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Session 2009 - 10 Publications on the internet Financial Services Bill |
Financial Services Bill |
The Committee consisted of the following Members:Chris Stanton, Eliot Wilson,
Committee Clerks attended
the
Committee WitnessesAngela
Knight CBE, Chief Executive, British Bankers
Association Adrian Coles,
Director General, Building Societies
Association Matthew Fell,
Director of Company Affairs, Confederation of British
Industry Public Bill CommitteeThursday 10 December 2009(Morning)[Mr. Joe Benton in the Chair]Financial Services BillWritten evidence to be reported to the HouseFS
07 British Bankers
Association 9
am The
Committee deliberated in
private. 9.2
am On
resuming
Q181The
Chairman: Good morning. I remind hon. Members and
witnesses that we are bound by the Standing Orders and the deadline
agreed to on Tuesday. That means that this mornings session
must end at 10.25 am. Obviously, I will not want to interrupt hon.
Members or witnesses in the middle of sentences, but I will do so if it
becomes
necessary. We
will hear evidence from the British Bankers Association, the Building
Societies Association and the Confederation of British Industry. I
welcome the three witnesses to our meeting this morning and ask them to
introduce themselves. I do not think that Angela needs any
introduction, but it might be helpful to younger members of the
Committee. Angela
Knight: Good morning. My name is Angela Knight. I am
the Chief Executive of the British Bankers
Association. Adrian
Coles: Good morning. My name is Adrian Coles. I am
Director General of the Building Societies
Association. Matthew
Fell: Good morning. I am Matthew Fell, a director at
the Confederation of British
Industry.
Q182Mr.
Mark Hoban (Fareham) (Con): The flagship measure in the
Bill is the new Council for Financial Stability, the aim of which is
apparently to create clarity where there was previously confusion. You
may not have had a chance to read the evidence that was given to us on
Tuesday, but the Minister was clear that responsibility was shared
between the Bank, the Treasury and the Financial Services Authority. In
the afternoon session, the FSA said that it had secondary
responsibility for financial stability. The Bank acknowledged that the
Chancellor was clearly in the lead and said that its own powers in
relation to financial stability were limited to the resolution regime
and to its responsibility for the payment system. Do you think that the
situation is any clearer now than it was at the height of the
crisis? Angela
Knight: I shall open with our view. When I read the
Bill to start with, I thought that at least it may give us some more
clarity, but when I read the evidence
that was given, I was thoroughly confused. To my mind, it is important
that we have clarity in this area. What does clarity mean? It means
perhaps two things: that during normalbusiness as
usualtimes, there is a proper exchange of information and a
no-surprises regime in place, that decisions are made where decisions
need to be made and, at times of crisis, somebody is in charge. That
does not seem yet to have come through
properly. Adrian
Coles: If we go right back to the beginning of the
crisis with Northern Rock, there was clear evidence of a lack of
communication between the tripartite. If we are going to keep the
tripartite arrangement in place, it seems sensible to have a Council
for Financial Stability or something similar, and to formalise the
communication arrangements between the members of the tripartite, to
report on them annually and to have publication of minutes. It is a
modest move in the right
direction. Matthew
Fell: I think that I agree with that sentiment. In
the context of making the existing tripartite set-up work better, this
should do two things. It ought to give greater clarity to who is in
charge, who ultimately has to be the Chancellor particularly in times
of crisis. One of the lessons that we learnt from the crisis was that
there was a serious lack of intelligence gathering and sharing,
certainly during the broader overview of emerging risks. If it can
bring more of that together, it will be helpful. The area of greater
clarity that needs to come through is who will take responsibility for
actions arising from the analysis that the council undertakes. Who will
actually push the buttons once the analysis and discussions take
place?
Mr.
Hoban: At the moment, we publish a report that identifies
risk, but nothing that says who will do anything about
it. Matthew
Fell: For me, it will be entirely sensible to
understand how the analysis translates into
action. Adrian
Coles: One would expect to see that in the minutes.
Any organisation taking minutes of a meeting will usually have an
action column. Let us hope that this council copies conventional
practice. Angela
Knight: On the question as to whether it should or
should not be written into the Bill, as we understand it more will be
made clear through the terms of reference, and draft terms of reference
have already been published. I think that we said in our written
evidence to this Committee that what is required is the particular
contribution of each of the authorities sitting around the
councilhow they interact, their duplication, possible conflict
to be avoidedand also the point I made earlier about who is in
charge. So I think that in essence you can either say, There is
a published draft terms of reference that has set all this out,
or you write something in the Bill. If you write something in the Bill,
that means that, should there be a desire to re-order the
responsibilities, should they change for various reasons, or that you
want someone else to make the decision, you cannot do that, because it
is in the Bill. But equally so, if you put it in the terms of
reference, the terms of reference can change all over the
place. If
we think back through the last two years or soI do not think
that any of us would ever wish to have any sort of replication of that,
and hopefully that will never
take place againone thing that is absolutely essential is that
in a crisis someone has to take charge. If indeed there is ultimately
public money involved, we need to know that it is this person, and that
is the reason why. While it is debatable, I think I come down in favour
of writing it in the Bill.
Q183Mr.
Charles Walker (Broxbourne) (Con): Surely if there is a
crisis, the Chancellor would take charge. I thought the idea of the
Council for Financial Stability was to stop a crisis occurring. How is
the council going to work with your various member organisations to
ensure we do not end up in hugely leveraged positions, borrowing vast
amounts of money that we have no hope of paying back if the pyramid
starts to crumble? That is what I thought the Council for Financial
Stability would be doing with your members.
Angela
Knight: Yes, well, that is another reason why I
answered the question as I did in the first instance. I am more
confused now, having read the evidence earlier, than I was when I
originally looked at the Bill. Irrespective of what the legislation may
include or how it is phrased, it is the interaction and the prevention
that has to be the vital area. I would say this, though. There is not
some sort of discrete pot called financial stability that is separate
from, say, monetary policy, which in turn is separate from fiscal
policy. The three are intertwined and I look forward to some thinking
being done in that area, otherwise there will be an assumption that
financial stability can only be done by a something for
financial stability and that it is separate from the other two
levers. There
is an obvious example, if you like, when a bubble is created, whether
it is a housing bubble or similar. You can usually address a bubble in
three ways. One is by taxing it, the other is by using interest rates
to deflate it, and the third is by addressing those who say
lend into it, and that is what I mean about them being
interconnected. I appreciate this Bill is about establishing things,
but before we get too far along the path, we need to have some very
clear thinking about how these three thingsstability, monetary
policy and fiscal policyintertwine and are
interconnected.
Adrian
Coles: Yes, I would agree with that, but the Council
for Financial Stability, as I said earlier, is a modest measure that
will contribute to the debate that Angela has just spoken about. Of
itself it is not going to prevent the next bubble, it is not going to
prevent the next banking crisis, but it might make a modest
contribution towards that objective.
Matthew
Fell: I would agree with the previous remarks. The
one additional thought that I would add, that goes directly to your
question about working with the various organisations that we
represent, would be the importance of having a proper mix and spread
right across the breadth of the financial services community, and that
it is not biased towards one component part of
it.
Q184Mr.
Walker: I suppose what I am driving at is that if you want
to try to secure financial stability, you have got to have a better
understanding of the financial instruments being traded. It was the
case with Leeson, wasnt it, that the board of
BaringsLeeson wasnt actually doing anything
complicatedjust did not understand what its trading floor was
doing? The lessons of that do not seem to have been learned. I would
hope
that, as new financial instruments are modelled and brought to market,
there is a far greater understanding among your members, senior board
members and the FSA as to where the risk lies, so that they have an
idea of what is going on.
Angela
Knight: Yes, I think that is a very important point.
Leeson, with Barings, is not necessarily a terribly good example,
because I think there was a bit of fraud in therein fact, quite
a lot of fraud. So in one respect I would almost park it. Nevertheless,
the fundamental point about the complexity of financial
instrumentsnot only how they impact, but how they are
interconnectedis a vital issue. That is being addressed
elsewhere. It will connect into financial stability, but it is being
addressed elsewhere through the regulatory framework, which is a
mixture of transparency; capital and the application of capital to
risk; risk controls; and utilising some risk set-off techniques, such
as central counterparties for certain types of derivatives.
The industry
is innovative and that innovation, you can quite easily argue, has
created some instruments that we look back on with some debate and some
serious concern. However, it has also created instruments which,
through their innovation, have provided significant benefits as well.
If you are saying to me, must we as an industry actually address the
reality of what is being developed in a much clearer, coherent and
careful way in future, then the answer from the industry is
Yes, we understand that. The balance between innovation
and risk is now in a very different place from two or three years
ago. Adrian
Coles: I have one extra point. I agree with what
Angela said. In a sense, is this being addressed in the components of
the CFS? The FSA certainly has much more technical expertise to
understand market developmentsas I experience it, in the
building society sectorthan it had two years ago. It is staffed
up on technical expertise, so it can understand what is happening in
the markets. Hopefully, that will make a contribution towards financial
stability.
Angela
Knight: We need to staff it up more. There has long
been too hard an interface between those who work in the industry and
those who work in regulation. We need to get a better way of getting
people into, and of course out of, the regulator, because that way you
have people who have up-to-date knowledge of the market. There is an
example of a body that seems to do that quite well in this country, and
that is the Takeover Panel. Maybe there is something in the way that it
has managed to undertake that bringing into, and letting go back into,
the market that needs to be learned, certainly at senior levels, and
particularly in some of the wholesale areas, as far as the FSA is
concerned. Adrian
Coles: That is happening in the FSA. It needs to
happen more.
Angela
Knight:
Absolutely.
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©Parliamentary copyright 2009 | Prepared 11 December 2009 |