Regulatory and Banking Reform

Lord Stewartby Excerpts

Thursday 16th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, there are many questions wrapped up in all that. I am conscious that we have four minutes to go. I repeat myself, but we have set up the independent commission with a suitable group of experts and resourced with a secretariat that is now grappling with precisely these questions. Legal separation has, in the history of the US and Glass-Steagall, proved itself to be an incomplete answer to this. We have to find the best answer. We have set out the Government’s perspective, which is to endorse the principle, and set down the standards by which we shall judge the solution that the commission comes up with. I am sure it will listen to the ideas that are put forward here this afternoon, as well as to all the other submissions that it receives. It is not an easy challenge for the commission, but it is made up of the best people to carry it out.

On the international side, one of the standards by which the Government will judge the solution and decide whether to endorse it is compatibility with the international rules. That is the minimum. That is not what the noble Lord went on to say. As to whether other people will come with us, all I can say is that there has been a high degree of interest in what the commission has come up with in its interim report. People around the world are studying it. We shall see in time whether they will follow it. All I know is that the eyes of the world are very much on the continuing work of the commission.

[Lord Stewartby]

My Lords, I draw attention to a confusing passage in the Statement, which makes the text about micro and macro more difficult to understand. It says:

“The Prudential Regulatory Authority will focus on microprudential regulation. It will bring judgment to the vital task of regulating the soundness of individual firms”.

However, that is not a task for regulation; it is a task for supervision, which is not mentioned in the Statement and caused some confusion in earlier business on these matters. I shall not say this at any length but supervision is a separate process, which got slightly lost under the old system. We need to be careful that these are two separate things, which are complementary and sometimes overlap, but nevertheless are not the same. The text on that needs another look.

[Lord Sassoon]

I am grateful to my noble friend because this is a technical but very important area. He is completely right that there is a fundamental distinction between supervision and regulation and often texts can be loose on this. I hope that when he has a chance to read the White Paper he will see that there is extensive discussion of these areas. I refer him to the interesting remarks of the governor last night about the approach to supervision which he intends the Bank and the PRA under it to adopt in the new world, and that that should be a very different approach to supervision from what we have seen recently with the FSA. I take my noble friend’s points to heart, but the short text of the announcement does not give the full flavour that lies behind it.