Banking Bill

Yes, I did endorse it, from this Dispatch Box. After all, not only must the Government decide how to deal with the crisis, but the Opposition must decide how to respond to it. The decision that I took, and the judgment that my right hon. Friend the Leader of the Opposition made, was that in this time of banking and financial crisis, and faced with the near-collapse of the entire system, we would give our support to the measures that the Government were bringing forward. Indeed—this is a point that some Labour MPs have put to me—I actually talked about recapitalisation before the Chancellor did. We made our suggestions and, as I say, we are very happy to support the specific measures—[Interruption.] The Chief Secretary to the Treasury should appreciate the fact that the Opposition in this country, unlike Oppositions in other countries, have done their best to support the Government in decisions where the Government are rightly taking on public opinion, which might question why very large sums of public money need to go into propping up banks. We have gone on television and radio and tried to explain as well as she has why that is the case. On the specific measures in the Bill, we proposed quite a few of them ourselves. Last December we urged the Government to give the Bank of England new powers to put failing banks into a special resolution regime. I shall come on to that. For a considerable time we have been urging that the Government raise the level of deposit protection for savers, and I am pleased that that has now been done. We would like to see the system of payments speeded up, and I know that the FSA is considering that. All of us would welcome a faster pay-out system, as it would help build consumer confidence. With reference to the Bank of England, I would go further than the Government on some of the appointments. I shall come to that later. I am glad that there are clauses in the Bill that take us in the right direction. That is why we have no problem backing Second Reading. Even with the commitment to ensure the Bill's passage by February, plenty of time is still left for debate and proper scrutiny, and to learn the lessons of what went so disastrously wrong with the regulatory system created by the Government a decade ago. One thing is clear: we need that system to change. We cannot end up having to do a multi-billion pound bail-out again. When one looks at the work that has been done—for example, some of the internal reports by the FSA, and some of the work by the Treasury Committee, which I commend for its two excellent reports on the subject—it is clear that the FSA comprehensively failed to see the problems in our banking system develop, the Bank of England, by its own admission, took its eye off the ball in respect of financial supervision, and the Treasury encouraged an economy to grow on the back of unsustainable debt. The Bill's regulatory impact assessment, usually a fairly dull document when produced by Government Departments, is remarkably candid about the shortcomings of the regulatory system created by the previous Chancellor of the Exchequer. Page 7 states:"““The problems faced by Northern Rock plc in 2007 demonstrated…that the then existing arrangements for dealing with banks in distress did not adequately uphold””" consumer confidence,"““thus exacerbating the threat of financial instability.””" That is the Treasury's own assessment of the regulatory regime that the Treasury created. In its own words, its arrangements made things worse, not better—they exacerbated the threat of financial instability. That view is shared by the Treasury Committee in its reports. Its various reports point to the systematic failure of the FSA in its duty as a regulator and the fact that the Bank of England was left"““in a no-man's-land””" by the changes. The public will draw their own conclusions about who was responsible for the mess. I dare say that the man who oversaw the creation of the regulatory regime will come in for some blame. However, the question before us today is how we put matters right for the future. Let us start with what we would like to see from an ideal regulatory regime and use those principles to judge what is in the Bill and what the Government might propose after Lord Turner's report. First, a regulatory regime should protect us from the kind of systemic risk that we have seen in the past month. Secondly, it should ensure that we can identify problems in individual institutions long in advance, such as unstable business models or risky bonus schemes, and deal with them in a way that prevents contagion to the rest of the system. Thirdly, a regulatory system should give the authorities the full powers that they need to step in and deal with banks if neither of the first two conditions is successfully met. We have discovered that if nationalisation is the only lever that we can pull, pretty soon we end up owning half the mortgage business in the country. Fourthly, a regulatory regime should protect the consumer from being treated unfairly or being mis-sold products. In all this, we should not lose sight of consumer protection. Fifthly and last of all—this will be the most difficult balance for us to get right in the coming months—a regulatory system should be proportionate and fair. At the end of this, we do not want the City of London simply to go to New York. We must remember that financial services are still, for all the press that they attract at the moment, our largest and most important industry, and they employ people not just in the City of London, but in Edinburgh, Leeds, Bristol, Birmingham, Cardiff and Manchester, and in every single constituency in this country.