Banking Bill

I remind the House of my interests stipulated in the register. It is rather exhilarating to hear the authentic voice of old Labour ringing out once again from the right hon. Member for Holborn and St. Pancras (Frank Dobson). In welcoming the Bill, which strengthens banking, I want to pick up one point that the right hon. Gentleman made. As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, there has never been a free market in banking. None of the deregulatory measures taken in the past 10 or 20 years has given us an unregulated banking system. To suggest, as not only the right hon. Member for Holborn and St. Pancras but others have done, that somehow Ronald Reagan or Margaret Thatcher so deregulated the banking system that they brought us to this crisis is nonsense. On the contrary, banking is the essential prerequisite of all our markets. It is the clean water in the financial system. Of course, we have an interest in ensuring that it continues to be something on which we can rely. We have to have banks that we can trust; we have to have banks that can trust each other. Over the past year we have clearly had neither. One does not have to be Michael Heseltine to understand that if banks are not working, the authorities have to intervene. I support the intervention that there has been. Indeed, if banks have been significantly illiquid over the past year, if they have been seriously under-capitalised, the regulator—the Financial Services Authority—ought to have intervened much earlier. That of course is the fault of the supervisory system set up by the Government of the right hon. Member for Holborn and St. Pancras back in 1997. It separated the responsibilities disastrously, and fatally left no one in overall charge. I fear that some of the measures taken by the Government last Wednesday and yesterday may not go far enough. The package is necessary, but it may not yet be sufficient. It does not, for example, deal with some of the toxicity that remains in the system. We may yet have to deal with it. I want to focus in the context of the Bill on the measures taken to recapitalise the system. The decision taken to inject taxpayer equity has some real dangers. When government plays God with the markets, there is a serious risk, as my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) said, of creating inequity. It is extremely important not to repeat the mistakes of the United States authorities in deciding to rescue Bear Stearns and not to rescue Lehman's. If we are going to rescue banks with public money, we need to do so on the basis of some clearly established principles. At the moment, we have reached the position in which, out of our 10 UK banks with significant numbers of retail customers, we have rescued five, with four different solutions. That is regrettable. It leaves the market completely uncertain as to what will happen when the next bank needs to be rescued; it may be rescued on different terms yet again. It makes it more difficult, I suspect, to raise capital and equity for other businesses. It leaves us with a very real prospect that those banks that are fully public now will be pressed into the service of extending borrowing on a non-commercial basis to other industries that are in difficulty and, crucially, it reduces competition and choice. I was struck by the impact assessment published with the Bill. The only section that does not contain the required commentary on competition is the one on page 26 that deals with temporary public ownership. As others have said before me tonight, there is simply no competition policy. Yet competition is important. It has given us a huge range of savings products, borrowing products and mortgages over the past few years. It is easy with hindsight to scoff at the innovation of the City, but that innovation helped to bring asset ownership and wealth accumulation to a much wider section of the population than ever enjoyed them before. The right hon. Member for Holborn and St. Pancras has to be careful about his partisan remarks about Reagan and Thatcher. It was Democratic Congressmen in the United States who berated Fannie Mae and Freddie Mac for not doing enough to lend in the sub-prime market, and who encouraged more such lending through the Community Reinvestment Act. Here, too, we heard a chorus from the Labour Benches that we ought to be doing more for social inclusion, and that the banks should be lending more and more, irrespective of credit history and family background to encourage more people into home ownership. They did so—probably the right hon. Gentleman would welcome that—but, fatally, without satisfactory supervision and a sufficient regulatory structure and without providing the commensurate financial education to enable people to distinguish between products that were high, medium and low-risk. I want to mention briefly three aspects of the Bill. The special resolution procedure is important. Clearly, it is a nuclear power. We hope that it will never have to be used again. The problem with what the Government have proposed in several different drafts and finally in the Bill, as the Select Committee has pointed out, is the peripheral role that is still given to the Governor of the Bank of England. That is wrong. I understand why my hon. Friends on the Front Bench have suspended hostilities on that point in the national interest, but I do not see how we can ever again mount an effective rescue operation unless we restore the Governor of the Bank of England's authority and right to give advice, and ensure that the Bank has the working knowledge of the money markets that it used to have. That is absolutely essential, and I hope that we will be able to return to such a situation. The measure on depositor protection is long overdue. I do not see why measures to improve depositor protection could not have been introduced immediately after we returned from the summer recess last year, after the crisis in Northern Rock. I am suspicious of the argument that it would take 14 or seven days to return people's deposits, that some vast new computer machinery would be needed, and that such measures would all be too difficult for the banks. When the Treasury Committee was in Tokyo last week, we were told by a representative from the deposit guarantee fund there that if a bank closes on a Friday, all individual accounts are frozen, and people can go in on Monday morning and recover their deposits, up to the prescribed limit. I urge the Government to look again at the banks' rather feeble argument that that would take weeks or months to sort out. On the contrary, we need a much faster and much more transparent scheme. I would like to see notices placed in all bank branches reassuring people of the amount of protection to which they are entitled, and how they can claim it, as happens in the United States. Finally, there is the issue of pre- and post-funding. I have to say that I disagree somewhat with my right hon. and hon. Friends on the Front Bench on this subject. It is important to bind all the banks into the compensation scheme. Of course it is wholly the wrong time to approach banks and ask them to cough up, although it will never be exactly the right time to do so. However, the principle is important. There is no harm at all in putting the relevant provisions in the legislation, and getting banks used to the idea. The British Bankers Association has produced a particularly feeble submission on the subject. It is four pages long, and I cannot find the word ““sorry”” in it anywhere. The BBA says, ““Well, the strong banks shouldn't have to bail out the weak.”” Strong banks should have to bail out the weak; that is what happens in other sectors. It is important that all banks make their contribution, but I fully understand why they cannot do so at the moment. The Bill should be supported tonight, and I think that it will help. However, it will not repair the damage that has been done to our economy, our constituents and the City of London by irresponsible lending, imprudent borrowing and wholly incompetent regulation. The Government are right to legislate, but they cannot wholly escape their responsibility.