Financial Services (Banking Reform) Bill

Debate between Lord Flight and Lord Archbishop of Canterbury

Tuesday 26th November 2013 Lords Chamber

[Lord Flight]

My Lords, I have broadly been in support of a Glass-Steagall separation of investment and banking banks, but there seems to me something slightly wrong with the concept of having a review and prejudging the outcome of that review. Playing devil’s advocate, I make a point on the other side of the coin. Europe has had universal banking for a long time; that is the banking tradition in continental Europe and there is still a case for universal banking to continue, although it is right out of fashion now. I repeat my point that, to a fair extent, the profits of investment banking have subsidised ordinary banking and benefited ordinary retail customers; the losses have generally come from bad lending. So it is slightly premature to prejudge the review. I cannot see what is wrong with having a review with the understanding that the Government will act on the basis of the recommendation of that review at the time. We will have moved on from the present and other factors may have come to light as well. I do not see what is gained by prejudging the result of the review.

[The Archbishop of Canterbury]

My Lords, as did the noble Lord, Lord Lawson, I begin by expressing my gratitude to the Government that they have listened to the speeches of many noble Lords and my PCBS colleagues on the need for a full and independent review of the ring-fence. I hope that they will realise that the amendments that have been tabled today are the final pieces of the puzzle in this regard. This work, combined with the vast improvements that we have seen to the electrification of the ring-fence—what is officially known as the first reserve power—is most welcome. The noble Lord, Lord Eatwell, put the case very clearly, not only for them but for the second reserve power. The Government’s approach to that is so far disappointing.

The Minister said that he believed that a robust ring-fence will work, and so do we, as the commission. It is just that we do not think that it is robust—that is the problem. The point of the second reserve power is to make the ring-fence sufficiently robust that it will carry the day if the first one is over a period of years overwhelmed.

The swirling floods unleashed in 2008 with the banking collapse continue to cause eddies all over our economy, particularly in the most vulnerable parts, which so many of us on these Benches are so deeply involved in supporting. Both the ICB and the PCBS concluded that the most appropriate way in which to reform the structure of the industry today is to have the ring-fence within a parent company. It is experimental —we hear the arguments, and we know so. This partial structural separation, with the added provision of ring-fence, should create a disincentive for banks to attempt to test the limits or game the ring-fence, but “should” is not sufficient.

The advantage of the second reserve power and the first reserve power together, in addition to the ones that the noble Lord, Lord Eatwell, put so eloquently, is that they give a second shot to the gun. If the first reserve power fails, and a bank or two has been forced into full separation but the whole industry is still gaming the system, then you have still got the second reserve power. It appears that the Government’s policy on this is to have only one shot and then to say, following that, “We’ll do something. As yet, we know not what. But we will do something, and it will be something very, very serious”.

--- Later in debate ---

[The Archbishop of Canterbury]

I want briefly to add my support to the amendment of the noble Lord, Lord Brennan. Money laundering affects not only the areas that have been mentioned, but in my 10 years’ experience of dealing with conflict management and mitigation work in Africa, it was particularly significant in the ways in which illegal regimes or militias managed to fund and supply themselves. My experience, particularly in some parts of Africa, has shown that London, over time, as one of the deepest and most liquid financial markets on earth has, contrary to the impression given by many senior bankers, played a significant role—not through their collusion in any way at all, but because of its size and the complexity of preventing it. I believe that this amendment and the suggestions put forward by the noble Lord, Lord Eatwell, will contribute extensively to restricting that.

[Lord Flight]

My Lords, all Members of this House are what is known as PEPs for the purposes of anti-money-laundering. This means that any bank has to pay extra-special attention to any of our transactions. It is perfectly justified. The thought crossed my mind—and I have great sympathy with the noble Lord’s aspirations—that money laundering for corrupt purposes, for armaments, for terrorism and the rest of it, does not particularly come from an ordinary British family living in a suburb. It comes very much from parts of the world where such things are more prevalent. There is a case for requiring a more judicious anti-money-laundering regime for any form of transfer that comes from such parts of the world in an analogous fashion to a PEP if we really want to get to grips with the horrific money-laundering that can come from some parts of the world, causing misery to citizens there. As arrangements presently stand, there is no difference between an evil regime somewhere and an ordinary British citizen living in Birmingham.

Financial Services Bill

Debate between Lord Flight and Lord Archbishop of Canterbury

Monday 12th November 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, my name is down on the amendment. I thank the noble Lord, Lord Newby, for that most helpful intervention, which essentially satisfies what I hoped for with the amendment. I also thank the Minister and other noble Lords for their kind remarks earlier.

It is particularly important that this information is available not only for this House and the public but also for the FCA itself in view of the very welcome earlier amendment about the access to finance in areas of social deprivation. For that to be effective, the FCA itself will require these kinds of data. Having them available is not only useful to us but ensures that the FCA’s regulatory obligation can be fulfilled and that it will feel an obligation to make sure it is fulfilled. It prevents regulatory comfort, which is often as much a danger as regulatory capture. The noble Baroness, Lady Hayter, spoke in those terms on an earlier amendment.

I am particularly conscious of this in the area where I live—in the smaller towns of the north-east, the ex-pit towns and pit villages and de-industrialised areas—where access to finance for SMEs, especially the very small SMEs, is almost non-existent. This will reveal that kind of problem extremely clearly. Recently, through a social enterprise, we were able to support someone who had been seeking £200 for 18 months in order to start his own painting and decorating business. Such a small amount has enabled him to become self-sufficient, with an order book full until next May. It is that kind of thing that can make a significant difference in the small economies of the more rural areas of my diocese and other places like it. I thank the noble Lord again for the assurance that he has given the House and we look forward to seeing the results.

[Lord Flight]

My Lords, perhaps I may just add a brief comment. I had a conversation this morning with the entrepreneur Luke Johnson. He made a point to me that resonated strongly. Would it not be a good idea if we could organise key entrepreneurs to take up the challenge of different towns around the country to give a lead in entrepreneurial rejuvenation? I can certainly think of examples, particularly Swindon in the past, where that sort of principle has worked extremely well. Then the SME lending makes more sense.