I should have thought it was reasonable for the Financial Secretary to the Treasury to introduce a Bill on financial services.
Let me continue to make my point. The financial services sector is of great importance to Britain, but that importance carries risks for this country. At their peak, the banks’ balance sheets amounted to 500% of UK GDP, compared with 100% in the US and 300% in France and Germany. In 2008, for example, the Royal Bank of Scotland was the biggest bank in the world and, as we all know, Britain also witnessed the first bank run for more than a century, with depositors queuing in the streets to get their savings out of Northern Rock. RBS and HBOS had to be bailed out, with £65 billion of taxpayers’ money needed to shore up the banks.
The system of regulation failed, as did the culture of the banking sector, in not preventing and resolving the crisis without recourse to taxpayers’ money or otherwise putting people’s deposits at risk. That is why fundamental reform was needed, the first pillar of which has been put in place through the passage of the Financial Services Act 2012, which received Royal Assent in December and establishes a clear and distinct role for prudential regulation and conduct regulation, a role that was blurred and ineffective.
The Bill is the second pillar of those reforms and it reflects the considered views of no fewer than two expert commissions. The first, chaired by Sir John Vickers, was the Independent Commission on Banking, whereas
the second, chaired by my hon. Friend the Member for Chichester (Mr Tyrie), was the Parliamentary Commission on Banking Standards, on which many Members of the House served.
Let me say something about the process we followed, briefly summarise how the Bill reflects the recommendations of each commission and then explain in some detail the rationale for the few remaining areas in which the Government’s proposed approach differs.