Financial Services and Markets Bill [HL]

Baroness Altmann Excerpts

Committee stage
Wednesday 8th July 2026 Grand Committee

[Baroness Lawlor (Con)]

I thank the noble Lord, but he was speaking about 2022, which was light years away for the financial sector. Things have moved on and have changed. We have different regimes in place now. As my noble friend Lady Noakes has explained, the banks are now resolvable. There are other schemes that will avoid the problems for the taxpayer. That should be borne in mind.

I had better finish quickly. That is my objection. It is about who decides for businesses. If you have a ring-fence, ultimately, no matter how much you relax it, the Government are never going to have the knowledge of the sector, and the detailed tactical and strategic ability, to be ahead of the game and make businesses grow. They will always play slightly safe, but maybe they are over-safe.

I will finish on why we need to repeal the ring-fence, not just why Clause 39 is not good enough. In a sense, we are seeing the inhibition of risk-taking and a structure that inhibits it. As other noble Lords have pointed out, we do not have parallels in other economies. I know that there is the Volcker rule in the US, but Switzerland has solved its “too big to fail” problem without a ring-fence and it has a very instructive banking sector. France and Germany have it individually but not the EU, which rejected it. Australia reviewed it again in 2019 and rejected it on the grounds that noble Lords have mentioned. It is well worth going back to the famous Skeoch review, which contends that, in the longer term, we will not need the ring-fence and we will have resolution schemes in place. For those reasons, I support my noble friend’s opposition to the clause standing part of the Bill and her Amendment 160A.

[Baroness Altmann (Non-Afl)]

My Lords, I support Amendments 159 and 174 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. I would be concerned about abolishing the ring-fence for similar reasons and concerns as those expressed by the noble Lord, Lord Vaux. However, I believe that a review of the workings of the alternative protections, such as the higher capital cushions and the bail-in regimes, would be appropriate. I also think that consultation would be advisable rather than simply removing these clauses. We are talking about taxpayer risk; that is basically what the ring-fencing is designed to mitigate. When it comes to consumer deposits, we have done an awful lot for retail savings to make sure that there is protection.

I apologise that I have been unable to participate fully in Committee, but I would like to put on record that there is another risk to the taxpayer in the form of retail pensions. In particular, I have concerns about the lack of any underpinning for the Financial Services Compensation Scheme around annuities, which are assumed to be 100% protected. There is a risk to the taxpayer, which I hope the Minister may consider or take back to the department to ensure that some of those issues are addressed through this Bill. Currently the implicit 100% guarantee can be met only by the taxpayer, and offshore operators of bulk annuities pose a serious risk to the retail pension sector.

[Baroness Kramer (LD)]

My Lords, I thought the Committee might like to be reminded why such a radical step as ring-fencing was taken after the 2008 financial crisis. It was in part because, in a universal bank encompassing both retail and wholesale banking, failure in the investment bank could and did destroy the viability of the retail bank. It was also in part because, as the noble Lords, Lord Tunnicliffe and Lord Pitt-Watson, said, the investment bank, able to access retail deposits at zero interest and protected by deposit interest, could now take risks that it never would have been able to take if it had had to raise that funding in the financial markets. That was a major factor behind the extraordinary and careless risk-taking that led us into the 2008 crash.

There was also a further reason: cultural contamination that led to irresponsible lending and funding in the retail banks and the abuse of customers as, under pressure from directors, they sought to catch up with the performance of their investment bank equivalents. We all, as a community, paid a very high price for that. Even at the time when the ring-fence was introduced and the Parliamentary Commission on Banking Standards recommended it as the best way to provide protection for the future, all of us knew that there would at some time in the future be a dangerous complacency. I quote from evidence to the PCBS:

“The classic problem for human institutions and for the design of our regulatory structures and our policy is how do we design against [delusion] in 25 years’ time, when … we have another: ‘This time it’s different. This time we’re cleverer than the previous generation.’”


Another quote is that

“financial crises don’t often happen immediately one after another; there tends to be a lag while those people who learnt lessons move out of the industry”.

In opting for ring-fencing, the PCBS warned of future pressures to weaken the separation:

“Those pressures will include the siren voices of those who contend that structural separation as implemented represents a barrier to financial innovation and growth”.


That was prescient indeed.

The noble Baroness, Lady Neville-Rolfe, said in a previous day of Committee that I look too much to the past. I accept that memory is inconvenient, but the amendments today from her and her colleagues come from a party that, perhaps with the exception of Nigel Lawson, never accepted its responsibility for light-touch regulation, the culture of hubris and the casino mentality that was quite heralded and led to the crisis in 2008. I still hear little sympathy, frankly, from those Benches for the ordinary people who bore the consequences. I do not want to denigrate the banking community—there are many good people in it—but most of them walked away largely untouched and with the personal rewards for the activities that led to the crisis still in their pockets. Respecting the positives of the financial sector always has to sit with a recognition that so much money can be made from a bending or an adjustment of the rules that guardrails are a necessity.

As I listened to the proposals in this group, I realised that growth has become an excuse and resolution has become a cover for eliminating the ring-fence and, essentially, the precautionary principle. Resolution for systemic banks is not just untested but—I was thankful to the noble Lord, Lord Tunnicliffe, for quoting my Second Reading speech—it has a poisonous side-effect for others in the financial sector, notably the insurance and pension funds that in this case hold most of the bail-in bonds through MREL, and for their customers.

In 2023, the Swiss financial regulator FINMA—I was reminded of this when the noble Baroness, Lady Lawlor, talked about the Swiss being so secure—saved the equity holders of Credit Suisse, a collapsing bank, in order to rescue it, but wiped out the bondholders, an issue that is still in litigation and has cost the Swiss very dearly in their bond issuances. FINMA took its decision on the grounds that any other action would have undermined financial stability, it was so conscious of the contagion that comes when you activate a resolution procedure. While the Bank of England has said it would not hesitate to activate resolution procedures and wipe out both equity and bondholders, I find very few people in the industry who actually believe it on those kinds of statements. No one should look with equanimity at the idea that we allow a bank to fail and be rescued only through the extreme activities of resolution, rather than looking at the precautionary principle.

Yesterday, the ground shifted even more. The noble Lord, Lord Tunnicliffe, referred to the financial stability report of July 2026 from the Bank of England. I have not had time to read it thoroughly. I have done only a first read but, frankly, it is schizophrenic. The first half of the report, as others have raised, is chilling in its assessment of the increased risk—the noble Lord, Lord Vaux, raised some of these questions—of private credit, the Iran war and AI, and especially of these crises crystallising at the same time. But the second half of the report explains policy decisions to weaken the regulatory capital buffers for banks—the regulatory system that several people have spoken about here as the reason why it is possible to remove the ring-fence. That was weakened in yesterday’s publication. The reasoning appears to be that regulators overseas are weakening their buffers and, for international competitiveness reasons, we should too.

Last Sunday, the Sunday Times ran a piece in anticipation of this change, saying that the Bank is set to relax capital rules for lenders again. My reaction to the report is mirrored by the quote from Sir John Vickers in that article, in which he cautions against reducing capital requirements:

“At a time when risk has plainly gone up, it would not make sense to dial down insurance”.


The Bank, I suspect encouraged by the Treasury, is weakening the resolution system. The noble Baroness, Lady Neville-Rolfe, and her party propose in addition to remove the precautionary protection of ring-fencing. All this is at a time of increased risk to financial stability. I came away from going through these amendments, frankly, in a mood of despair. We have to start once again to recognise the reality of risk.