Financial Services Bill

If the hon. Gentleman will allow me, I will come to that in just a couple of minutes. I want to put on the record what some other people, not just the Conservative party, have said about the proposals in the Bill. The Treasury Committee, chaired by the right hon. Member for West Dunbartonshire (John McFall), said that the proposals are a "largely cosmetic measure", and that""merely rebranding the Tripartite Standing Committee will do little in itself"." The Association of British Insurers, one of the big represented bodies, says:""What is not clear from the Government's proposals is how the proposed Council for Financial Stability would actually operate or what powers it would have to require the FSA and the Bank of England to pursue particular policies."" Indeed, the ABI says that clause 5, which gives the FSA explicit responsibility for financial stability—just months after the last banking Bill gave the same explicit responsibility to the Bank of England—will""exacerbate the confusion of responsibility between the Bank and the FSA"." Indeed, the Chancellor did not address the elephant in the room: the views of Mervyn King, the Governor of the Bank, who said this to the Select Committee:""We were given a statutory responsibility for financial stability in the Banking Act, and the question I put to you…to which I have not really received any adequate answer from anywhere, was: what exactly is it that people expect the Bank of England to do? All we can do at present, before a bank is deemed by the FSA to have failed, is to write our Financial Stability Report and give speeches."" The Chancellor mentioned the new power concerning financial stability that he has given the Bank of England, but its Governor—the other member of this tripartite arrangement—came before our Select Committee and said that he does not have a clue what the Chancellor expects him to do with it. It is for these reasons that we have decided that we will need new legislation to bring in a new structure of financial regulation. I have to be absolutely honest with this House: it is not something we particularly wanted to do. There are quite a few economic issues that we are likely to confront if we form a Government, and revisiting financial services regulation was not at the top of our list. However, we honestly came to the view that we would have to do it, because we have to create a system that gives a clearer idea of who is in charge, and that ends these dysfunctional squabbles between the three institutions; a system under which the people in charge can exercise judgment and discretion, and through which the connection is made between the broader risks across the economy and the individual risks to individual firms. As I have said, we have spoken to many market participants and at length to the different legs of the tripartite arrangements, and we believe that that can best be done by putting the Bank of England in charge of the prudential supervision of banks, building societies and other significant institutions. Surely we have now learned the hard way that we cannot take central banking out of bank regulation, and we cannot judge systemic risk without understanding institutional risk and vice versa. Of course the changes will require new, more collegiate arrangements for the Bank of England, but that, too, is a good thing. There is currently a rather unbalanced Bank of England that is collegiate on monetary policy and quite imperial on financial policy, of which the Chancellor no doubt bears the scars. We therefore propose a more collegiate approach. The whole point is to ensure that monetary policy, the supervision of financial stability and the regulation of individual institutions are better co-ordinated. When we discussed these matters in TV studios and the like, the Chancellor used to say that no one in the world was proposing to do what we were. Of course, he does not say that any more—I shall come on to his current argument—because he knows that it is not the case. Across the world, countries are coming to the same conclusion that we did. I mentioned Stan Fischer, the governor of the Bank of Israel, and it is worth remembering his reason for what he said. He did not just say:""It is very likely that prudential supervision will return to central banks when the lessons of this crisis are drawn."" He also said at Jackson Hole, at the conference of central bank governors:""Information flows are critical, and the plain fact is that information flows more readily within an organisation than between organisations—which is one of the reasons to have prudential supervision within the central bank."" That is a former chief economist of the World Bank and first deputy managing director of the International Monetary Fund, currently a central bank governor, and his view is shared by a whole host of other people. Another example is the current governor of the Bank of France, who said:""Indeed, one of the main lessons of the crisis may be that those countries where central banks assume banking supervision took advantage of their ability to react quickly and flexibly to emergency situations."" I have already quoted what Jacques de Larosière has said explicitly about the Conservative proposals—that he supports them. The Bundesbank in Germany is now taking control of prudential regulation of banking, and the Belgian central bank is doing the same. In the United States, the Federal Reserve is seeking to take control of the prudential regulation of important systemic institutions. The Chancellor often says that there are many regulators in the US, and of course there are powerful vested interests behind the Chicago regulator and the like. However, I remind him of what one of President Obama's chief economic advisers, Austan Goolsbee, said earlier this month—that separating banking supervision from central banking meant that a country would""get into a 'left hand doesn't know what the right hand is doing' kind of problem in a crisis"." When asked to give an example, he cited the UK. That was one of the chief economic advisers of the President of the United States citing the UK as an example of a place where there had been a lot of co-ordination problems.