Financial Services (Banking Reform) Bill

Debate between Mark Garnier and Greg Clark

Monday 8th July 2013 Commons Chamber

[Mark Garnier]

I, too, pay tribute to the members of the parliamentary commission, with whom I served for 10 months. Huge numbers of people were involved as well as huge amounts of effort. One statistic that has not come out yet is that we apparently asked 9,198 questions of our witnesses, so we certainly got stuck into it in a big way. It was truly a tour de force, as Members can see from the 571-page document I have in my hand.

The Commission was an incredibly important piece of work. We have been trying to deal with the fundamental loss of trust in banking and what pleased me enormously was that one of the passages quoted relatively early in the report, on page 83, was from one of our big banks, Lloyds Banking Group, and was about trust. Let me read it out:

“Trust goes to the heart of what banking is about. Customers need to be able to trust their bank to look after their savings. They need to trust their bank to manage their financial transactions smoothly; trust that their bank will be diligent and not provide levels of credit or mortgage that are more than the customer can re-pay; and trust their bank to provide products that genuinely meet the customer’s needs and which the customer can understand.”

That has been crucial to the problem we have had: of course we considered LIBOR and all the various scandals, but at the end of the day there is a fundamental mistrust between the consumer, who is not very well educated, and the banks, which are well educated. In part, we are seeking to resolve that misbalance of trust.

I urge the Minister not to be shy in legislating to help build that trust. As TheCityUK wrote, again cited on page 83:

“The sustainability of the UK’s position as the pre-eminent global financial services centre is grounded in the integrity of its financial markets and probity of market participants.”

That is key to the debate about ring-fencing, criminal sanctions and the various other important measures available to the Government in the arms race in which we are involved—ranging from the gun locker of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) to my offshore nuclear deterrent—to ensure that the people who run the banks pay attention and take seriously their role in looking after those institutions. I speak as someone who spent 17 years as an investment banker and 10 years as a hedge fund manager. As I have now gone into politics, I have the hat trick of holding the three most unpopular jobs on the planet—I plan to become a traffic warden when I leave this place.

We hear threats from the banking community that if we over-regulate, that community will get up and go, but there are two incredibly important points to consider, the first of which is: where would the banks go? They do not have a big range of options. A bank that wanted to go to the far east, for example, would face several problems, not least of which is the fact that were HSBC to up sticks and go to Singapore—this would apply to the remainder of the major four banks—its balance sheet would be about 1,100% of the country’s gross domestic product, and no regulator would enthusiastically receive a bank of such a size. Secondly, we should remember that several factors in this country are incredibly important to banks, such as our robust, transparent and tried-and-tested legal system. We are a member of the single market, which gives banks access to the whole of Europe; we speak English, which is the language of the international business and banking community; and we are also at the centre of the time zones.

Our regulatory regime is also absolutely crucial. A great deal of our work was to try to get rid of the implicit guarantee whereby the Government are seen as standing behind the banks in case they fall over. That guarantee can be worth anything up to £40 billion a year, depending on the stage of the cycle, and that gives the big four banks an advantage. The problem is that that anti-competitive advantage represents another barrier to entry for challenger banks, so we need to get rid of the implicit guarantee. However, by regulating firmly, well and efficiently, and by winning the race to the top on regulation, we will replace the implicit guarantee with a cheaper funding rate for the UK banks, because they will see large amounts of international capital coming to the UK to take advantage of the protection that our regulatory and legal regimes provide. I therefore urge the Minister not to be shy about coming forward and to consider carefully the amendments proposed by my hon. Friend the Member for Chichester (Mr Tyrie), which reflect the recommendations of the Parliamentary Commission on Banking Standards and have a great deal of merit.

[Greg Clark]

We have had a fascinating, high-quality debate. I am grateful for the contributions of all hon. Members, but especially for those of the Members who served with such distinction on the Parliamentary Commission on Banking Standards: my hon. Friend the Member for Wyre Forest (Mark Garnier); the right hon. Member for Wolverhampton South East (Mr McFadden); the hon. Member for Edmonton (Mr Love), who is no longer in the Chamber; the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie); and the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). With the help of Members of the other place, they laboured hard to produce a report that not only will stand the test of time, but will be a reference document for many generations in this country and throughout the world. The report will be seen as a major contribution to addressing the less tangible aspects of culture and standards, which is something that has eluded regulators throughout the world. I am sure that the report will be read with a great deal of interest.

The report’s central judgment includes the acute point that for too long questions of standards and culture have been contracted out to regulators, rather than being an intrinsic part of the institutions themselves. That aspect of the report stood out as the essence of the required change, because it should no longer be simply for the regulators to decide on such questions, as the culture throughout the institutions should reflect the correct standards that we expect.

I spoke at length at the beginning of the debate, so I shall deal briefly with several of the points that hon. Members raised. I was asked about timetabling. On Second Reading, I made two commitments, the first of which was that the House would have adequate time to consider all provisions, including amendments proposed by the parliamentary commission. I hope that hon. Members will concede that I have been true to that in Committee and throughout our two days on Report, and I repeat that that commitment remains as the Bill goes to the other place. I also said explicitly on Second Reading that the recommendations of the commission’s final report on standards and culture would be reflected in amendments to be made in the House of Lords. Of course, those measures will subsequently be considered by this House, so our intention has not changed. It was right to expedite the response to the report so that it was available much more quickly than usual. It has been useful in informing today’s discussions, as will be the case tomorrow, and it will be available to their lordships during their consideration of the Bill.

The hon. Member for Nottingham East (Chris Leslie) asked several specific questions, including about whether Government amendment 8 contained a typo. It does not, but it would require more than the four minutes remaining for me to explain why, so I hope that he will trust me on that at least. The upper tribunal is not a new invention; it is the court that considers all references made under FSMA for adjudication.

The hon. Gentleman made a substantive point about the notice period, as did my hon. Friend the Member for Chichester and the right hon. Member for Wolverhampton South East. I was asked whether an elongated process in some way diminishes the effectiveness of the ring fence. Our intention was—and is—to implement faithfully the parliamentary commission’s recommendation on the institution-specific ring-fencing rule. As I assured my hon. Friend the Member for Chichester, I am confident that if the Government’s proposals can be improved during the Bill’s passage, all his concerns about the use of the power can be addressed. In fact, the procedure under consideration has been described as pressing the nuclear button.

Banking Reform

Debate between Mark Garnier and Greg Clark

Monday 4th February 2013 Commons Chamber

[Greg Clark]

As I am sure that the hon. Gentleman would acknowledge, the Government have promoted the sale of Northern Rock to Virgin, for example, to try to encourage new entrants, and he will see more of that in the future. On interest rates, those that are being paid on mortgages and small business loans at the moment are very much lower than they would have been had we not taken the necessary action on the economy to keep them competitive.

[Mark Garnier (Wyre Forest) (Con)]

The British Bankers Association has said this morning that the electrification of the ring fence might cause some uncertainty in the City. Does my right hon. Friend agree that the only banks that need to be worried about the future are those that game the ring fence and try to burrow underneath it?

[Greg Clark]

My hon. Friend is absolutely right. Any bank can have complete certainty that it will not be subject to being broken up if it respects the ring fence. Indeed, given the standing of the City of London, it is important that we all have confidence and trust in the British banking system, on which the credibility of that standing depends. The reforms recommended by Sir John Vickers and his commission will achieve precisely that.