Financial Services Bill

If the noble Lord bears with me, I shall get to that point in a moment. I hope that I shall continue to evidence the consistency that the noble Baroness, Lady Noakes, observed in her comments on my views in these matters. I should say to the noble Lord, Lord Newby, that the separation was not something that I and the Government reject because we believe that it cannot be done. We believe that it can be done but do not believe that it is necessary that it should be done. We believe that the appropriate response, as the noble Baroness, Lady Noakes, reminded the Committee, is through much strengthened capital. In particular, there is now clear acknowledgment that Basel II, which was not even adopted by the Americans, encouraged banks to transfer risk on to their trading books and hold wholly inadequate capital against the risks. We are talking about much greater calibration of capital against risk, although I note—I come back to a point made by the noble Lord, Lord Sanderson—that no amount of capital will be sufficient for incompetent management not to be able to burn their way through it. Strengthened capital, proportionate to risk, is critical, as is much more balance sheet liquidity, which the FSA has taken the lead in promoting, as well as much more secure funding, which the Bank of England is now obliging our major banks to adopt. That, in turn, needs to be supported by enhanced governance, better quality management and superior shareholder or owner engagement. That speaks to the very significant points that the noble Lord, Lord Sanderson, made in his brief intervention. A number of these issues are not ones on which we can go it alone, to use the wording that the noble Baroness used. It is not that we could not choose to do some of these things on our own if we wanted to, but there are a number of issues on which it is better to have a globally co-ordinated process, so we do not disadvantage our fine institutions or place at risk the million or so jobs in the banking and financial sector. The noble Lord, Lord Hamilton, talked about Northern Rock and Lehmann Brothers. He introduced the concept of "too big to fail" and even gave some free advice to Goldman Sachs that it should break itself up into smaller firms and that it would then be even more profitable. I could not help notice the noble Lord, Lord Forsyth of Drumlean, pick up quite quickly on that point; no doubt Evercore, a firm with which he is associated, will now push this forward to Goldman Sachs as a way in which to enhance shareholder value—and I hope that he will pay a modest retainer to the noble Lord, Lord Hamilton, for bringing the idea to his attention.