Banking Bill

My declarations are on the record, but I should add to them the risks that I have with a NatWest overdraft and a NatWest mortgage. The Bill is welcome if it allows for the opportunity for bad debt to be brought off the balance sheets of the banks. In response to my earlier intervention, the Chancellor reminded us that there is already temporary provision for those bad debts to fall upon the balance sheet of the nation, but it is not a permanent change. My view is that what we are seeing is purely a relief rally. The prospects for things to get a great deal worse are still there. That is because, without the masking of Government support, the trust in those financial institutions still does not exist. They are badly wounded institutions that need that bad debt cleansed from the wounds that have done them so much damage. What has been done is a powerful palliative, but it is not a cure. There is something very British about this debate, which is about pulling together. Also the Bill is perhaps about closing the barn door after the horse has bolted, because unfortunately that the crisis will, I think, get worse, particularly if we rely upon some of the current consensus on how financial affairs should have been pursued over the past 25 years. It is not necessarily the case that the Bank of England's performance is so good that it should have more power. The Chairman of the Treasury Committee referred earlier to the experience of Japan, where the lack of a policy initiative led to interest rates being held far too high, damaging the economy for almost a generation through the destruction of asset value and the subsequent destruction of economic growth. I attended an induction for a vicar in one of my local churches recently, at which the Bishop of Croydon spoke. He spoke from a moral point of view, but he also gave us an economic lecture about the value of money. He said reassuringly to the large congregation that the assets of the nation remained the same. That is very much an economic analysis, because in reality it is money that has been devalued over recent years. Serious consideration should be given to the shadow Chancellor's proposals for the introduction of what I would call circuit breakers. In a bastardised means of pursuing Keynesianism through monetary policy, every time there has been an economic crisis, misjudgments have been made about the weakness of the economy. Recently, that has been seen in the collapse of the equity market in 1987, the Asian financial crisis and the dotcom boom. We also saw exaggerated easing maintained for far too long. Most importantly, the economic and political consensus has been about the targeting of retail price inflation, with no one taking responsibility for asset price inflation. The problems can perhaps be dated back to 1971, when President Nixon moved the dollar away from its gold link. In many ways, the abuse of money by bankers has been the problem. I noted the comment by the right hon. Member for Holborn and St. Pancras (Frank Dobson) about the way in which bankers can also devalue the use of language. The word ““innovation”” was often an alternative way of describing moving away from transparency in financial markets, which has left the financial institutions badly placed to take a proper measure of their risks and losses. Indeed, I was much taken by a commentary by Jon Moulton of Alchemy Partners, who very appropriately said that the economy needed innovation among investment bankers as much as we need innovation among airline pilots. The problem of the loss of transparency ought to be addressed in legislation, as there is a continued desire by financial markets to move further and further away from transparency. There seems to be some support in the City—and, indeed, some blessing from the Government—for the idea of encouraging what are called dark pools. These involve the ability to trade in equities off the stock market and out of sight in terms of the immediate reporting of substantial trading in a market. That strikes me as a counter-intuitive approach. A further issue that cuts against the general consensual thrust of the thinking on how our financial markets should be run is the impact of globalisation. There was a time when the Bank of England would have had real responsibility for giving permission for transactions to be issued within the sterling market. Perhaps there is a role for authorities to give such approvals, particularly for products that are sold from outside our own European region. One of the strengths of the Asian financial system is that it is, to some extent, separate from the rest of the international global financial system. Some of the protection that has lessened the effect of the crisis on the Asian markets is a result of that market stepping slightly aside from markets elsewhere. We need to consider whether the liberal economic approach that we have taken over the past 25 years is indeed the right way to progress. Given our very damaged domestic financial institutions, we need to ask whether, even with capitalisation from the taxpayer, they will be in a position to lend for mortgages and for commerce. There is a lot to be learned from what happened during the Swedish financial crisis. It was felt important to set up separate governmental organisations, such as SBAB and Finansius, to act as a spur to encourage competition and confidence in private sector institutions so that they would continue to lend money to the economy, to keep it robust. There is also the issue of who gets the most protection in this kind of financial crisis. The reality is that it is not the small individual who has taken on large debts who will be bailed out, because they do not have the same fundamental impact on the overall macro-economy that the large financial institutions have. It is incumbent on any legislation—this Bill or any further legislation—to deal with the question of social and commercial responsibility, in relation to the danger of a further downward spiral in the performance of the economy if we were to pursue foreclosures and the shedding of assets, which would further complicate the economic crisis. There is a need to impose on financial institutions some kind of circuit breaker, in regard to the disposal—and forced disposal—of assets. I am certain that my constituents in Croydon will think very little of the idea of bailing out banks and senior investment bankers if they themselves are not to be offered at least some breathing space in which to determine how best to cope with the financial crisis.