Banking: Regulation

Lord Newby Excerpts

Thursday 11th July 2013 Lords Chamber

[Lord Newby]

My Lords, none of the measures in the Government’s response to the Parliamentary Commission on Banking Standards are prevented by proposed European Union legislation on bank regulations. As the detail of these measures is developed, HM Treasury will ensure that they are appropriately aligned with any relevant European Union legislation.

[Lord Harrison]

My Lords, given the slender reference to the European dimension both in the Tyrie report and the Government’s response, could the Minister illustrate what obligation there is at present, under CRD IV and Basel III, for us to report the British banks that have a high-risk assessment to the European Banking Authority? Given the flat-footed nature of the Government in responding to the financial transaction tax and the European banking union, may we have an assurance that preparatory work is being done in anticipation of the Liikanen proposals coming to fruition this autumn, and indeed the recovery and resolution directive that will cover all 28 member states?

[Lord Newby]

My Lords, I think that I can give that assurance as far as the Liikanen proposals are concerned. As the noble Lord probably knows, the Government believe that there is no incompatibility between what he is proposing and what the Government are doing in respect of banking and the banking reform Bill. I am confident that the Government are acting with all due speed on these measures, and indeed in some areas we have moved more quickly than the EU as a whole has been able to do.

[Lord Lawson of Blaby]

My Lords, as a member of the Parliamentary Commission on Banking Standards, I remind my noble friend the Minister that in our unanimous report we were in fact highly critical of the emerging European Union banking regulation, and indeed not greatly enamoured of the approach of Basel III either. We made it clear that, given that London is the only world-class financial centre within the European time zones, it is incumbent upon this country to put in place whatever system of bank regulation we feel is necessary to address the problems that have emerged.

[Lord Newby]

Yes, my Lords, and of course that is exactly what we are doing with the banking reform Bill.

[Lord Barnett]

My Lords, the draft banking Bill came from the House of Commons yesterday. I have only just had a chance to glance at it, but it clearly is not quite in line with what was recommended on the important issue of regulation regarding ring-fencing. Why not?

[Lord Newby]

My Lords, as my colleague the Financial Secretary has made clear in another place, there are some aspects of the commission’s views on the speed and timing of ring-fencing that the Government are going to look at further and revisit when the issue comes back to your Lordships’ House. We have Second Reading of the Bill on 24 July, and my noble friend Lord Deighton will look forward to telling the House more about the provisions of the Bill at that point.

[Lord Pearson of Rannoch]

My Lords—

--- Later in debate ---

[Lord Pearson of Rannoch]

My Lords, is the Minister aware that his answer to the noble Lord, Lord Lawson, does not quite stack up in view of Written Answers from the previous Government on 21 July 2009, at col. 365 of the Official Report, which confirmed that they had passed overall supervision of our banks and financial institutions to Brussels? Given that the EU has not had its own accounts signed off for 17 years, and given that it deeply dislikes the City of London, was this wise and how do we get out of it?

[Lord Newby]

My Lords, the basic assertion that the noble Lord makes, that the Government are unable to put in place a satisfactory regulatory framework for banks in the UK, is, frankly, simply not true. We have taken a wide range of measures to strengthen the regulatory structure and the provisions with regard to remuneration and capital, and in all those areas what we have done is compatible with what has been happening at EU level.

[Baroness Kramer]

My Lords, while many of us in this House will be working to strengthen banking regulation based on the commission’s report, and I was privileged to be part of that commission, is it not also true that what is remarkable from the evidence we received from the European Union is the common ground shared by the regulators, both in their definition of the issues and the areas in which they are seeking solutions? Is it not true that the key issue of dispute between the two is in fact whether or not there should be a cap on bankers’ bonuses—on which, ironically, the British public are with the EU?

[Lord Newby]

My noble friend is clearly right in that respect. The previous Government started a process with regard to remuneration for senior bankers, which has been strengthened in several respects. One of the more encouraging developments in recent years is that as a result of that—and as a result of public pressure—the level of bonuses at RBS has fallen by 70% between 2010 and 1012, and at Barclays by 40%.

[Lord Tunnicliffe]

My Lords, the report of the Parliamentary Commission on Banking Standards says at paragraph 896:

“Remuneration requirements should, ideally, be mandated internationally in order to reduce arbitrage. The Commission expects the UK authorities to strive to secure international agreement on changes”,

and it goes on to describe the changes. The Government’s response on this paragraph is unclear. Will the Government be taking a lead internationally to secure the commission’s recommendations on this issue?

[Lord Newby]

The Government have taken a lead on remuneration levels—in particular, in seeing how remuneration levels can be more closely matched to risk. We are, for example, sympathetic to one of the commission’s proposals about linking remuneration levels not only to the immediate risk, but by making some degree of the remuneration relevant to what happens even up to 10 years after its level is set. So we are already taking the lead and will continue to do so.