Financial Services (Banking Reform) Bill

Lord Higgins Excerpts

Wednesday 24th July 2013 Lords Chamber

[Lord Higgins]

My Lords, it is a great pleasure to follow the noble Lord, Lord McFall, one of my successors as chairman of the Treasury and Civil Service Select Committee in another place. I certainly join my noble friend Lord Lawson in paying tribute to the present chairman of the Treasury Select Committee in another place, Andrew Tyrie, who has also taken on these other extensive responsibilities. He is one of a number of people who have put in an immense amount of hard work behind the scenes to try to achieve a banking system which is safe for everyone and which carries out its duties as far as the economy is concerned.

The reality is that the result of all those labours is an extraordinarily complex, three-dimensional jigsaw puzzle. It is three-dimensional in the sense that some of the pieces are at UK level, some at European level and some at a wider international level. It is going to be very difficult to see how these pieces fit together. That is not particularly helped by the absolute obsession with having initials to describe all the individual organisations. It would be very helpful if, before Committee, the Treasury or the Bill team could produce a list of all these various organisations with their initials and an explanation of the way in which they interlock, otherwise it will be very difficult for us to keep pace with these affairs.

I am rather concerned that a decision has been taken to draft this Bill on to the Financial Services and Markets Act 2000. As far as I know, I have the up-to-date version of that Act from the Vote Office, but I have considerable problems in integrating the first page of this Bill, which refers to the objectives of the Prudential Regulation Authority, whereas of course the Financial Services and Markets Act is concerned with a quite different authority—the Financial Services Authority. I am not at all clear—we can pursue it when we get to Committee—how this drafting actually integrates. It seems to be a very complicated matter.

I have long had a theory that one can always tell in a Bill of this complexity at what point the draftsman actually suffers a complete mental breakdown. It happens very early in this Bill—it happens by the second page, indeed, which states:

“(b) after that subsection insert—

“(3A) For the purposes of this Chapter, the cases in which a person (“P”) other than an authorised person is to be regarded as failing include any case where P enters insolvency”.”

This chap P appears throughout the Bill from time to time and I have serious doubts as to whether this is the best way of drafting these matters. Some of them are very difficult to draft. No doubt we shall have an enjoyable time in Committee trying to sort the thing out, but it is not going to be easy to draft amendments.

I thank my noble friend the Minister for arranging a meeting with officials ahead of this debate; we may need to consult him further. Officials have been very helpful, but drafting the whole thing by reference to a quite different piece of legislation, albeit related, is not, I think, the easiest way of doing it. Similarly, in the Explanatory Notes we have constant references to “new clauses”, when in fact, as I understand it, they have already been approved by the other place. Certainly, the Bill is very unusual in that the other place seems to have given proper attention to it, instead of its being programmed, when it is impossible for them to do their jobs in an orderly way. So we are coming to the Bill when it has already been scrutinised in another place, unlike many other pieces of legislation we get.

The essence of the Bill is, I think, very much concerned with the issue of banks being “too big to fail”. I come increasingly to the view that they are not only too big to fail, many of them are too big to manage. Noble Lords have only to look at the experience of the LIBOR scandal, and so on, to realise the extent to which the people at the top have not the remotest idea of what is happening in some parts of the organisations they are supposed to head. Indeed, it may also be that they are too big to regulate, so we have to ask, at some stage, what the economies of scale in banking really are. I have increasing doubts as to whether they are as big as they seem—I see, rather, an increasing, somewhat megalomaniac approach by those in charge of such organisations to make them bigger and bigger and take over more and more other organisations. At all events, we now have a Bill which is very interesting in that it is ring-fenced, with an electrified ring-fence at that. This, we will need to examine very carefully.

I ask my noble friend who is to wind up one simple question. Are there any circumstances in which the investment bank can get its hands on the assets in the retail bank? It is a simple question. I understand the answer is supposed to be, no, but we need to examine the extent to which the ring-fence is really effective. We also have to consider very carefully the question of timing. My understanding is that some of the proposals will not come into operation until 2019. Are we really sure that we are not going to have another financial crisis—for example, if the eurozone collapses before that time? Are we sure that we are taking account of the possibility of the structure not being properly in place when we need it urgently?

I very much welcome the proposals for depositor preference, although it is very much a Treasury-driven idea. It will limit the extent to which the Treasury is liable if a particular bank runs into problems. In effect, if the ring-fence really is electrified and if it really does work, we are moving closer and closer to complete separation. I share with my noble friend Lord Lawson and others the view that ultimately, we should go for complete separation—a Glass-Steagall solution, if you will. This may take some while and meanwhile, to operate a ring-fence in a way that is satisfactory and protects depositors is a move in the right direction.

I have a final point which is very topical. I received a lot of representations from the Community Investment Coalition which was very anxious that we should make progress in providing more local data on the extent to which banks provide finance to small and medium-sized enterprises, and so on. I read, either on the web or in the news today, that the Government are proposing to publish such regional data. If so, that is something that I am sure the organisation I have just mentioned will welcome—it is generally to be welcomed. That is the present situation concerning these developments. I believe that we are making progress, but it is progress in an incredibly complicated situation. We are going to have to give the Bill the closest possible scrutiny in Committee and at subsequent stages in order to get it right. It may not be easy, but it is a job which is very necessary and urgent.