Banking (No. 2) Bill [HL]

My Lords, as my noble friend Lord Newby said—and as both the opening speakers summed up pretty well—we support the purposes of this Bill. However, as the noble Baroness, Lady Noakes, said, there is some way for this Bill to travel. We are concerned about the wide regulation-making powers in Clause 75 and will be addressing that in more detail in Committee. This is a timely Bill. I had a stark reminder of that earlier in this debate, while popping out to the Peers’ lavatory, when a highly respected Peer came up to me, because he had heard me speaking the other day during the Queen’s Speech debate—I will not say who he was or the name of the bank—and asked whether the £100,000 or so he had in a leading British bank was safe. I checked to make sure that he was talking about a deposit, rather than a shareholding, and said that it was and that I was sure of that. I can understand why he asked, particularly as this was one of the banks which are all over the newspapers today, being one of the mugs taken for a ride by Mr Madoff. It is an extraordinary state of affairs—the noble Lord, Lord Whitty, put it pungently and well—that banks have let themselves get into this sort of situation with this sort of shyster. Let me declare my interests as I should, not just as a pension fund manager for the past 30 years but, in this context, as a director of a subsidiary of Close Brothers Plc, which is a British bank. I thank the noble Lord, Lord Selsdon, for declaring some more of my past—that I was previously a director of Warburg Investment Management, where, I like to think in those far-off days, we more or less invented spread betting. However, at least there, we used to do it with our own money, knew the risks that we were running and paid out with a smile. I was lucky enough to be recruited to Warburg’s by Sir Siegmund Warburg. Working for Roy Jenkins, he gave me an introduction to Lord Rothschild and to Siegmund Warburg. It may well be, had I taken the job at Lord Rothschild’s, that later I would have been competing with the noble Lord, Lord Myners. It has been an interesting debate. I was most struck by the speech of the noble Lord, Lord Whitty, who spoke up for the consumer or the punter, if I can put it that way. The problem we have is that banks are effectively on strike. Whatever they say, almost all of them are closed to new business lending. I say this, not just having heard the anecdotal stories that we all hear from banks, but also from a good deal of knowledge from inside those banks. The people who are in those banks—decent people, in the lending teams—are finding it heartbreaking that they have to cut back all the time. They are under extreme pressure to cut back their loans. We are not just talking here about small or shaky companies. Mainstream, large British companies are under pressure the whole time to reduce the risk-weighted assets and claw money back. Frankly, the recapitalisation of the banks is not working. Following on from the noble Lord, Lord Whitty, I ask the Minister if he will respond on the narrow way in which the Treasury seems to be regarding the function of UK Financial Investments Limited. I looked up, and have here, a role specification for the position of a non-executive director with UK Financial Investments Limited, which describes the overarching objective as being, "““to protect and create value for the taxpayer as shareholder with due regard to the maintenance and financial stability and to act in a way that promotes competition””." However, this aim seems to be focused on trying to get the taxpayers’ money back as soon as possible, which is not the reason why £37 billion is being put into these banks by the taxpayer. Would the noble Lord, Lord Myners, look at that again? The first appointment I believe to have been made to this body is a former investment banker from Merrill Lynch. It seems to me and many others that the people representing the Government on this body—and indeed we believe that there should be directors on the boards of the nationalised banks—should have a proper spread of business and consumer public experience. It should not be such a narrowly drawn remit. There were a number of themes in the debate. One, in particular, was mentioned by four speakers: the noble Lords, Lord Blackwell, Lord Williams of Elvel, Lord Whitty and Lord Northbrook, all referred to the Glass-Steagall Act and whether banks should have been allowed to be involved in such gambling and active investment banking. Barclays Capital would be the most obvious and extreme example. We on these Benches think that that should be considered very seriously by the Government and the country. It is a very worth while and important point. I pay tribute to my former colleague in the investment management industry, the noble Lord, Lord Smith of Kelvin, who made a very thoughtful and penetrating contribution from his great experience and recent knowledge. As other noble Lords have said, we greatly look forward to his contributions to our debates. As always, the noble Lord, Lord Bilimoria, made a very interesting speech, highlighting the conflicts of interest faced by credit rating agencies and how we can deal with that. I agree that the business model is fundamentally flawed in the way that they are remunerated by the wrong side of the bargain, as it were. As so often happens, my noble friend Lord Smith of Clifton made a powerful and hard-hitting speech, saying more in eight minutes than some other speakers did in 15 or 16. He said that there should be a sunset clause and made a powerful point about the proper representation of women on the boards of our banks. I look forward to the Minister’s reply. The noble Lord, Lord Eatwell, made a speech with which we on these Benches strongly agree. We were struck by his suggestion of a joint financial stability committee acting as a bridge between the Bank and the Financial Services Authority. We support that suggestion and hope that he will press it in Committee; if he does, he will have our support. In his wide-ranging speech, the point about systemic risk being ubiquitous in markets was particularly well taken. Given the chains of transactions that are taking place, and following on from Lehmans, there are still many worries in the market about whether transactions will settle. We are far from being out of the woods yet. The noble Lord, Lord Peston, made a very wise speech, focusing, rightly, on greed. We all know that greed and fear are what move markets, and there has been a great deal too much greed recently. To sum up how he started, it was a case of truth being stranger than fiction. If any of us had ever written a novel about what has happened, it would have been thrown straight into the trash can. This has been a good debate, with some interesting contributions which we have greatly enjoyed. The noble Lord, Lord Lipsey, talked about ambiguity, paradox and contradiction, but there was nothing like that in his remarks. We were very taken with what he said about the Financial Services Compensation Scheme. I have already thanked the noble Lord, Lord Selsdon, for revealing some of my misspent youth, and it was interesting to share his reminiscences. The noble Lord, Lord Northbrook, made good points about set-off arrangements, which we shall deal with in detail in Committee. We have had representations from the British Bankers’ Association and from banks. It has been an interesting and productive debate to some extent. We have talked more about general banking matters, which the Bill cannot address, but there are detailed points of amendment. To get the banks lending again is vital and we must do anything we can in the Bill and bring pressure to bear to achieve that. Let us be under no illusion: if the banks do not start lending—as much to big and medium-sized businesses, particularly those which are backed by private equity, many of which are in grave difficulties—millions and millions more people will become unemployed. There will be a real black hole of failure. Individually, each bank may, from its own point of view, be taking decisions that are understandable but collectively they are doing completely the wrong thing. Only the Government can get the banks to lend again together; if they do not, the country faces a very bleak future.