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.
Hoban: Competition is important. It has cropped up twice
in the current financial crisis, initially in the context of Northern
Rock and also in the context of the
merger of Lloyds and HBOS. Banks and building societies expressed
concern at the time of the acquisition into public ownership of
Northern Rock—which now feels more like
nationalisation—that Northern Rock would be able to use its
position of effectively having a sovereign guarantee, by virtue of
being owned by the Government, to operate in a way which would
undermine the competitive position of other institutions. Having the
guarantee, it could market itself as being as safe as
houses—perhaps not the best analogy, given the state of the
house market. It was seen as a safe bet because the Government were
standing behind it. Arrangements were put in place to ensure that
Northern Rock did not exploit its competitive position vis-Ã -vis
other
lenders.
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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