Financial Services Bill

Debate between Baroness Liddell of Coatdyke and Lord Eatwell

Tuesday 26th June 2012 Lords Chamber

[Lord Eatwell]

My Lords, I beg to move Amendment 7, which as noble Lords will see from the Marshalled List refers to the experience and knowledge of individuals appointed to the court; that the Chancellor should be satisfied that they have appropriate experience and knowledge; and that their presence would enhance the diversity of the composition of the court.

The immediate reaction to this amendment might be yes, of course, it is unnecessary; anyone who makes sensible appointments would do that sort of thing. However, if it is accepted, a statutory responsibility to ensure that the supervisory board or the court, whichever we have, has a diverse range of appropriate talents will be a crucial guideline that Chancellors must follow and when necessary justify.

The importance of this amendment lies in its combination of expertise and diversity. The crisis should have taught us all of the dangers of conventional wisdom. Conventional wisdom underpinned the decision-making in central banks and treasury departments throughout the world and Mr Greenspan’s confession of the way in which his decisions were distorted by a conventional view of risk analysis has already been cited by my noble friend Lord McFall. In building a successful court or supervisory board, we need the contrary, the awkward and the different to be part of the debate. This will not guarantee that we get it right but at least we will be more likely to than if we appoint a committee of well intentioned sound thinkers who all think the same way.

Diversity here is a reference to diversity of view of analysis and of opinion. There is no doubt that often diversity of view is correlated with other aspects of diversity, maybe of gender or of ethnicity. This is not what I am trying to get at here, it is diversity of view that I would like to suggest. It would be pointless, for example, to appoint a racially diverse, gender-diverse board, all of whose members happened to share the same analysis and views. The degree to which diversities are correlated will perhaps provide some guidance and inspiration for a Chancellor. This amendment is designed to be a permanent challenge to the Chancellor in the very important task that he or she has of deciding on the composition of the court and particularly the non-executive members of the court.

[Baroness Liddell of Coatdyke]

My Lords, I support Amendment 7. Looking at this amendment the casual observer might wonder why it is necessary. It makes perfect sense that you would not leave governance of the Bank of England—and therefore governance of the economy and our financial institutions—to a bunch of interested amateurs. Frankly, however, we have occasionally seen that happen with some of our financial institutions—we need only look at the trails of chaos over the years from banks such as Barings and onwards to the catastrophe of Lehman Brothers. If noble Lords wish to read a horror story they should read Michael Lewis’s The Big Short. I confess that I did not understand some of the complex derivatives being talked about until I read The Big Short, and I have spent most of my life in and around the world of economics.

It is critically important that there is a balance of knowledge, experience and expertise on the supervisory board, or whatever we choose to call it. It will need people with a wide range of competence, with experience ranging from macroeconomics to prudential regulation. It is a wide mix to put together.

The other side of the coin—a matter to which my noble friend referred—is diversity of opinion. In this case, as he pointed out, we are not talking about gender or ethnic diversity, although that would be very good to have. We heard an exchange within the past hour between two distinguished economists—my noble friends Lord Peston and Lord Eatwell—and there will undoubtedly be differences of view among any number of economists. I would love to throw behaviouralists into the mix of any supervisory board of the Bank of England. Quite apart from behavioural economics, it is how people react that can bring economic chaos.

The amendment may seem unnecessary because it is a no-brainer that you would seek to do this anyway. We have learnt along the way, however, that it is better to get such things written down. Then you will have a wee bit more of a chance of achieving them. I therefore support Amendment 7.