Banking Bill

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Mr. Bone: This is a very important issue. When the Government first suggested that Lloyds and HBOS could join together and tear up competition law, it was because no public money would be involved—it was going to be a private sector settlement. We have subsequently seen huge amounts of public money being put into this mega-bank. If the proposed objective—a very important one—were included, it would not allow that sort of thing to happen. It seems a very important addition to the objectives.
Mr. Breed: Obviously, that is exactly what happened. At some stage Northern Rock had to cease taking certain moneys and products and also had to ensure it was complying with state aid rules which could be invoked. So, it is a real situation, which could easily arise again. It is almost axiomatic that an institution is placed at a competitive advantage if the Government become involves in that institution and stand behind it.
Mr. Hoban: Indeed. My recollection is that the start of the Northern Rock debate was about yield and return, rather than stability. When we had the second wave of financial instability in the aftermath of Lehmans and people were moving their deposits around, Northern Rock became particularly attractive, as did certain Irish banks because the Irish Government gave a 100 per cent. guarantee. There was a flight to safety rather than to yield—a change in approach. My hon. Friend the Member for Wellingborough was about to intervene—perhaps that covered his point. As I said, we will come on to HBOS in a second.
Mr. Bone: That was the gist of the argument that the hon. Member for South-East Cornwall made. If we have a series of objectives that have to be balanced in making a decision, is it not important that this objective is one of them? At the moment it would be excluded from consideration.
Mr. Hoban: That is why we were trying to tease out from the Minister why the Government have not included the objective of competition and distorting competition between banks. My hon. Friend raised the issue of Lloyds TSB and HBOS. When the deal was announced—prior to the Government’s recapitalisation package—both Houses agreed that the competition rules should be waived to facilitate the merger. Referral of the bid would have slowed the process, added to the uncertainty in the financial markets and created more instability.
Ms Sally Keeble (Northampton, North) (Lab): Does the hon. Gentleman accept that funds flowing to a certain organisation or people behaving in a certain way do not mean that the bank or institution concerned is taking advantage of its position? The Governor of the Bank of England made that point yesterday in the Treasury Committee. It is about public perception. The hon. Gentleman would have to frame an objective that dealt with the intent of the organisation in trying to exploit its position.
Mr. Hoban: The hon. Lady makes a good point, which goes back to the example of Northern Rock. Potential depositors saw Northern Rock as a safe place to put their money because it was under public control, not because of any deliberate action on behalf of its management. That is why proposed new subsection (11) in amendment No. 79 says that a
“bank is prohibited from using its favourable position or Government support to its commercial advantage and thereby to prevent, restrict or distort competition in the market for financial services as a whole, or on a product by product basis”.
That tries to limit the opportunities for a bank to use the fact that it is backed by the Government to engage in distorting competition. That issue was dealt with in Northern Rock by saying that there was a limit to how many of its products would appear in a best-buy table. In that respect, Northern Rock’s management were exploiting the bank’s position by using the Government guarantee. A more organic process would have been for consumers to decide that they wanted their money to go to a lower risk destination despite the yield offered.
Mr. Breed: That just exposes yet another tension between the objectives, because if the bank could use its position in that way it might well minimise the impact on the taxpayer at a future stage, and significantly enhance the depositors’ situation. If we want to promote those objectives, the use of the bank’s position—the Government standing behind them—could be extremely advantageous in promoting other objectives.
It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at half-past Four o’clock.
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