Banking

Debate between Sajid Javid and Emily Thornberry

Wednesday 15th January 2014 Commons Chamber

[Sajid Javid]

I will come on to it. The hon. Gentleman raised the two issues of banking competition and remuneration and I want to cover them.

I was very pleased that the hon. Gentleman talked passionately about the importance of competition. It is a shame that the previous Government did absolutely nothing to encourage it for 13 years. It is worth reminding the Chamber that when the last Government took office there were at least 10 major UK banks, but over their 13 years of incompetence they continued to permit and manage banking takeovers which shrank the number of market players and left the big banks to dominate.

Greater competition in banking is good for people and businesses and the economy. That is why we are implementing the recommendations of the Independent Commission on Banking for improving competition; indeed, we are going further. We are addressing the issue of too big to fail through ring-fencing, meaning that big banks will no longer get a competitive advantage from this implicit guarantee. We have put competition at the heart of financial services regulation by giving the Financial Conduct Authority a formal competition objective as well as making provision for a secondary competition objective for the Prudential Regulation Authority. We are also making sure that the FCA has the right tools to get the job done on competition by giving it concurrent competition powers.

While competition dropped under Labour’s stewardship, it is increasing under ours. As we have heard, since the crisis Metro Bank, Virgin Money and the new TSB brand have entered the market. Indeed, RBS also announced recently that it has teamed up with investors, including the Church Commissioners, to launch a 300-branch challenger bank, Williams & Glyn’s, focused on small businesses.

In fact our financial regulators are currently in talks with 22 potential new bank applicants because of the steps we have taken to promote banking competition. On top of that we are creating a new payment systems regulator so that smaller banks and others can access the payment systems fairly and more transparently, and we have secured a seven-day current account switching service to make sure that people have the confidence to change accounts. There are further innovations coming on cheque imaging and mobile payments. This is a Government who are bringing competition back to banking.

On bankers’ pay, we understand the depth of public anger but we will not take any lectures from the Labour party. While bonuses continued to increase year after year on its watch, even after 2007, they are now down 85% from their peak in 2008. Since 2010 we have been leading the way on tackling unacceptable pay practices. First, we have introduced rules that require significant parts of bonuses to be deferred and paid in shares, which means there is now a much better alignment of pay with risk and performance. While we make sure that only good performance can be rewarded, we are also making sure that poor performance can be punished by introducing measures that mean firms have clawback policies to reduce or revoke pay retrospectively.

Those steps are having an impact. The 2012 bonus pools at almost all major banks have declined massively since this Government came to office. The truth is that while Labour talks about clamping down, this Government get on with the job.

[Emily Thornberry]

If the public are watching this debate, they may well want to ask the question I shall ask now, and I hope we get an answer. Do the Government have a view on the maximum amount a banker should be given by way of either a salary or a bonus, and does the Minister agree with the bonuses currently being given out by Chase Manhattan bank?

[Sajid Javid]

First, I am not sure even whether the Opposition have a view on what the right level of bonuses is. Also, I am not sure about Chase Manhattan bank because it does not exist any more as far as I know.

Financial Services (Banking Reform) Bill

Debate between Sajid Javid and Emily Thornberry

Wednesday 11th December 2013 Commons Chamber

[Emily Thornberry (Islington South and Finsbury) (Lab)]

With hindsight, will the hon. Gentleman help the House and say whether Fred Goodwin would have been prosecuted under that provision?

[Sajid Javid]

It is possible, although it is difficult to answer that question specifically as it would depend on the legal process, as anticipated in the Bill. As I progress with my remarks, the hon. Lady will see the kind of actions that can lead to prosecution.

[Sajid Javid]

My hon. Friend has explained well the reasoning behind the recommendation from the PCBS—which, of course, he was part of—and the deterrent effect this change could have should not be underestimated.

[Emily Thornberry]

I thank the Minister for giving way again; he is helpful in giving me the time because I am genuinely confused about this. If the proposed legislation is to have a deterrent effect and deter the sort of behaviour that was seen before the banking crash, had it been in place at the time, presumably people would have been prosecuted. All I want to know is: which people, and can the Minister give the House some examples?

[Sajid Javid]

As I discuss the issue I will provide more information on how the measure could work, and perhaps the hon. Lady will judge for herself, given the situation she has in mind, whether the measure would have acted as a deterrent, and whether a prosecution could have taken place.

--- Later in debate ---

[Sajid Javid]

I completely agree with the hon. Gentleman and I think we all hope that the new criminal sanction will not actually have to be used because the offence will act as a genuine deterrent against such recklessness.

[Emily Thornberry]

If I were a senior banker to whom this law applied, what would affect my decision on whether to behave recklessly? Would it be the thought, “If I do this, there’s a risk my bank and the whole financial system will crash around my ears and I will be seen as personally responsible”, or would it be the possibility of being prosecuted under this new legislation?

[Sajid Javid]

Both cases would be a deterrent. A key point of the change to criminal sanctions is that they would apply if a senior manager took part in any reckless action—there is a very strong test, as we have just heard—that led to the failure of a bank. It would not be appropriate to perform a legal analysis of what has happened in the past because we do not have the full facts before us, but if a board full of senior managers makes a decision on, let us say, a potential acquisition and they fail to carry out proper due diligence or they deliberately ignore certain risk factors, and that eventually leads to a failure and collapse of that bank, that will be an example of the situation that the new offence tries to capture. It is reasonable to say that, as those senior managers will be aware of the new criminal sanction, which did not exist before, it will bear on their minds when they make those important decisions. The Government amendments in this group will improve standards and the culture in banking.