Independent Commission on Banking

Lord Marlesford Excerpts

Thursday 15th September 2011 Lords Chamber

[Lord Oakeshott of Seagrove Bay]

My Lords, I declare my interest as a pension fund investment manager for the past 35 years. Noble Lords may be surprised to hear that for half of that time I have worked in banks. I am also a friend and former colleague of Martin Wolf and Martin Taylor. The noble Lord, Lord Liddle, handed out marks to John Vickers. As one who sat at his feet at an Oxford college and did not learn nearly as much hard economics as I should have done, I am happy to give him a pure alpha, although he never gave me one.

The noble Lord, Lord Myners, certainly knows how to damn with faint praise. He is too grudging. This is an excellent piece of work by Sir John and his colleagues. I believe that it is also an example of the old adage that politics is the art of the possible. Certainly, I and many others would have preferred a complete separation, but we are in a coalition rather than a Liberal Democrat Government, so we must be realistic about what we can get through. Sir John has judged it very well. I say in particular, to those who have waded through to the last 100 pages of the annexe, that he has shown brilliant tactical sense by smoking out all the banks' objections in his interim report and then shooting them down in flames in his final report. That is why, like the noble Lord, Lord Newby, and others, I believe that it is essential that we get on with reform now. The banks have had ample time for special pleading and talking to No. 10 and No. 11. Parliament is now the right forum to progress reform, and in particular the expert Joint Committee that is starting pre-legislative scrutiny on the financial services Bill.

I see the noble Baroness, Lady Valentine, looking expectantly at me. She sent me a text just before I started, saying that she was looking forward to lots of fire and brimstone. I am sorry that I have to disappoint her. We have had plenty of that already the past few weeks, not least from me, so I will focus on two key points. I have touched already on one: timing. On radical bank reform, we have won the argument about “whether”: we are now on to “when”. We should look at what the Vickers report said. There was a lot of shorthand this week about 2019, and the noble Lord, Lord Griffiths, repeated it. The report stated:

“The Commission naturally hopes that Government and Parliament will respond positively to its recommendations by enacting reform measures soon. Early resolution of policy uncertainty would be best”.

I will say from very long experience of turbulent markets like these that markets can live with almost anything except uncertainty. Given that the Government have clearly taken the decision, there is every case for getting on with it.

The commission also said that the Government should,

“provide clarity about its view of the Commission’s recommendations as soon as possible”,

and,

“move rapidly to put in place the necessary legislation and rules”.

It also made it very clear that 2019 was a longstop date for final completion of all the details. That is perfectly logical for getting up to the final capital requirements, but it is no argument for delay on crucial structural points.

Finally, the commission points out that,

“the economic conjuncture certainly does not reduce the need for financial reform”.

You can say that again. It states:

“On the contrary, it reinforces the need to make the UK's banking system more robust”.

Today's horrific news that a so-called rogue trader has struck again, this time at UBS, reminds us how much toxic banking risk remains in the system, and how urgent radical reform is. The problem is that big investment banks are full of rogue traders: it is what they do.

Secondly, I will say a word about culture and governance. Again, the Vickers report is right when it points out that it is difficult for regulations to work effectively when they operate against the grain of corporate culture.

[Lord Marlesford]

Perhaps I may say that I just do not think we can let the noble Lord say that this is what rogue traders do. Traders work on behalf of their bank. Rogue traders exploit their position to do things that are not on behalf of their bank. There is a total distinction between traders and rogue traders. For the noble Lord to put them together is absurd.

[Lord Oakeshott of Seagrove Bay]

If I may say so, the noble Lord has put his finger on it; the trouble is that all these traders are working on behalf of their banks and it is about time they started working on behalf of their clients. There is a real problem of control when there is such a bonus culture and so much risk in the system.

I will move on to how we implement the separate culture of the ring-fenced retail banks, as the Vickers report recommends. The report makes another excellent and important point when it states that there is already a model in the utilities sector, where,

“independent boards are a standard requirement”,

and that,

“board independence was crucial to the survival of Wessex Water despite the collapse of its parent, Enron”.

The report recommends that on the board of the ring-fenced bank there should be a majority of directors who are independent non-executives, with a minimal crossover between these directors and members of the group. That is vital.

I see in her place the distinguished former business editor and national newspaper editor, my noble friend Lady Wheatcroft, who incidentally is on the Joint Committee. I hope this does not put the mockers on her chances, but I think that she would be an ideal chairman for a ring-fenced retail bank, particularly with her recent experience on the board of Barclays. Sorry, Patience.

The Vickers report concludes:

“While corporate culture cannot be directly regulated, these measures should assist in building a separate, consumer-focused culture in UK retail banking”.

Like the noble Lord, Lord Lawson, I remember the banking set-up in London in the 1970s and 1980s, when I was at Warburg. We can recreate that within the safe part of banks. I share the worry of my noble friend Lord Newby about Bob Diamond saying that he can live with it. I very much hope that that is because he does not think that it will be implemented. Let us prove him wrong. People like him are light years away from the objectives and culture of, for example, Barclays' Quaker founders. They did not gamble or avoid tax. They saw themselves as stewards of people's savings, which they lent prudently for productive purposes so that their fellow citizens could work and prosper. That is the spirit we must recreate in our ring-fenced retail banks to make them safe. Let us get on with it now.