I will not detain the Chamber for long; I just want to make a few points.
The argument is really about complexity versus simplicity in how banks are regulated. One of the points that my hon. Friend the Member for Nottingham East (Chris Leslie) is trying to bring out is the inadequacy of the over-complex Basel regulations, which have allowed banks to game the system and say they had hugely different capital ratios on similar classes of assets in different institutions. The truth is that the Basel system is so complex that it does not give confidence about the safety of our banks. That is why this debate about leverage is so important.
In all the debate about ring-fencing, separation and so on, what has perhaps been under-discussed is the fact that not enough attention has been paid to leverage—a basic measure of banks’ safety or resilience against future risks and very important in respect of banks’ ability to absorb losses. One of the features consistently pointed out, both to the Treasury Committee and the Parliamentary Commission on Banking Standards, was that in the run-up to the crisis banks were hugely over-leveraged. That meant that their capacity to absorb and deal with problems when they came was minimal.
Our banks still have very high gearing today. The banks lobby hard on the issue. I counsel caution on the basic trade-off that has been raised about lending and leverage. There are other ways for banks to improve their capital ratios than simply by reducing lending. They could, for example, look at the proportion that they give out in remuneration every year; that could make a difference to their capital ratios. Over the past decade or two, vast amounts of money have been paid out in remuneration that could have improved capital ratios without having any effect at all on lending. Let us not fall for the argument that we can either have banks that lend, or safe banks, but we cannot have both. It would be wrong of us to fall into that false dichotomy. We should aim for banks that are both safe and have the ability to lend.
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There is also the international dimension. Part of the rationale for the Government’s current position on the 3% leverage ratio—or a leverage ratio of 33:1, if we want to put it that way—is that it is part of the new Basel regime. However, we have a particular issue in the UK. We are a global—some would say the main global—financial centre, but in a medium-sized economy. That gives us many great strengths, to which the hon. Member
for Wyre Forest (Mark Garnier) alluded in the earlier debate. There are the associated services of law, consultancy and the rest of it. That is true. Those provide good employment and tax revenue and make Britain an attractive place to do business. However, we must not be so blinded by that that we do not take the necessary measures to insulate the rest of our economy from the risks.
We know that those risks are real, because we are still living with the consequences of them following the crisis. The leverage ratio is absolutely at the heart of that, so there is an important British reason why we should think twice about simply going along with minimum international requirements.
It is incumbent on us as policy makers in this House, and on regulators who have responsibility for the issue, to look at Britain’s specific circumstances as a global financial centre with a medium-sized economy, so that we keep the strengths that that entails without the rest of the economy, taxpayers or the Government being held to ransom.