Queen's Speech

Lord Lyell of Markyate Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Lyell of Markyate]

My Lords, I am glad to follow my noble friend Lady Byford, and warmly to congratulate my noble friends Lady Wilcox—both on her speech and on her appointment to the Government—and Lord Henley. I am extremely grateful that, for medical reasons, I am speaking much earlier in the debate than my economic knowledge justifies. I apologise for the fact that, for sensible reasons, I shall not be present for the wind-ups. I will speak on the prospects for improved financial regulation; briefly on the environment and renewable energy; and briefly on the challenges of reform of this House and the House of Commons.

I congratulate the new Government on the thoughtful wording of the gracious Speech on the credit crunch. It stated:

“Legislation will reform financial services regulation to learn from the financial crisis”.

There is much to learn, and I listened with great interest to the speech of the noble Lord, Lord Myners. I speak not as an economist but as someone with a background as a commercial lawyer. I express my debt to Gillian Tett of the Financial Times for her excellent account of the origins and development of the crisis in her book, Fool’s Gold.

Financial services regulation certainly needs reform, but I hope that this will concentrate on the big picture—on the fundamentals of banking and accountancy—and not become a box-ticking exercise. One of those fundamentals is that banks should hold adequate reserves in relation to their assets and their true risk exposure. Under the Basel Accord of 1988, the required figure was about 8 per cent. In Basel 2 in 2004, it was thought that this could be reduced if it was replaced by entities such as credit default swaps and collateralised debt obligations, and much more freedom was given to banks to judge how risky assets might be. The seeds of the problem already existed, and this did not work. As we know, the innovative notion that credit risk could be adequately managed if it were sufficiently widely sliced and spread around the market proved to have built a house of cards. Governments here, in Europe and in the United States must reach a new accord and decide what reserves should reasonably be required and what role if any is to be permitted for these innovations. There may be a role for credit default swaps, collateralised debt obligations and so on; but a jaundiced eye must be cast on the lack of transparency which pervaded this market for too many years.

The second fundamental improvement relates to accounting practice. It is not acceptable that debt for which a bank is ultimately responsible, or on which it relies in time of crisis, should be hidden off the balance sheet in SIVs—structured investment vehicles. Care must be taken to ensure that statutory accounts once again give a true and fair picture of the bank’s assets, indebtedness and vulnerability to risk as a whole. If SIVs are to be used at all, their existence and extent must be clearly shown on the bank’s balance sheet.

I do not wish to be simplistic and those are just two points—there are many others. The expressed desire of the Government, articulated in the gracious Speech, to learn from this massive financial crisis is a very wise starting point.

I shall say a quick word on the environment and renewable sources of energy. A new Government is a time to take stock. I am not opposed to wind farms but I listened with care to what the noble Lord, Lord Oxburgh, said. Are they likely to prove economic and to justify the level of investment and subsidy involved? I hope we will also give new impetus to nuclear power, and I was glad to hear that mentioned by the Minister. We already buy a substantial proportion of our electricity from French nuclear installations. The problems of waste exist but are far from insurmountable. Nuclear power will, in the words of the gracious Speech,

“promote low carbon energy production and … secure energy supplies”.

I shall say a brief sentence on the plans for the reform of Parliament. Whatever system emerges, the essential requirement is that it should attract to both Houses people of the right calibre who are ready, willing and able to do the work. They must be able to live reasonable lives with clear, straightforward rules on pay, taxes and expenses as similar as possible to those that apply to all other citizens.

This, I believe, is a time not only of great challenge but of genuine hope, and I feel privileged perhaps to be able to play a further part.