Financial Services Bill

The noble Lord and I have debated at length on many occasions, in particular in another place, and I do not propose, given the shortage of time, to have a major debate with him now. As I said, in principle I would not object; but all that would happen would be that most of the staff of the FSA would be transferred to the Bank of England. I doubt that anybody has denied that, and I doubt that regulation would necessarily work better in those circumstances than it has done in recent times. The Bill makes many proposals that could be helpful: I will refer to just a few. First, I turn to the central case for the Bill. My noble friend Lord Myners, referring to the Council for Fiscal Stability, said that it was "not glamorous". I am sure that he is very fond of glamour, but the main issue facing the council will be getting the balance right between what is described in the Bill as growth in the economy, stability and firm regulation. It will not be easy, and I fear that much of the work of the Council for Fiscal Stability—and here I share the concern of the noble Baroness, Lady Hogg—will be talking about it. I am not sure that much will be done in practice by the council. More important are the other measures in the Bill. There is concern about whether the council will be able to do what the Bill says it will—namely, to co-ordinate the response to risks. The response to risks, as we have seen in recent times with the problems that we have had with the banking system, is clearly essential to the Bill and to any action that we take to prevent the problems happening again. En passant, many objectives are set out, but four are set out as the main objectives of the Bill. One is the need to promote awareness and educate the public. A new quango will be set up to do that. I am not sure that a new quango to promote awareness among the general public will do much good. Perhaps a special quango to make MPs and Peers more aware of the problems that we face would be more helpful. The Bill gives great powers to the FSA, which is fine. Everybody agrees that the powers should be strengthened, wherever the FSA staff are. However, the problem is that they were not short of powers when they made the mistakes that they did, so there is no guarantee that the people who are now in the FSA, wherever they end up, will not fail again. It is not clear what will happen then, other than possibly to sack one or two people who have made the major mistakes of failing to regulate. Let me refer to just one of the Bill’s new powers—short selling. The case has been made strongly to stop excessive risk-taking. I can understand an individual—possibly an adviser—recommending it in certain circumstances. I make it clear that I have not engaged in short selling, but I understand the case for using it. Now the FSA will have many new powers, including short selling, which is referred to specifically in the Bill. It is fine to prohibit individuals who are working in the industry in that regard, but why are the banks being allowed to do it themselves? Something could be said about other potentially toxic assets used by banks, whether they are split or not. Martin Wolf, a very good reporter in the FT, referred to Volcker’s rule. We should all have regard for Volcker, as the noble Lord, Lord Lawson, pointed out. He said that banks would no longer be allowed to own, invest or sponsor hedge funds, private equity funds or propriety trading operations for their own profit unrelated to serving their customers. President Obama referred to it when he spoke of the separation of the banks. The noble Lord, Lord Lawson, referred to the Glass-Steagall case at length. He made the strongest case yet for it, but of course he is never more certain of anything than when he is expressing his views, as he and I know all too well. The Volcker rule, including taking control from the banks of toxic assets generally, seems to me to be sensible. Whether or not we agree with the Governor of the Bank of England, who recently I have not agreed with too often, as my noble friend knows, the case for Volcker’s rule is strong. Even if we do not go along with the main proposals of President Obama, that case has been strongly made, and I hope that my noble friend will give us good reasons if he is going to reject it. He has said before in the House that he supports much of what the Governor of the Bank of England said about President Obama’s proposals, so maybe he agrees with this as well. I shall now turn briefly to something else that the noble Lord, Lord Turner, said—I am not sure whether this was also in Davos. As I said, a lot of people spent a lot of time there recently. He spoke of valueless carry trade and talked about synthetic CDOs. Most of those who are speaking in this debate know what they are and the various other matters that have been dealt with by banks to our cost recently. Will we see some action on that as well as on short selling? There are calls by the noble Lord, Lord Turner, and others for fresh powers to curb bank lending. Will the new powers allow the control that is required? The Bill could be very useful if the regulations within it are used properly and are properly controlled. I return to my earlier question: how do the Government propose to check what the FSA is or is not doing with regard to its huge additional powers that we are rightly giving to it in the event that it fails once more?