Financial Services Bill

I beg to move, That the Bill be now read a Second time. As the House well knows, the whole world economy has been hit by a severe financial crisis, resulting in the worst global downturn for well over 60 years. Fundamentally, the crisis was caused by the failure of people operating in the market around the world fully to understand and keep up with the consequences of financial innovation and globalised markets: quite simply, people took on too much risk and became too exposed in relation to some products. There are clearly lessons to be learned by Governments, regulators and central banks, who in too many cases underestimated the threats posed by system-wide risks and did not fully appreciate the implications of financial activity outside the regulatory scope. It has been necessary to make some major changes, including in the way firms are managed, which as I have said on many occasions is the first line of defence, and in relation to the quantity and quality of capital the banks hold, and in the way regulators monitor firms. Over the last year or so, we have already taken action to ensure that the UK authorities have powers to deal with failing banks, as well as to protect consumers and taxpayers. The Banking Act 2009 established a new permanent special resolution regime that has allowed the authorities to deal with failing banks and building societies. As the House knows, we have already used that measure in respect of the Dunfermline building society earlier this year. Similar powers in the emergency legislation that allowed us to nationalise Northern Rock also allowed us to deal with Bradford & Bingley when it got into difficulties. The House saw the problems we had before we had those powers, so the Act has provided us with a useful way to resolve things if banks get into difficulty. In addition, the Financial Services Authority is implementing the conclusions from Lord Turner's recommendations on how to strengthen the regulatory regime. We have also seen the proposals on reform of corporate governance recommended by Sir David Walker in his report last week. Although those reforms may not have received as much attention as his proposed reforms of bankers' pay, they are all important and they all need to be implemented. We have taken the lead in reforming international regulation through the G20 and the Financial Stability Board, as well as in the European Union, because international co-operation and co-ordination are very important, as we have seen. The origins of the problem may have been in only one part of the world, but within a matter of weeks it affected just about every part of the world. The days when we could be content that we had a regulatory regime that was fine for our own jurisdiction are behind us. We need to make sure that there is international co-operation, and that it continues in the future. We have also taken measures to clean up banks' balance sheets, and the process has been worked through, including the introduction of the asset protection scheme. The final part of the reforms we need to put in place relates to the powers available to the FSA, on which we consulted following my statement of 8 July. We published a White Paper and the Bill represents the conclusions that we reached following that.