a report in September on these issues, so it has not been very helpful. In fact, I consider it is a bit of a slight to the Committee that this is produced at this time rather than giving us notice that this was coming out so that we could look at it and ask questions on it. I think in terms of practice in the Treasury you should change that. I see Mr Maxwell wants to say something, do you?

Mr Maxwell: No.

Kitty Ussher: Obviously I do apologise if the Committee feels in any way slighted, which was not our intention. We always said that we would produce things ---

Q203 Chairman: We want to produce the best reports and it does not help when we do not get this information on time.

Kitty Ussher: Yes, of course. I am happy to answer any questions on it.

Q204 Chairman: On the issue of the Special Resolution Regime, that was one of the issues that the Governor raised and he stated that he may recommend by letter to place an institution into a Special Resolution Regime, and should the FSA not accept that recommendation that information would not be made public until there was a crisis. In other words, people would be appearing before this Committee again and would find out that the Governor of the Bank had sent a letter to the FSA on that issue. That seems a pretty unsatisfactory situation. What I really want to ask you is when should such a letter be made public because if it is not made public a lot would be going on behind the scenes and we could end up in the same situation in the future that we have had this time round?

Kitty Ussher: Obviously everything that we are trying to do is to avoid any crises of confidence in the banking system. I actually think it is entirely right that members of the tripartite authorities should be able to correspond with each other in private. I also think it is entirely right that it is the responsibility of the FSA to decide when the threshold conditions are met so that it triggers the placing of an institution into the Special Resolution Regime, ie that the capital adequacy and other threshold conditions are not met and are not likely to be met in the near future. It is very healthy for other members of the tripartite authority to have that dialogue, including in written form, if they would like, with the FSA. Perhaps if I could counter your suggestion by saying what if the Bank is wrong? We have given legal responsibility to the FSA to decide when an institution should be put into the Special Resolution Regime and if the Bank has written a letter saying "Perhaps it should be now" and that is not the case, then it would cause unnecessary panic and disruption if that letter were to be made public.

Q205 Chairman: This is all to do with the trigger and who has it, and the Governor said they did not get that, so they are dealing with a situation which is less than perfect for them.

Kitty Ussher: I think it is better for the overall system that the trigger process is a decision of the Financial Services Authority.

Q206 Chairman: We will come back to that. Are you satisfied that the proposals in the July consultation paper will create a system which allows any bank to fail, as they must do if they are going to protect market discipline? Let us suppose a major UK-based bank, with a global business and operating across all financial services, started to fail. How would the authorities deal with that under the new arrangements?

Kitty Ussher: It depends on the circumstances obviously. The primary responsibility as the prudential regulator remains, of course, with the Financial Services Authority. They have set out in public the lessons that they learnt from the lessons of the last year and they will obviously do what they think is necessary to make sure that any institution remains viable and meets its Threshold Conditions as laid out under FSMA when it came in a few years ago. Those are the first and most important initial powers that are available, and are already available. They have said that they will change their internal management processes to have a system of heightened supervision should that be necessary, and only if a situation arises where they believe that a firm is unable to meet their threshold conditions as laid out in law in their own guidelines, and is unlikely to be able to meet those conditions, do they have the power to recommend that the institution be put into the Special Resolution Regime. Obviously we very much hope that will not happen because we hope that any problems can be solved, but there are some scenarios we could anticipate where that is a possibility. Then the institution, in a sense, passes over to the Bank of England which has a number of powers at its disposal, and we have gone through the details in the document that we have outlined today.

Q207 Chairman: How will the role of the Treasury change in dealing with failing banks as a result of the Special Resolution Regime?

Kitty Ussher: I think the options will be more clearly defined and the role of the Government in protecting the public interest will be more clearly defined. What we are proposing is should an involvement of the taxpayer be necessary then that cannot happen without the approval of the Treasury and also any decision on temporary public ownership should be one that is taken by the Treasury. Other possible resolutions, such as a bridge bank or a whole or partial transfer of property and/or shares, are decisions for the Bank of England.

Q208 Chairman: How many work in the Treasury on these issues because there has been a view that staff has been depleted and you need to do something about this.

Kitty Ussher: We have an excellent team. Perhaps that is a question for Clive.

Mr Maxwell: I can check the precise numbers for you, but, very roughly speaking, I think we have about 90 staff working on financial services issues at the moment in the Treasury spread across eight different teams with different sorts of responsibilities.

Q209 Chairman: Do you think that is enough?

Kitty Ussher: It seems adequate from my point of view.

Q210 Chairman: Did that 90 figure apply six months or a year ago?

Mr Maxwell: We have more staff working on financial services now than we had six months ago in recognition of the fact that the markets are more demanding.

Q211 Chairman: How many were working six months ago, say?

Mr Maxwell: I would have to check the detailed figures but, very roughly, that has increased by maybe 20/30% over the last year or so. I can get the correct figures for you.

Q212 Chairman: Maybe you can write to us on that. The Governor has emphasised to us the importance of getting the new legislation right, but Sir John Parker, the Chairman of the Court, in his evidence to us last week showed us that many areas still need clarification. Are you confident that you will get things right in time for the legislation in October?

Kitty Ussher: Yes.

Q213 Jim Cousins: Minister, is it not clearly possible that there could be muddle built into the new regime? The Governor has made it quite clear to us this morning that once an institution enters the amber state, whatever is meant by that, and a lot of different things could be, then inevitably the Bank of England will be looking at that institution alongside the FSA, though it will not be the formal supervisor. Does that not create a considerable possibility of muddle?

Kitty Ussher: The proposals that we are putting forward are designed precisely to avoid muddle by making it entirely clear who has responsibility at what stage. It is important to distinguish between who has the legal power to make a decision at a different point in the kind of journey from the extremely important arrangements for information sharing and, indeed, trusted private dialogue between all the various players involved. It is entirely right and proper that the Bank of England should have access to information which I think will largely be garnered by the FSA during this process. It is also entirely right and proper that it should be the FSA before an SRR is invoked that should make the decisions, in consultation, of course.

Q214 Jim Cousins: In the document you have just given to us and in the draft legislation itself it says that one of the key tests the FSA will apply about whether a Special Resolution Regime is required will be whether financial assistance is necessary, and the legislation itself says they cannot reach that decision without consulting the Bank of England. The legislation does not resolve the muddle, it builds it in.

Kitty Ussher: I would not agree with you. I would say the legislation makes it entirely clear whose decision it is and at what point the other bodies should be consulted. I think that makes for smoother decision-making because it will build a shared basis of evidence on which to make the choices available.

Q215 Jim Cousins: Do you not think it is going to be necessary to set out some very clear guidelines, whether in legislation or in guidance, about how the FSA and the Bank of England should conduct themselves in the amber regime, the regime of heightened supervision?

Kitty Ussher: Yes, which is why we have already said, and have said for some time, we will published a revised Memorandum of Understanding between the various tripartite authorities that takes into account the new framework that we are proposing.

Q216 Jim Cousins: So at a later date beyond this there will be another revised Memorandum of Understanding?

Kitty Ussher: Yes.

Q217 Jim Cousins: Do you have any belief that while this system of dual power exists between the Bank of England and the FSA over this matter that that will not be leaked, will not be communicated to the markets in some fashion, or that the markets themselves will not speculate and a secondary market even could be built up on the basis of that speculation?

Kitty Ussher: Before I answer your main point, I should say I think "dual power" is probably a slightly misleading term because we think the final executive power is very clearly defined between the various institutions at the various parts of the journey. Before an SRR, the power lies with the FSA, obviously in consultation, to decide what actions are appropriate, and after the SRR it lies with the Bank of England in consultation, with the Treasury reserving various powers in the public interest depending on what the solutions are. In terms of your main point about is it not likely it would leak, everything can always leak. However, I think it is important that the players involved should have sufficiently well-understood ways of working together, and obviously a high level of trust and understanding of where the different responsibilities lie, to be able to take the decisions sufficiently quickly in the hope that will not happen but, of course, it is always a possibility. I should also add that we will, as I said, revise the Memorandum of Understanding and there will also be a code of practice about the operation of the Special Resolution Regime which we hope will aid clarity as well.

Q218 Jim Cousins: Surely you must recognise that at the moment, and for a considerable period to come, the markets will be in a very feverish state and speculation and rumours, hints and guesses, will be important commodities that will be bought and sold and themselves have an influence. You must recognise that, and that there are possibilities for muddle and confusion in this new set-up.

Kitty Ussher: I think it is always the case that people will seek to trade based on rumour and innuendo. That is always the case when there is money to be made. I do not accept that what we are proposing will create more muddle, it will create clarity, and our aim is that it will create confidence in the banking system, indeed sufficient confidence that I believe it is quite possible that countries from around the world will come and look and see how we have addressed these very serious issues and seek, I hope, to replicate some of it in their own jurisdictions.

Q219 Mr Dunne: Minister, could you explain very precisely why you declined the Governor's advice that he should also have a finger on the trigger?

Kitty Ussher: I think it is important that the responsibility is very clearly laid out, precisely to avoid muddle, and it is more appropriate that the prudential regulator should ultimately be the body that advises whether the threshold conditions, which are their responsibility, have been breached.

Q220 Mr Dunne: In relation to the position when the responsibility moves from the FSA to the Bank of England, are you suggesting that the Bank of England should not have a voice in that decision-making at all?

Kitty Ussher: No, the FSA should operate in consultation. However, I think it should be the FSA's decision because under the Financial Services and Markets Act they are responsible for the threshold conditions and making sure that a firm has adequate capital and all the other conditions that are laid out in order to be able to operate effectively, so they are the best judge as to whether those threshold conditions have been breached.

Q221 Mr Dunne: You provided us, as we sat down, with over a 100 page document which goes into great detail and none of us has had an opportunity to understand it and, as usual with a Treasury document, there is not an index. I have yet to see a Treasury document in the year that I have been on this Committee which has an index. Perhaps you could point us to the section of the document which refers to the interplay and relationship between the Bank of England's Emergency Liquidity Assistance and the Special Resolution Regime.

Kitty Ussher: There is no direct linkage, both are very important parts of the regime that we are laying out.

Q222 Mr Dunne: Is the Emergency Liquidity Assistance covered in this document?

Kitty Ussher: It is mainly covered in the one that has already been published, although there is reference to it in this document.

Q223 Mr Dunne: Can you tell us where in the document it is referred to?

Kitty Ussher: I am sure I can, but whether I can do so instantly is a different question. Chapter 3 starting at page 49 of the one published at the beginning of July.

Q224 Mr Dunne: Perhaps while you are getting guidance from your officials ---

Mr Maxwell: Chapter 3, page 42 starts to talk about Liquidity Assistance and related disclosure issues.

Q225 Mr Dunne: As I will not have time to read it while asking questions, could you just explain how these two schemes are going to work. If the Bank of England seeks to provide Emergency Liquidity Assistance, can that only happen after the SRR has been triggered?

Kitty Ussher: No, quite the opposite. It can happen in either situation. I would have thought in practice it is possibly more likely to happen, certainly initially by definition, before a firm goes into the SRR. It would be one of the tools that is available to the firm once it gets into difficulties to attempt to resolve that situation, and one would hope it would succeed in doing so and, therefore, there would be no need to go to the SRR. However, if a firm goes into the SRR and becomes a bridge bank, for example, that is a company that is regulated by the FSA like other companies, so even a bridge bank would be able to access Emergency Liquidity Assistance if it was deemed appropriate.

Q226 Mr Dunne: Is this not precisely the area Mr Cousins was trying to highlight, that if you are a manager of bank which is being regulated by the FSA and you require greater liquidity, you turn first to the Bank of England and the Bank of England, therefore, is involved and has an understanding of the situation surrounding that bank and, therefore, should be included as an integral part within the Special Resolution Regime. You have got two alternative places to go, so both should be involved in the decision-making surely.

Kitty Ussher: We are talking about two separate issues here. If a bank decides it would like to seek Emergency Liquidity Assistance it is free to do so at any point and will have a discussion with the Bank of England on that issue and will have to offer appropriate collateral and everything else to make sure that it is a sensible arrangement. In practice, the FSA probably would be involved in that conversation but they do not actually have to be because it is an entirely separate point from the responsibility of the Bank of England to undertake the Special Resolution Regime.

Q227 Mr Dunne: For the bank that requires Emergency Liquidity Assistance, it is conceivable this could arise within a very short time window, in which case all options will be open to a board, they will need to be considering whether the facilities are available from the Bank of England and will have to be considering what happens if those facilities are not available, and that decision might happen as a result of a conversation and then they immediately have to switch into an alternative solution if they have not got adequate security or whatever it happens to be. Surely that is an excellent example of why it is that the Bank of England needs to be engaged in the decision-making for the Special Resolution trigger.

Kitty Ussher: I think they should, but it is also very important to clearly define whose decision it is precisely to avoid the muddle that Mr Cousins characterised. That is why I think it is right that it is the prudential regulator, in this case the FSA in this country, which makes the final decision about whether an institution has breached, or is likely to breach, its threshold conditions. It is their job to monitor that situation. Clive, I do not know if you wanted to add anything.

Mr Maxwell: Liquidity support can be a tool provided by a central bank to prevent a bank getting into a situation where it fails. It is quite important to see it as a potential tool to be used ahead of a bank getting to the point where it needs to go into the Special Resolution Regime. A bank that is in a Special Resolution Regime may also need liquidity support, but it is important to see it firstly as a tool that can be used ahead of it getting into that difficulty. When it is in that amber zone it will be subject to more advanced supervision from the FSA and, if liquidity is the underlying problem with the bank - it may have other problems - it may be in discussions with the Bank of England and may be in receipt of liquidity support, lender of last resort support, from the Bank of England.

Q228 Mr Dunne: Do you see the Special Resolution Regime as being only to apply where a bank is failing or do you envisage in the sort of amber environment, which Mr Cousins was talking about, that there are degrees of assistance that can be provided which are obviously designed to prevent failure but which will not result in extreme measures? I think it is very important for the banking industry, commentators and shareholders to understand where they are going to stand, so if a trigger is met it is likely to become public, for reasons Mr Cousins has disclosed, and in those circumstances shareholders and the market as a whole need to understand what they are dealing with because if the regime is there as an assistance to avoid failure that has one set of implications; if it is there in order to deal with failure then it has a very different set of implications.

Kitty Ussher: It is there in an attempt to resolve a problem and if that were to be successful and, therefore, avoid failure that would be preferable. There is no automatic connection between seeking Special Liquidity Assistance from the Bank of England and ultimately going into the Special Resolution Regime, no automatic connection whatsoever. Did you want to add something?

Mr Levendoğlu: I just wanted to make the point that this was a point that stakeholders we have consulted were very clear on. They did not want there to be any presumption that seeking Emergency Liquidity Assistance from the Bank would be in any way a condition or precondition for entry into the SRR because of the importance of not stigmatising the ELA as a tool.

Kitty Ussher: We are talking about general situations where banks can get into trouble for all sorts of different reasons. It may be that they are in severe difficulties that have nothing to do with liquidity whatsoever, it may be something entirely different.

Q229 Mr Dunne: This point of stigma is very important. The way you have answered that question has suggested that as soon as you are into the Special Resolution Regime stigma attaches. Is that your intent?

Kitty Ussher: It is not our intent at all, but it would be a very dramatic gesture and I think people would notice if a firm went into the Special Resolution Regime.

Mr Maxwell: In going into the Special Resolution Regime, the FSA has decided that the firm is in very serious difficulties, it is either not meeting its threshold conditions or is about to, they have no confidence that it will and it will not be able to get back to meeting its conditions with the normal sorts of regulatory-type tools. It is in a different sort of place than a firm whose problems may be solved simply by the provision of lender of last resort liquidity which may be enough to help a firm out or may not be.

Q230 Mr Dunne: My final question, Chairman. Are we going to remove the connotations given by the name "lender of last resort"?

Kitty Ussher: That is an extremely good question.

Mr Maxwell: It is a term that is used in financial economics. People tend to use that phrase or use Emergency Liquidity Assistance, they both have those sorts of connotations and, if there are alternative names to give, we certainly would be looking at those.

Kitty Ussher: Open to it.

Q231 Chairman: So the Special Resolution Regime is a nuclear option, Minister, is it?

Kitty Ussher: Yes, in a sense. It is when everything else has failed.

Q232 Mr Fallon: Minister, could you just confirm that the FSA could determine that condition two in clause 7 is satisfied against the advice of the Bank of England?

Kitty Ussher: Yes. I do not have the precise clauses in front of me, but presumably that clause relates to whether the threshold conditions are breached or possibly going to be breached, or they have no confidence that they will not be breached. Yes, this is a decision for the FSA.

Q233 Mr Fallon: So the Bank of England is only a consultee?

Kitty Ussher: It is a consultee, it can make recommendations. The decision is for the FSA.

Q234 Mr Fallon: Did the Governor have this document this morning?

Kitty Ussher: I presume so.

Mr Levendoğlu: We have worked on preparing this document with the Bank of England and the Governor has seen various drafts in that process.

Kitty Ussher: Their branding is on it, it is a joint document, so yes.

Q235 Mr Fallon: On the trigger procedure, you say in paragraph 2.10 that the Bank of England can make recommendations to the FSA on the assessment, but this morning the Governor told us that he thought he could make recommendations independently on a bank that was not being assessed. Is that the position or not?

Kitty Ussher: My understanding is that they can make recommendations on whether the trigger conditions have been met.

Q236 Mr Fallon: That is not what he said this morning. He said they could make recommendations on any other bank that should be assessed. Is that right?

Kitty Ussher: That is what I said.

Mr Maxwell: In a sense there is nothing to stop that happening, that is true.

Kitty Ussher: That is what I said. I said they can make recommendations on an institution as to whether they have met the trigger conditions.

Q237 Mr Fallon: So he does not have to wait for the FSA's assessment?

Kitty Ussher: Correct.

Q238 Mr Fallon: That is not clear from paragraph 2.10.

Kitty Ussher: In practice, we are likely to be in an assessment situation for this to be relevant, but if the Governor of the Bank of England wanted to recommend that would be not inappropriate.

Q239 Mr Fallon: Okay. Can we turn to the Financial Stability Committee and the proposals in your earlier document, paragraph 6.7, which Sir John Parker last week described as "inconsistent". Can you explain how the Bank of England's executive can be accountable to a committee that is chaired by the Governor?

Kitty Ussher: I think this is a matter for the Court of the Bank of England because the ---

Q240 Mr Fallon: No, sorry. This is your proposal. In paragraph 6.7 you have written: "The Bank of England's executive will be accountable to the Committee for its decisions and actions in financial stability". You are proposing this Committee, it is no use saying it is a matter for the Bank.

Kitty Ussher: It is a joint document, as we have just said. The document that you have in your hand is joint between us, the Bank of England and the FSA.

Q241 Mr Fallon: So you do not agree with it?

Kitty Ussher: We are perfectly comfortable with it.

Q242 Mr Fallon: Could you explain to me how the Bank of England's executive can be accountable to a committee chaired by the Governor himself?

Kitty Ussher: What we are comfortable with is this is something that has been proposed by the Court of the Bank of England and we think it is their responsibility exactly who sits where in the sense that the Court of the Bank of England is the overarching body that holds the executive to account. They are comfortable with the idea that a sub-committee of the Court should be chaired by the Governor of the Bank of England and we are comfortable with what they are proposing.

Q243 Mr Fallon: But Sir John Parker, who is the senior non-executive director, is not at all comfortable. I quote: "It would appear there is an inconsistency we should iron out". How can you say he is comfortable with it?

Kitty Ussher: In a sense, it is a matter for the Court that he chairs. If he wants to iron out what he perceives as an inconsistency we will be comfortable with that as well. We think it is a matter for them.

Q244 Mr Fallon: What do you think? Do you think it is logical that the senior executives of the Bank, including the Governor, can be accountable to a committee that is chaired by the Governor?

Kitty Ussher: Because the Financial Stability Committee is a sub-committee of the Court of the Bank of England we think it is up to the Court of the Bank of England to decide who should be on that committee.

Q245 Mr Fallon: Yes, but who should chair it is the issue.

Kitty Ussher: That is also a matter for the Court.

Q246 Mr Fallon: It says here, "will be chaired by the Governor". This would be a sub-committee of the Court and be chaired by the Governor. This is in your document.

Kitty Ussher: It is a joint document, as I think I have said on some occasions now. This is what the Court is proposing. If they wish to propose something, it is a consultative document, they are free to come back and propose that. We are not proposing to direct who should chair a sub-committee of the Court of the Bank of England.

Q247 Mr Fallon: So this is one u-turn you might be happy with?

Kitty Ussher: I think that is a pointed statement.

Q248 Chairman: It is of concern to us, Minister. This is financial stability, this concept is heightened and we really need to get this right. What you are saying to us this morning is you have delegated that responsibility to the Court, this is their idea so you have accepted that. I would say we have our concerns about the Court, the running of the Court, and you have probably seen in the evidence we have had that it is unsatisfactory in quite a number of ways, it is not a Rolls-Royce operation, but then we get the chairman of the Court coming along to us saying, "Ah, yes, there are inconsistencies here". That does not give us reassurance. You have washed your hands of this, you have given to the Court what we do not consider to be a Rolls-Royce operation anyway and the chairman has said, "Yes, there are inconsistencies about this". We are talking about the most important issue that has arisen in terms of financial stability. We have really got to get this right, Minister.

Kitty Ussher: I think it is a very good idea that there is a Financial Stability Committee and it is right that it should be a sub-committee of the Court. If the chairman of the Court is coming to you and saying he does not quite think he has got the governance arrangements right I would say that is a matter for them and I look forward to seeing how he, as chairman of the Court, is going to resolve it.

Q249 Chairman: Let me read the transcript. Sir John Parker said, "It would appear there is inconsistency and we should iron this out", Michael Fallon said, "It's a muddle" and Sir John Parker said, "Let me leave it as an inconsistency". I chip in and say, "I will give you a better one, hazy. Okay, you agree?" and he says, "Fine". So we have a muddle, hazy, goodness knows what else, legislation coming up in October, we have got to get financial stability right and we are not reassured.

Kitty Ussher: As I said, and will carry on saying, it is a matter for the Court. If they want to come back with alternative governance ---

Chairman: Minister, I say to you to go back to the Treasury and really have a think. This is not a matter for the Court, this is a matter for the Treasury to get right with this document and give those powers, it is not to delegate that away.

Q250 Mr Dunne: It is quite possible, is it not, Minister, that the Court might have as one of its members the chief executive of one of the banks that the FSA will be regulating. Under your construct, that member could conceivably become chairman of the committee and you might then find yourself with the extraordinary situation where you have got conflicts writ large.

Kitty Ussher: I am happy to have a think about this. You are raising some very important issues, but I do think there is a general point about making it clear where the responsibility of Government lies with an independent Bank of England.

Q251 Mr Dunne: At this point you do not seem to be accepting any responsibility at all for setting up your own regulatory regime.

Kitty Ussher: Quite the opposite. We are making it entirely clear in primary legislation later this year precisely the financial stability responsibilities that the Bank of England has. We are going to ensure that there is a sub-committee looking particularly at these issues and we are going to make the responsibilities extremely clear. What we are not proposing to do at this stage is to intervene to specify who should be on that committee. In a joint document it says that the Governor will chair it, which is a matter for the Court, and we are happy to accept that. However, in light of this questioning I will go back and think about it, but, as I have said before, I would say that if you wish to make a recommendation in this area I would consider that it is a recommendation that the Court of the Bank of England should be charged with answering, that is what I am saying.

Q252 Chairman: Why is the FSC a sub-committee of the Court and the MPC is not?

Kitty Ussher: We think that is the appropriate way of doing it.

Q253 Chairman: Also in your document, Financial Stability and Protection: Further Consultation, at page 89, paragraph 6.6, you say in bold, "The Government intends to legislate for the creation of a Financial Stability Committee to support the Governor of the Bank of England drawing upon external expertise". Why do you need legislation if it is just a sub-committee of the Court?

Kitty Ussher: Precisely to answer the point Mr Dunne just made, that you want to make it entirely clear where the Bank's responsibilities in this area lie. The whole purpose of this legislation is to clearly define who has what responsibility at which point, and we wish to heighten the statutory responsibility of the Bank of England to do work in this area, which is why we are legislating for it.

Q254 Chairman: We want financial stability heightened as well and I would suggest to you, Minister, that we do not think it is going to be heightened as a sub-committee of the Court.

Kitty Ussher: Perhaps that is a matter of interpretation. We are still working through some of these arrangements, including the governance arrangements and, as I have said, if the Court wants to reflect on this line of questioning and propose something different we will be entirely open to that.

Q255 John Thurso: I am going to come back to financial stability in a minute, but, can I first ask you, if I have read clause 9 right virtually everything that the Bank can do, or maybe is required to do, is subject to the sanction of the Treasury. Is that on purpose? Does that change existing legislation?

Kitty Ussher: Clause 9 seems to be around---

Q256 John Thurso: It is your clause, not mine, so you ought to know.

Kitty Ussher: I know, I know. Absolutely. No, it does not mean that the Treasury decides everything, it simply defines the areas in which the Treasury does decide which, as I think I said a little earlier, are if there is an implication for public funds, if there is an implication for international obligations and international law, and obviously and in particular if temporary public ownership is required. There are other potential solutions that do not require Treasury involvement although, as I have said on many occasions, I hope that consultation will be vigorous and conversations will be vigorous. Those will include a total or partial sale or transfer of shares and/or property and other assets, and also the moving into a bridge bank which may or may not be accompanied by one of the other measures.

Q257 John Thurso: Does this in any way increase or decrease the Treasury's current responsibilities in any area? Is it more or less status quo just put into this legislation or is it a change?

Kitty Ussher: It distinguishes between various options. Whilst the current tripartite arrangements emphasise that the three legs of the public authorities should be working together, what this does is clearly distinguish between various potential solutions and who has the final say on each one. In a sense, it is probably a slight lessening in that we do not automatically have the power to make a decision about a bridge bank or transfer of assets or shares. Is that correct?

Mr Maxwell: The two quite significant areas in Part 9 here are, firstly, it concerns international obligations and this is a fairly standard requirement that in the end the government, the state, is responsible for the country meeting its international requirements. There is a parallel clause within FSMA, for example, around the FSA to make sure that the Government can step in if the FSA was doing something that was not in conformity with international obligations. The second area is essentially around impacts for the public finances, for which the Treasury as the finance ministry is responsible. Again, I think that parallels quite closely the arrangements that a number of other countries have. If you look at the US arrangements, for example, the FDIC has considerable autonomy in the way it carries out the resolution arrangements for which it is responsible, but where it needs to draw on public funds the US Treasury has to authorise and approve those funds for use. That follows the usual lines of accountability to Parliament, for example, for public finances. It is building in that responsibility and accountability for public finance and meeting international obligations.

Q258 Chairman: Before you go on to financial stability, John, could I ask a question. Could I refer you to clause 8, subsections (4) and (5): "Specific conditions: private sector purchaser and bridge bank". What is the purpose of those subsections (4) and (5)? Does it curtail the right of the Bank of England to act as a resolution authority where public funds have been provided?

Kitty Ussher: No, it does not. It simply involves, as the taxpayer would expect, the Treasury to a greater extent when public funds are required, or have been used already. Is that right, Emil?

Mr Levendoğlu: Yes, that is right. It is in situations where public funds have already been committed, recognising the fact that the issue is not whether further funds are going to be committed but there are already taxpayer monies at stake and the Treasury ought to be more involved in decisions around how to resolve that and, therefore, have the ability to make a recommendation to the Bank of England.

Q259 John Thurso: Coming back to the question of the Financial Stability Committee and financial stability, if we contrast it with the MPC, the MPC has a very clear remit, a very clear tool, it meets regularly and decides how to use that tool and the concept of what it is being asked to do is something that we all quite clearly understand. We all understand the desirability of financial stability and you are now giving a statutory responsibility for financial stability to the Bank. What is your definition of "financial stability" so that they know how to exercise their statutory responsibility?

Kitty Ussher: I think we will be setting that out legally in the legislation, so the technical answer to that question will come in October. People understand what is generally meant by the term: a loss of confidence in the banking system and perhaps uncontrolled and severe changes in the way that the banking system operates. We will define it clearly, I presume, in the legislation.

Mr Maxwell: Financial stability is more difficult to define as an objective than monetary stability. Again, if you look around the world many countries have monetary stability, inflation regimes, which set very specific targets, like ours does, for example, or bands of targets, and it is possible to measure inflation in a series of different ways and there are internationally agreed measurements for inflation. When it comes to financial stability as a concept it is more difficult to measure.

Q260 John Thurso: That is my question to you.

Mr Maxwell: There are indicators of financial stability and, without sounding flippant, it is usually regarded as an absence of financial instability.

Q261 John Thurso: That is the best definition the Committee has had from anybody actually.

Mr Maxwell: I know. It sounds flippant but it does get to the heart of what is going on. For example, you can look at volatility in different markets, you can look at the way in which other types of markets, like funding markets, are performing. There are a number of indicators which could lead one to believe that there is a situation of financial instability or that a particular firm looks as though it is in difficulty. Writing that down in a single numerical target is something that is much more difficult than is the case for monetary policy. It is not just the UK that finds that difficult. If you look internationally, I am not aware of any countries that have a single numerical measurement for something of that nature.

Q262 John Thurso: Can you give an example of any indicator of financial instability? What indicator would you put in your legislation?

Mr Maxwell: I think volatility in the movement of certain markets might be regarded in some circumstances as a measurement of instability, for example volatility in the way in which certain instruments are trading. Another indicator which people look at at the moment is the credit default swap market for banks, which is an indicator of how much confidence there is within the market for lending to banks and confidence in those debts being repaid.

Q263 John Thurso: So which tools would you envisage the Bank using to deal with vulnerability or confidence?

Mr Maxwell: The Bank will have a series of tools. Firstly, at the moment it has responsibility for liquidity provision and that takes two forms. Broadly speaking, there is liquidity provision to the market as a whole which it conducts through its open market operations, which at the moment is dealing with ---

Q264 John Thurso: Forgive me, but over the last six or eight months that has not done a lot. It has helped a bit.

Mr Maxwell: You have to look at it against the counterfactuals if it had not done those things. Indeed, introducing the SLS did see a reduction in the three month Libor rate, so there have been some impacts from that, but then it has very specific responsibilities for providing lender of last resort lending to individual institutions in some situations, and we are also proposing to give the Bank of England greater responsibility for ---

Q265 John Thurso: Forgive me. These are all the mopping up exercises that happen after you have had financial instability and a problem, or they mitigate. What you are doing is giving a statutory responsibility for stability, which you cannot define, and have not got any tools to deal with it. Is this not like King Canute legislating the tide does not come in?

Kitty Ussher: I hope not.

Q266 John Thurso: You hope, but we need some reassurance.

Mr Maxwell: The primary responsibility under the UK arrangements for dealing with individual firms that are not in distress lies with the Financial Services Authority as the prudential regulator and through its prudential regulation both of capital and liquidity of individual firms it should be helping to ensure that financial stability problems do not arise.

Q267 John Thurso: Please tell me I have not misunderstood that, because what it sounded like was the FSA have got all the tools for dealing with it but we are giving the responsibility to the Bank of England.

Kitty Ussher: No. I think I have made entirely clear that the FSA has appropriate powers up to a certain point and when they think they have exhausted all their powers we get a new nuclear option that we hope will be effective.

Mr Levendoğlu: In terms of this point about defining financial stability and, as the document makes clear, as Clive and the Minister have mentioned, it is context specific and that is why the remit of the Bank in looking at financial stability will be reviewed periodically through consultation with the Treasury and Bank of England to look at all those context specific factors, so that at times when the markets are stable there will be a different set of responsibilities and monitoring exercises that the Bank will be undertaking compared to times when there is potential for greater instability. That is why we do not want to define anything firmly in legislation because it is so context specific.

Q268 John Thurso: The problem we have is you are asking Parliament to pass a set of laws which will govern the Bank and govern a lot of other things, but none of us can work out a suitable definition or what anybody is going to do about it when we have decided we have hit instability. It is a lovely thing to be able to say, "There is a problem, so let's pass a law and put it right", but I see nothing in this that tells me that what you will legislate will make a blind bit of difference. The evidence we had from the Governor this morning was you cannot do it because what you can end up doing is mopping up better, and I suspect that is where we are going to end up.

Kitty Ussher: I would be grateful for the Committee's expertise as to what better we can do. We have done an international trawl using all the evidence and all the experience that we can find and we are putting forward the best possible proposals, both to avoid serious problems in a financial institution and, in the unfortunate event of them occurring, to ensure that depositors do not lose out. I am grateful for your expertise and please come back if you think there is a better way of doing it. This is darned hard and we are consulting in the best possible way that we can to get all the expertise from public and private sectors internationally to try and solve this problem to the best of our ability and to the best international examples. We are feeling confident that towards the end of this consultation process we are coming up with the best possible proposals. I am absolutely delighted to be put under the spotlight to tease out whether they are the best, but it is defeatist to look at it and say, "You can't possibly do anything helpful at all". You are obviously entitled to your view, however we are doing our very best to make sure that ---

Q269 John Thurso: Yes, Minister, but there is a considerable difference between defeatism and realism, and if anybody in the Treasury had ever run a company or sat on a board, as I and other people here have, they would know that solving a problem properly is about correctly identifying what the problem is and then applying realistic solutions. That is the point that I am trying to make.

Kitty Ussher: That is what we are attempting to do and I very much hope we can prove you wrong.

Q270 John Thurso: Excellent. We share the same objective.

Kitty Ussher: Jolly good.

Q271 Nick Ainger: Can I ask you about the Depositor Protection Scheme as it applies to foreign-owned banks. We have had information from the FSA which explains the system for those banks which are based in the EEA and they are covered by the Deposit Guarantee Scheme Directive which means that they have to have a home-based Deposit Guarantee Scheme of a minimum of €20,000. However, our scheme is far more generous than that. We have also been told that 13 banks based in the EEA have top-up arrangements so that a British depositor in their British branch will receive the same compensation overall as if they were in HSBC, Barclays or whatever. There are two issues here. First of all, there are clearly a number of EEA banks who have not entered into the top-up arrangements. That is the first issue. The second issue is even those depositors with EEA banks that have the top-up arrangements, the first call is on the home-based depositor scheme, so there is complexity and the potential for delay in that situation. The same applies for those EEA banks that have not entered into the top-up scheme. We have also had evidence that perhaps some of the home-based depositor schemes that these banks have operated are wholly inadequate to meet their potential commitments. You said in your consultation document in October 2007 that you recognise these issues and the Government has raised these issues with ECOFIN. What has happened? Clearly if we want a system which depositors have confidence in so that we do not have runs on banks then I think this is a clear issue which we have got to resolve. I do not think any minister could say that a British branch of a foreign bank has the same depositor protection as a British bank.

Kitty Ussher: You are right, in a sense. In the branches in the UK the bank has the opportunity to top-up to the same level as the FSCS domestic threshold, but legally all they are required to do is meet the requirements of the relevant European Directive which, as you correctly say, has a limit of €20,000. This is an issue that we are in discussion with our European colleagues, the Commission and the Council of Ministers around, and that is the situation. It is important that individual institutions make it entirely clear to their depositors the extent to which their deposits are protected. I know that a number of branches that have passported their arrangements into the UK have chosen to top-up to the FSCS level.

Q272 Nick Ainger: Do you know how many other banks have not decided to top-up to the FSCS scheme?

Kitty Ussher: I am not sure.

Q273 Nick Ainger: All we know is 13 banks that are based in the EEA have. We were told there are over 100 foreign-owned banks taking deposits in the UK, we do not know how many of those are EEA and outside the EEA, but my guess is there will be a substantial number of EEA banks which have not decided to enter the top-up arrangements.

Kitty Ussher: Perhaps we need to clarify this in correspondence. My understanding is that banks that have subsidiaries here are regulated in entirely the same way as purely domestic banks. The EEA banks can passport branches in, which is the different arrangement.

Mr Maxwell: I will check, but, as far as I know, non-EEA banks do not have that passporting right so they have to set up subsidiaries here in order to do that business.

Q274 Nick Ainger: But there are a substantial number, and we have got a list of them, 13 at least, which are based in the EEA and, therefore, they are not regulated by the FSA and they have decided to top-up. The question is how many more EEA-based banks have not decided to top-up and, therefore, there is a substantial difference potentially between the Deposit Protection Scheme for British depositors compared with other banks.

Mr Maxwell: As a factual question I am afraid I do not know the answer but I could find out for you. It is worth also saying, of course, that individuals can bank electronically and by telephone with banks in other countries without that bank having any presence in the UK, so those sorts of possibilities exist. I can find out for you the number of EEA branches that are not topping up.

Q275 Nick Ainger: Do you appreciate that potentially there is a real problem here in that your consultation paper identifies that there is a complexity, a potential for delay, and the whole idea is we are trying to get away from that to prevent runs on banks, and yet because it is a bit difficult and we have to deal with other countries we seem to be accepting that we cannot come up with a better scheme so that all British depositors in banks, whether they are foreign-owned or British-owned, have the same protection and we do not end up with a run on a foreign bank.

Kitty Ussher: The obvious logical solution would be to have harmonisation of the compensation limit across the EU. I do not know whether that is feasible but it is an issue that we are raising with the European Commission and the Council of Ministers, as I have said, and we will continue to push that for precisely the reasons that you have laid out.

Q276 Mr Fallon: Given there are several hundred thousand British investors in these EEA banks, why are there only two sentences out of a 164 page document devoted to this?

Kitty Ussher: Because the sentences say what is required, I would suggest.

Q277 Mr Fallon: They do not say what is required. They say, "Depositors may be entitled..." When we asked the FSCS last week they simply referred to "an entitlement". It is not a guarantee, is it?

Kitty Ussher: They are guaranteed from their home regulator under the European Directive and if the bank has topped up under the FSCS if it is a branch then they will be guaranteed up to the FSCS limit.

Q278 Mr Fallon: The Times reported that the Icelandic Deposit and Investors Guarantee Fund has only £88 million in the kitty to cover deposits totalling 13 billion. What is your figure?

Kitty Ussher: I do not have figures for the Icelandic compensation scheme.

Q279 Mr Fallon: Are these figures accurate?

Mr Maxwell: It is worth saying, of course, that countries which do not have a pre-funded scheme will not have large funds. We do not have a pre-funded scheme.

Q280 Mr Fallon: Are you satisfied, Minister, that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse then?

Kitty Ussher: I am satisfied that the law exists to guarantee them, yes.

Q281 Mr Fallon: You are satisfied that the law exists to guarantee them?

Kitty Ussher: Yes, under a combination of European and British law.

Q282 Mr Fallon: So they will get all their money back?

Kitty Ussher: That is the legal situation.

Q283 Mr Brady: Firstly, just to follow up on that, in the event that a foreign bank which had joined the top-up scheme were to fail and there were insufficient funds in its domestic guarantee fund, would it then fall to the FSCS to pay the whole amount up to the UK guarantee level?

Kitty Ussher: As I said in answer to Mr Fallon, the legal situation is that the first €20,000 is legally guaranteed by their domestic arrangements and the top-up is legally guaranteed through the operation of the FSCS which comes under our primary legislation. That is the situation.

Q284 Mr Brady: So if the domestic guarantee failed then that first €20,000 might not be paid, or might not be paid in full, and it would just be the top-up that would be honoured by the UK guarantee?

Kitty Ussher: I do not want to be pressed too far on this so as not to unduly alarm anybody. I am simply explaining the legal situation, which is that a depositor has redress from the domestic compensation scheme of the host bank to pay the first €20,000 and the legal arrangement is that the top-up will be paid by the FSCS. I simply do not know how it would work in practice, but that is the legal redress situation.

Q285 Mr Brady: Would you be able to write to confirm the detail on that point as to whether our guarantee would extend if the domestic guarantee failed?

Kitty Ussher: I think what is important to do is perhaps we should take this away and make sure that when we come back to Parliament we are able to say in practice how it would work, do individual investors have to contact the Icelandic authorities or whether there is another way that is simpler to do it.

Q286 Mr Brady: Turning to the question of deposit insurance in the UK and the proposals here, your earlier consultation document decided against the immediate introduction of a pre-funded scheme but the proposed legislation allows for the creation of pre-funding. Is it the case that the inclusion of those powers indicates that it is your intention at a suitable moment to introduce it?

Kitty Ussher: We have not actually made that decision. We are still in the consultation phase. We wanted to make it entirely clear that we will take the power to do so and whether we will use it or the timing of it being used is something we are still negotiating and debating between the banks and ourselves.

Q287 Mr Brady: Could you give us some insight into what the criteria might be for that decision to be taken? What would it be that would make you decide that pre-funding was necessary and appropriate?

Kitty Ussher: Not at this stage. There are a number of issues around here. The important decision that has been made is to ensure that in the event of a large failure the FSCS will be able to pay out to depositors. We are proposing to legislate to ensure that it could borrow from the National Loans Fund and then it would be paid back by the banks so over time it would be neutral to the taxpayer, but the depositor would receive a payout in a very short space of time. What is in the balance, and we simply do not have a view on yet so we are consulting further, is whether at some point in the future, or even sooner, we should use a power to require banks to start paying upfront into a pot that could potentially be drawn down on, and whether that should have a maximum cap or not, or whether it is sufficient that people would be paying after the event of a collapse. This is a very important issue to get to the bottom of. I can see pros and cons of various outcomes. We simply want to separate that issue off from the rest of the very complex issues that we are dealing with to be able to deal with it by itself. I do not yet have an answer as to what would trigger the use, except to say a view will be come to at some point about what is in the public interest to do, what is a sensible policy proposition here.

Q288 Mr Brady: Accepting that a decision has not been taken, and it could be some way off, do you have an inclination of pre-funding or against it?

Kitty Ussher: No. I can see situations where it may be a very sensible thing to do, but I can also see reasons why we would not want to take capital away from institutions that are already under capital pressure at the moment. I can see a situation where we may start to want to, but I do not want to indicate in this session that we will necessarily do so.

Q289 Mr Brady: Given that most of the banks are broadly pretty strongly opposed to pre-funding being introduced, do you see a danger that in taking the power to introduce pre-funding at a later date this might be seen potentially as a kind of Sword of Damocles that the Treasury might hold over the banks in other circumstances?

Kitty Ussher: No, it is not our intention to use it as a negotiating tool elsewhere, however there may be market circumstances some years down the line where there is a consensus view that develops that it may be a sensible thing to start doing in the good times to build up a slightly larger pot in case there is a problem further down the line. I am not saying that we will necessarily do that, but that was one of the reasons why we thought it was sensible to take the power so that we could use it if circumstances change, for example.

Q290 Mr Brady: Given that 96% of depositors are covered by the existing compensation up to 35,000, why do you feel that an increase to 50,000 might be warranted?

Kitty Ussher: To be honest, it is a matter for the FSA. We did not direct them to consult on that. That is what they are minded to consult on. That will be their preferred option, but it will be a consultation later this year.

Q291 Mr Brady: So, again, the Treasury does not have a position on what that figure ought to be?

Kitty Ussher: We are perfectly comfortable with the fact that they are minded to raise it to 50,000.

Q292 Mr Brady: Is there any evidence at the moment that consumers with savings greater than 35,000 are spreading their money across different banks in larger numbers in order to try to protect their risk?

Kitty Ussher: I do not have actual data, unless one of my colleagues does, but I think anecdotally that is quite possible.

Q293 Mr Brady: The banking industry has argued that compensation within seven days is all but impossible to achieve whilst they recognise that there needs to be a speedy payout. To what extent have they been engaging with you to look at ways in which the speed of potential payouts might be improved?

Kitty Ussher: We are talking to them about it all the time. I think it is complex and the FSA and the FSCS will be investigating further in their own consultations later this year. I think it is extremely important though that we keep the interests of the depositor paramount here and that we put in place systems to enable it to happen in the unfortunate and hopefully unlikely event that we are actually in that place because, I think, anything else would be a dereliction of our public duty.

Q294 Mr Brady: Do you think that a guarantee of a payout in seven days is sufficient to prevent a run on a bank?

Kitty Ussher: Not necessarily, no, but I think it is right that people should have their money returned to them as quickly as possible.

Q295 Nick Ainger: Can I just come back on what you just said, that the interest of the depositor is paramount, coming back to this problem that we have already identified and you have identified with foreign-owned banks. Would it not be a better way that the FSCS actually pays out initially and the FSCS makes the claim on the foreign depositor protection scheme rather than it being the actual individual depositor having to make that claim?

Kitty Ussher: I think that is a useful suggestion and I have explained what the legal liability is, but, as I have already said, I think we need to do some more work about how it might operate in practice.

Q296 Chairman: On the deposit protection of £50,000, you mentioned that it was for the FSA, but I well remember the Chancellor making the point a few months ago that he thought £50,000 was the figure. Why do you think he thought £50,000 was the right figure rather than, say, £35,000?

Kitty Ussher: The Chancellor is entitled to his views and I guess he just said what he thought.

Q297 Chairman: Has he not spoken to you about this?

Kitty Ussher: Yes, we talk it about it all the time.

Q298 Chairman: So, if you have spoken about it, give us an idea of his thinking then on the £50,000.

Kitty Ussher: I guess ----

Q299 Chairman: He drew a blank on that?

Kitty Ussher: I think you would have to ask him. The point is that it is a matter for the FSA.

Q300 Chairman: We want you to be happy with things ----

Kitty Ussher: Thank you.

Q301 Chairman: ---- regarding this paper and we want you to be happy coming to this Committee, so I am going to ask you, why are you happy that the Financial Stability Committee is a sub-committee of the Court?

Kitty Ussher: Because the Court is the governing body of the Bank of England and I simply feel it is appropriate that it should be a sub-committee. I know that the comparison with the Monetary Policy Committee has been made, but I think it is an entirely different situation.

Q302 Chairman: I mentioned to you, Minister, that we have spoken to the Court, both informally and formally contacted them, and we have our doubts on that, but really what I want to probe is: what, in the past performance of the Court, gives you the belief that it can act as an effective check on the exercise of the executive functions of the Bank in relation to financial stability?

Kitty Ussher: Well, we obviously established the governance arrangements of the Bank of England and we have already said that we think that the Court can work more effectively, which is why we will use this opportunity of the legislation that is coming to reduce the numbers, for example, and some other governance changes in the way that the Court will operate. I come back to my earlier point, that I am comfortable with the way that they want to operate the Financial Stability Committee, but, as I have also said, this is something that we are still working on and talking about, we have not reached the end of the road and, if they want to come back to us with an alternative proposition, we will consider it.

Q303 Chairman: How can non-executive members of the Court both belong to the Financial Stability Committee and oversee the executives' work on financial stability?

Kitty Ussher: How can they belong to it and oversee?

Q304 Chairman: Yes.

Kitty Ussher: Well, that is precisely what the Committee is for.

Q305 Chairman: The executives work on financial stability, so how can non-exec members of the Court both belong to the Financial Stability Committee and oversee the executives' work on financial stability?

Kitty Ussher: I think the best way of looking at this is that, if you take a corporate environment, there will be an audit committee that is a kind of sub-committee of the board and it has a particular function and is composed of a relevant group of people. Perhaps the composition is not entirely the same, but that is a way of thinking about it. Mr Chairman, you are rightly pushing us on an issue that we are still discussing and we will take your views on board.

Q306 Mr Fallon: But, Minister, for an audit committee in the City of any commercial board or a remuneration committee, it is an absolute principle that they are not chaired by the chairman of the company. They are chaired independently by one of the senior non-exec, independent directors. The Committee you are proposing to oversee the Bank's financial stability work is going to be chaired by the Governor himself.

Kitty Ussher: I cannot remember how many times I have been asked this question now, but my answer will be the same ----

Q307 Mr Fallon: Well, you have not answered it yet.

Kitty Ussher: ----- which is that this is what the Court is proposing and, if they want to come and propose something else, then that is fine.

Q308 Chairman: You are open for business.

Kitty Ussher: We are open for business and for your recommendations.

Q309 Chairman: There are a number of outstanding issues, Minister, and I will try and sum them up for you, from our perspective: one, the role and structure of the Financial Stability Committee; two, deposit protection, the speed of payout, foreign banks and prepayment, and the issue of who pulls the trigger and what recommendations will be made public, and that was very, very clearly put to us this morning by the Governor; also the definition of 'financial stability', which John Thurso, has raised and how you protect that; and Jim Cousins' point about heightened supervision, what is heightened supervision, what should be made public and how will we keep green and amber classification private. These are the number of issues, I think, that you have to be getting on with and we will be producing our Report in September before Parliament comes back in October, and no doubt you will continue this constructive and healthy dialogue.

Kitty Ussher: I am grateful to you for that.

Chairman: Thank you very much.

 

-- Skoðið sérstaklega þennan hluta aftur --

Q276 Mr Fallon: Given there are several hundred thousand British investors in these EEA banks, why are there only two sentences out of a 164 page document devoted to this?

Kitty Ussher: Because the sentences say what is required, I would suggest.

Q277 Mr Fallon: They do not say what is required. They say, "Depositors may be entitled..." When we asked the FSCS last week they simply referred to "an entitlement". It is not a guarantee, is it?

Kitty Ussher: They are guaranteed from their home regulator under the European Directive and if the bank has topped up under the FSCS if it is a branch then they will be guaranteed up to the FSCS limit.

Q278 Mr Fallon: The Times reported that the Icelandic Deposit and Investors Guarantee Fund has only £88 million in the kitty to cover deposits totalling 13 billion. What is your figure?

Kitty Ussher: I do not have figures for the Icelandic compensation scheme.

Q279 Mr Fallon: Are these figures accurate?

Mr Maxwell: It is worth saying, of course, that countries which do not have a pre-funded scheme will not have large funds. We do not have a pre-funded scheme.

Q280 Mr Fallon: Are you satisfied, Minister, that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse then?

Kitty Ussher: I am satisfied that the law exists to guarantee them, yes.

Q281 Mr Fallon: You are satisfied that the law exists to guarantee them?

Kitty Ussher: Yes, under a combination of European and British law.

Q282 Mr Fallon: So they will get all their money back?

Kitty Ussher: That is the legal situation.

Q283 Mr Brady: Firstly, just to follow up on that, in the event that a foreign bank which had joined the top-up scheme were to fail and there were insufficient funds in its domestic guarantee fund, would it then fall to the FSCS to pay the whole amount up to the UK guarantee level?

Kitty Ussher: As I said in answer to Mr Fallon, the legal situation is that the first €20,000 is legally guaranteed by their domestic arrangements and the top-up is legally guaranteed through the operation of the FSCS which comes under our primary legislation. That is the situation.

Q284 Mr Brady: So if the domestic guarantee failed then that first €20,000 might not be paid, or might not be paid in full, and it would just be the top-up that would be honoured by the UK guarantee?

Kitty Ussher: I do not want to be pressed too far on this so as not to unduly alarm anybody. I am simply explaining the legal situation, which is that a depositor has redress from the domestic compensation scheme of the host bank to pay the first €20,000 and the legal arrangement is that the top-up will be paid by the FSCS. I simply do not know how it would work in practice, but that is the legal redress situation.

[Gunnar Rögnvaldsson, 17.11.2008 kl. 01:49]

 

 

 

 

 

 

-- Skoðið sérstaklega þennan hluta aftur --

Q276 Mr Fallon: Given there are several hundred thousand British investors in these EEA banks, why are there only two sentences out of a 164 page document devoted to this?

Kitty Ussher: Because the sentences say what is required, I would suggest.

Q277 Mr Fallon: They do not say what is required. They say, "Depositors may be entitled..." When we asked the FSCS last week they simply referred to "an entitlement". It is not a guarantee, is it?

Kitty Ussher: They are guaranteed from their home regulator under the European Directive and if the bank has topped up under the FSCS if it is a branch then they will be guaranteed up to the FSCS limit.

Q278 Mr Fallon: The Times reported that the Icelandic Deposit and Investors Guarantee Fund has only £88 million in the kitty to cover deposits totalling 13 billion. What is your figure?

Kitty Ussher: I do not have figures for the Icelandic compensation scheme.

Q279 Mr Fallon: Are these figures accurate?

Mr Maxwell: It is worth saying, of course, that countries which do not have a pre-funded scheme will not have large funds. We do not have a pre-funded scheme.

Q280 Mr Fallon: Are you satisfied, Minister, that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse then?

Kitty Ussher: I am satisfied that the law exists to guarantee them, yes.

Q281 Mr Fallon: You are satisfied that the law exists to guarantee them?

Kitty Ussher: Yes, under a combination of European and British law.

Q282 Mr Fallon: So they will get all their money back?

Kitty Ussher: That is the legal situation.

Q283 Mr Brady: Firstly, just to follow up on that, in the event that a foreign bank which had joined the top-up scheme were to fail and there were insufficient funds in its domestic guarantee fund, would it then fall to the FSCS to pay the whole amount up to the UK guarantee level?

Kitty Ussher: As I said in answer to Mr Fallon, the legal situation is that the first €20,000 is legally guaranteed by their domestic arrangements and the top-up is legally guaranteed through the operation of the FSCS which comes under our primary legislation. That is the situation.

Q284 Mr Brady: So if the domestic guarantee failed then that first €20,000 might not be paid, or might not be paid in full, and it would just be the top-up that would be honoured by the UK guarantee?

Kitty Ussher: I do not want to be pressed too far on this so as not to unduly alarm anybody. I am simply explaining the legal situation, which is that a depositor has redress from the domestic compensation scheme of the host bank to pay the first €20,000 and the legal arrangement is that the top-up will be paid by the FSCS. I simply do not know how it would work in practice, but that is the legal redress situation.

[Gunnar Rögnvaldsson, 17.11.2008 kl. 01:52]

Bretar hafa ekki einu sinni "prefunded scheme" sjálfir:

 

 

Q278 Mr Fallon: The Times reported that the Icelandic Deposit and Investors Guarantee Fund has only £88 million in the kitty to cover deposits totalling 13 billion. What is your figure?

Kitty Ussher: I do not have figures for the Icelandic compensation scheme.

Q279 Mr Fallon: Are these figures accurate?

Mr Maxwell: It is worth saying, of course, that countries which do not have a pre-funded scheme will not have large funds. We do not have a pre-funded scheme. 

[Egill Jóhannsson, 17.11.2008 kl. 02:03]

Gunnar, getur þú sett inn slóðina þar sem maður finnur þetta handrit?

[Gunnar Rögnvaldsson, 17.11.2008 kl. 02:13]

Nei því miður Egill, ég fékk þetta sent í tölvupósti. En ég skal viðhengja þetta hér fyrir ofan sem fylgiskjal í zip möppu. Gerðu svo vel - tilbúið

Kveðjur

[Loftur Altice Þorsteinsson, 17.11.2008 kl. 09:53]

Gunnar og Egill.

Þið finnið þessa skýrslu og margt fleirra, á slóðinni hér fyrir neðan:

Dagsetning:16 September 2008

Skýrsla: HC 1008

PDF blaðsíða: 167, en HTML er betra (neðst á bls)

 http://www.publications.parliament.uk/pa/cm/cmtreasy.htm#evid

[Frosti Pálsson (IP-tala skráð) 17.11.2008 kl. 10:43]

Sæll frændi!

Linkur á skýrsluna alla og ekki bara þetta transcript sem ég sendi þér áður, er hér : Seventeenth Report : Banking Reform

þetta hér að neðan er tekið úr sömu skýrslu ( http://www.publications.parliament.uk/pa/cm200708/cmselect/cmtreasy/1008/8071601.htm )

Rautt, feitletrað og undirstrikað er mitt.

Oral evidenceTaken before the Treasury Committee on Wednesday 16 July 2008 Members present:



John McFall, in the Chair

Nick Ainger	Ms Sally Keeble
Mr Graham Brady	Mr Andrew Love
Mr Colin Breed	John Thurso
Jim Cousins	Mr Mark Todd
Mr Philip Dunne	Sir Peter Viggers
Mr Michael Fallon

CONTENTS

Witnesses: Sir John Parker, Chairman of the Non-Executive Directors, and Dr David Potter CBE, Deputy Chairman of the Non-Executive Directors, Court of the Bank of England, gave evidence.

 ...

 Q113  Nick Ainger: Let us talk about the banks outside the EEA.

  Mr Kuczynski: In terms of their regulation perhaps I could ask Dr Huertas to comment.

  Dr Huertas: Those are regulated and supervised by the FSA.

  Q114  Mr Fallon: Mr Kuczynski, just to be specific here, are you telling us that savers with Icelandic banks are fully protected to the extent of £35,000 with the FSCS scheme?

  Mr Kuczynski: It depends on the particular arrangements in place.

  Q115  Mr Fallon: Are they fully protected or not?

  Mr Kuczynski: The position with an EEA bank,—

  Q116  Mr Fallon: No, Icelandic banks.   !!! Er virkilega verið að mismuna EES bönkum eftir þjóðerni hér?

  Mr Kuczynski:— including Iceland, but it applies equally to any EEA state, is that those which have branches in the UK and are therefore operating under the single market are entitled but not obliged to join FSCS to provide the top-up cover. Where an EEA branch joins FSCS for that top-up cover the depositors receive the same level of protection as is available under FSCS and that is provided in two parts. The first part is the home state cover under the Deposit Guarantee Directive and the second part is the top-up FSCS cover which arises because in the UK the £35,000 limit is higher than the level that the home state scheme provides.

  Q117  Mr Fallon: I understand that, but The Times reported that for an Icelandic bank the first £16,500 would come, as you say, from the Icelandic Deposit and Investors Guarantee Fund, which at the moment, The Times says, has only £88 million in the kitty to cover deposits totalling £13 billion, so how are UK depositors with an Icelandic bank fully protected?

  Mr Kuczynski: The Deposit Guarantee Directive is in place. All states within the EEA have adopted that directive and they are entitled to protection under the directive. Similarly, depositors with UK banks in the EEA are entitled to protection from FSCS.

  Q118  Mr Fallon: But if there is not sufficient funding in the Icelandic fund to cover all the deposits how can you say UK investors are fully protected?

  Mr Kuczynski: What I can say is that the UK depositors, under the arrangements in place, are entitled to the protection by a combination of the directive minimum requirements and FSCS, and that applies to all the EEA branches that are topped up into the FSCS.

  Q119  Mr Fallon: Can you just give a straight answer to that? If you are in Britain and you are saving with an Icelandic bank are you fully entitled to the £35,000 or not? Can you guarantee that people will get £35,000 back?

  Mr Kuczynski: All I can say is that the entitlement, by a combination of the home state protection under the directive and the FSCS top-up portion, is £35,000. It is the combination of those two parts that provides the cover.

  Q120  Mr Fallon: So they are not fully protected. In fact, they are totally dependent on the size, solvency and coverage of the Icelandic Deposit Guarantee Fund.

"SO THEY ARE NOT FULLY PROTECTED."!!!

  Mr Kuczynski: They are entitled to £35,000. That applies to any—

  Q121  Chairman: A number of months ago there was a question about Icelandic banks here and the FSA put a statement on it and said, "If it is FSA registered then people's deposits are okay", so if this is a different story we really need to know about it because that was a public message that went out from the FSA. Okay, we will come back to that. We need a note.

  Dr Huertas: Fine. We will be happy to come back with a note on that.

  Q122  Chairman: Dr Huertas, can we thank you very much for your evidence. You heard earlier that we are producing a report on this in September, so if there is anything that can add to the clarity which is urgently required we would be delighted to receive a number of notes from you.

  Dr Huertas: We are very happy to provide that.

----------

JAMM. Þetta er síðan 16 Júlí. Íslenskir bankar voru ekki venjulegir EES bankar. Þeir voru Íslenskir EES bankar!! Gaman væri að sjá þessa skýrslu sem þeir tala um að ætti að gera í September.

Kærar kveðjur!

[Gunnar Rögnvaldsson, 17.11.2008 kl. 12:45]

Kærar þakkir fyrir þetta Frosti

Bestu kveðjur

[Gunnar Rögnvaldsson, 17.11.2008 kl. 12:46]

Þakka fyrir Loftur

Kveðjur

[Óskar (IP-tala skráð) 17.11.2008 kl. 16:39]

Frábærar greinar hjá þér. Þú og Egill eruð bestir

[Júlíus Björnsson, 18.11.2008 kl. 10:59]

Íhaldssemi og langtíma sjónarmið er hin gullni meðalavegur eða kletturinn sem má byggja á. Mættu fleirri stíga í vitið.

[Ómar Geirsson, 18.11.2008 kl. 23:55]

Blessaður.

Hættu þessarri vitleysu í Danmörku og komdu heim.  Davíð hóf orustuna í morgunn með því að fórna stólnum fyrir ESB andstöðu sína.  Vonandi tók hann stjórnina með sér og afhjúpaði Samfylkinguna í leiðinni.  En Framtíð Íslands þarf á þinni þekkingu að halda. 

Kona á Akureyri afhjúpaði Finnlandsvitleysuna með beittum málflutningi.  Þegar minnst er á Finnsku leiðina núna þá sjá landsmenn fyrir sér hálfnakta exforstjóra og langa biðröð sveltandi skólabarna fyrir utan súpueldhús.  Þekking þín á núverandi (fallandi) stöðu ESB og beittur málflutningur gæti bitið á rökleysu ESB trúboðsins.  Það er þannig og mun sjálfsagt alltaf vera að þekking er sterkastavopnið gegn bábiljum og hindurvitnum.

Kveðja að austan.

[Gunnar Rögnvaldsson, 19.11.2008 kl. 02:24]

Takk fyrir innlitið Júlíus. Vel mælt

Sæll Ómar (sem ég svona að sé sá Ómar Geirsson sem ég þekki persónulega ??? :) Þakka kærlega fyrir þetta.

.

Jú það er verið að undirbúa fangaskipti Ómar. Ég, andófsmaðurinn úr ESB, kem alfluttur burt úr ESB heim til Íslands (ekki í ESB) með næstu vorskipum. Í skiptum verða vonandi sendir margir ESB sinnar til að taka sæti mitt hér í himnaríki og til að bæra úr þeim óbætanlega skaða sem ég valdið á Evrópusambandinu við Ísland. Það er nefnilega alltaf á tali núna.

Kveðjur

Er tilgáta mín rétt Ómar?

[Ómar Geirsson, 20.11.2008 kl. 22:57]

Blessaður Gunnar.

Nei ég er ekki nafni minn úr Fjallabyggð. 

Kveðja að austan