Financial Services (Banking Reform) Bill

Debate between Lord Turnbull and Lord Lawson of Blaby

Monday 9th December 2013 Lords Chamber

[Lord Lawson of Blaby (Con)]

My Lords, I thank my noble friend Lord Deighton for putting forward this amendment. As he said, it is something which the banking commission, of which I had the honour to be a member, has been calling for. It is extremely welcome and it is very good that he has acceded to it. As the noble Lord, Lord Eatwell, said, the whole idea of ring-fencing is something of an experiment. We do not know whether it is going to work and therefore it is necessary that after an appropriate time it should be thoroughly investigated to see whether it is working satisfactorily and, if it is not, to have a move to full separation.

We know for certain that full separation works; indeed, separation was the norm in this country for most of our lifetimes. It is only during the past 25 years that there has not been separation. In the old days, there were the so-called joint stock banks, which were to do with the commercial banks and did retail lending and lending to small businesses, which are now known as SMEs, and there was a completely different group called the merchant banks, which were different people and institutions. For a long time, most of them were partnerships and had a different set-up altogether. They did what is now known as investment banking and it worked extremely well. We know that separation can work but we do not know whether this idea can work, so it is right that there should be a review.

While commending the Government, and in particular my noble friend, for introducing this, I hope that it will not be necessary. That is not because the ring-fence will, as it were, be found to work. I have grave doubts about that if it persists. However, there must be considerable doubt as to whether it will persist. Some noble Lords may have seen the interesting report in today’s Financial Times that the HSBC is thinking seriously of spinning off its UK retail and commercial banking enterprise as a separate company, with outside shareholders taking up to 30% in it. That is according to the Financial Times; we do not know, but there is a good reason for that. If the requirements of the ring-fence are really to be enforced toughly, they will make it so difficult, complicated, burdensome and onerous that many banks should, if they are rational, ask, “Is it actually worth staying together? Might it not be better for us”—the management—“and for our shareholders to separate and release increased shareholder value for that purpose?”. I hope that the institutional shareholders will also keep the banks up to the mark. That would be the happiest conclusion—that we will not even need the review because separation will happen of its own accord. However, just in case it does not we will need the review and I am grateful to my noble friend.

[Lord Turnbull (CB)]

My Lords, we should welcome this shortening of the period, particularly when one remembers that the clock for the new period does not start ticking until the transition to ring-fencing is complete—and that is a date in 2019. If we are adding four years to that, it will be 2023 before this review takes place; so even bringing it back to 2021 is to be welcomed.

Financial Services (Banking Reform) Bill

Debate between Lord Turnbull and Lord Lawson of Blaby

Tuesday 15th October 2013 Lords Chamber

[Lord Turnbull]

I listened to the responses to my intervention and divide them into two categories. One is points made by the noble Lord, Lord Eatwell, the Minister and the noble Baroness, Lady Noakes, on specifying expertise and skill. I can see some force in those points. If we are going to have the opportunity, I will try to improve on it. My main area of disagreement is that I just do not agree with the idea that the oversight committee—the repository of who is responsible for reviewing what the Bank has done—should be hived off to a committee of non-executive directors. It should be built into the DNA of the whole organisation. However, I can see I am not going to be able to persuade noble Lords of that, so—

[Lord Lawson of Blaby]

Before the noble Lord withdraws the amendment, I would like to correct the Minister on what he said before about the noble Lord, Lord King—the former Sir Mervyn King. He is a very old friend of mine, and I can assure the House that in advance of this crisis, he had no knowledge whatever: it was not his interest. He was interested in two things: monetary policy and microeconomics. He was very good at microeconomics, but he had no knowledge or interest in past financial crises at all. He mugged it up later, of course, after the crisis broke. Of course he mugged it up: he is a clever man and able to do so, but I am afraid that the Minister was briefed by his officials to say something totally false and misleading.

Financial Services (Banking Reform) Bill

Debate between Lord Turnbull and Lord Lawson of Blaby

Tuesday 8th October 2013 Lords Chamber

[Lord Turnbull]

If the drafting does not say that, we will have to amend it. The clear intention is for this to be a power and not a requirement. I beg to move.

[Lord Lawson of Blaby]

Perhaps I may say something about this. As the noble Lord, Lord Turnbull, mentioned, we retrenched on this in discussions on earlier groups. This is something to which I attach great importance. The noble Baroness, Lady Cohen, said that the commission had got it all wrong, that ring-fencing could not possibly work and that there would have to be complete separation. I agree with her—and this is no surprise. I was speaking out for complete separation long before almost anybody else I can think of, certainly in this country. For five years I have been writing and speaking on this: before the parliamentary commission and before the Vickers report. It remains my view that this is most unlikely to work, partly for reasons that the noble Baroness gave and partly for others.

Of course, as the noble Lord, Lord McFall, pointed out, we on the commission decided that it would be sensible to have a unanimous report. There was no majority on the commission—and certainly not unanimity—for complete separation. Therefore, we proposed what we proposed. One thing we proposed, which is what this group of amendments is about, was a route to complete separation. This is what the amendment is about: a process by which, if it is seen, and events prove, that the noble Baroness and I are correct, along with many others who think the same, this procedure, which the Government at the present time refuse to accept—something I regret—is a way in which we might get there.

When I asked the Minister what the great advantages were of universal banking, from which we should in no way depart, his main argument was that diversity was a form of strength. I am old enough to remember when industrial conglomerates were extremely popular. In the late Lord Hanson’s group, and others, there were a whole lot of disparate industries in the same holding company, and the argument was that this diversity was a form of strength. In fact, of course, it was a disaster and nobody argues the case for industrial conglomerates any more.