Banking Reform

Justin Tomlinson Excerpts

Monday 29th November 2010 Commons Chamber

[Justin Tomlinson (North Swindon) (Con)]

Does my hon. Friend agree that it is also essential to maintain diversity in the financial services sector to improve competition and drive down consumer costs and charges?

[Andrea Leadsom]

Absolutely. I was about to make exactly that point. Not only have there been far too few new entrants, we have seen only recently that banks are unable to fail; we cannot risk allowing a bank to fail, as the situation in Ireland has highlighted yet again. Regulation has trumped competition for too long.

It is not simply a matter of being too big to fail. Some of the biggest continuing concerns are about the medium-sized banking sector in the States and in Germany. The same mistakes must never happen again. We need to look to where the next crisis will come. It is absolutely key to introduce more competition and more accountability, and I would consider three areas.

I should not look to split retail and investment banking, which are artificial barriers. They may have worked in the 1920s and 1930s, but now they are too big a grey area. We simply could not do it. Bankers would just find clever ways to get round such measures.

I declare an interest. I have been in banking even longer than my hon. Friend the Member for Bromsgrove (Sajid Javid), as I have been in investment banking and funds management for 23 years. I assure the House that I have seen from all ends how clever bankers are when they want to get round something.

To address competition in the retail and mortgage markets, I would consider ways to let account numbers follow the consumer—one of the biggest barriers to moving an account, as we probably all know. I should love to know how many Members in the Chamber have changed their bank account or mortgage account recently. It is a huge headache. If we let the account number follow the consumer, that would immediately create far greater competition and far greater choice and availability of moving. It could also remove barriers to entry.

Secondly, to address competition in wholesale markets, I would consider giving the new Consumer Protection and Markets Authority a specific competition objective, which would mean that one of its roles would be as a specialist competition commission—not just the Office of Fair Trading, but a specialist commission—that would consider whether, in a particular sector or in a particular geographic region, a bank had a monopolistic or oligopolistic market share. It ought to have a statutory ability then to enforce its recommendations.