Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020

Lord Mann Excerpts

Tuesday 10th November 2020 Lords Chamber

[Lord Mann (Non-Afl)]

My Lords, I do not think there is any controversy in agreeing with these statutory instruments, but it gives us the opportunity to ask a few questions of the Minister in relation to them. Perhaps I could start by reiterating how I am never surprised, but always rather disappointed, that politicians, including those in this House, like those in the other one, are always keen on anything to do with the physical movement of goods. In discussions on the European Union—on leaving the European Union—everything to do with the physical movement of goods gets a huge and popular airing at all times.

I have never particularly worried about issues relating to the physical movement of goods. There will be winners and losers: the more coherent and the more seamless any transition is, the better, but that is better for short-term stability; it is in the interests of the country, so I have a view in relation to it. But I certainly do not have a strong view on whether it is important that we have, for example, a trade deal with the United States. It seems to be one of the issues that is going to dominate Chambers, including this one, in the foreseeable future; but, frankly, on whether there is a trade deal in physical goods, I say that there will be winners and losers either way, with any deal, by definition. That kind of trade will continue regardless.

Indeed, I am more in favour of doing what the Americans historically did, which is protecting not our old industries but our new ones. I have always thought it was a mistake to be overly protecting dying industries and technologies. In the late 1970s and the early 1980s, the United States put a ring of steel around Silicon Valley to ensure that it would have the ability to grow, whereas we paddled our way in the so-called free-trade world without any such subsidy, we lost our competitive advantage and we paid a very heavy price. It was, in a sense, an invisible price, because we were never able to grow those industries even though, in the early 1980s, we were leading the United States in many of those technologies.

When it comes to invisibles and the financial sector in particular, I actually have far more concerns that we get it right. The potential for major instability in the economy and then in the country from getting wrong any transition from one system to another with financial services is huge. The margins of danger are much smaller and the impact on them far greater. The Minister’s statement in this Chamber should perhaps be put in lights in Piccadilly Circus: that the Government are delegating the powers of implementation to the PRA. Well, hallelujah to that. Far be it from politicians to attempt to micromanage, because one of the great successes that we have seen in the last two years is the way in which the Bank of England and civil servants in the Treasury have handled all the negotiations in relation to exiting the European Union. If it is seamless, we do not know, so seamless is the way in which they have managed to do so, but it is undoubtedly the case that we retain greater expertise than perhaps anywhere else in the world, and certainly in Europe, in relation to the regulation of financial services.

I pay tribute—and this House should pay a huge tribute—to Mark Carney, who has now departed, to Andrew Bailey and to all the other key figures who have done this work and had it in the bag well before the politicians were voting in both Houses on how we did or did not leave the European Union, and in what way. In reality, the accord and understanding on financial services was already in the bag. That demonstrates to me that we are in a very strong position here.

The danger now would be if at any stage politicians suddenly got a wild idea that restructuring in this way or that way could have some ideological advantage. The key one I would highlight is the danger of challenger banks. The concept of challenger banks is one that politicians on all sides have welcomed. I have been more critical than most of the establishment banks, the culture within them, the price that we paid, particularly after 2008 in relation to that culture, and the way in which they treated their own institutions and mismanaged them.

However, challenger banks have a different kind of risk—a risk of the unknown. The beauty of the detail of what we are agreeing today is that it provides a well-constructed safeguard around our financial institutions. It is vital that those who have been doing it in precisely the way that I was delighted to hear the Minister outline are allowed to continue to do so. In layman’s terms, no bank must be too big to be able to fail, which is what we had in 2008, but no financial institution must fail in a way that hits the stability of the whole economy. However good the service you might sell or the product you might make and attempt to sell, if that instability is there, the economy will nosedive.

The key challenge is to maintain our strengths and maintain our stability there. Our biggest challenge is not going to be the European Union; it is going to be the emerging economies, particularly the approach of China and the Central Bank of China, and the growing strength of India in financial services and in terms of how the financial world will be operating. Asia has the risks for us and therefore, looking beyond the specifics of the EU, how we ensure financial stability here is critical to all our futures.

My final question to the Minister—in fact my only question—is about derivatives and whether there is any impact on the derivatives market. All the way through, that has been seen to be perhaps the riskiest element of any change—on both sides, us and the EU. Are there any implications from today in relation to that market?