Rob
Marris: It is a pleasure to serve under your chairmanship
again in the new year, Mr. Gale.
I will move
from the general and comparative to the specific. The cornerstone of
the Bill is clause 1—the Council for Financial Stability, which
is all about preventing, or trying to prevent, further crises. There
will be further crises, so the question is how we deal with them and
how we lessen the number of them, if we can, as a society and an
economy. I
say to the Opposition that if we get the diagnosis wrong, we will get
the treatment wrong. The country that undoubtedly had the most stable
banking system throughout the crisis among the G7—arguably among
the G20 and the whole world—was Canada. I see Conservative
Members smiling, because I suspect that I know as much about the
Canadian banking system as anyone on this Committee, although I am not
an expert. Surprise, surprise, the system there is tripartite, and it
has worked very well. In fact, the system in Canada has less regulation
than that in the States, which came close to meltdown, particularly
with the collapse of Lehman Brothers. The banks in Canada are federally
chartered. Some of them are the biggest in the world—two of the
10 biggest banks in the world by capitalisation are Canadian. They are
big beasts, and they are run by cautious bankers. The Scottish
Presbyterian tradition has permeated banking in Canada since the
founding of the bank of Montreal in, from memory, 1821. The higher
capital amounts kept by Canadian banks were encouraged by, but not
statutorily mandated by, the federal Government of Canada. It was
something that the biggest five banks in Canada decided they ought to
do and did for many years. I think, again from memory, that the last
run on a bank in Canada was in 1921. It is a system that has worked
well, including through this
crisis. In
Canada, there is also a role for legislation. Would that we had had the
legislation in this country—and, to some extent, we did.
However, the Conservative Government got rid of it in the mid-1980s,
and it is a
great pity that the Labour Government did not reinstate the mortgages
legislation. Canada did not have things such as 100 per cent. or 125
per cent. mortgage bubbles, because if someone took out a mortgage for
more than 80 per cent. of the value of the property, they had to insure
the whole mortgage, not just the balance above 80 per cent., with the
Canadian Mortgage and Housing Corporation. The Canadians
were more stable through statutory provisions there, but I stress that
it was a tripartite system, where there was much better co-ordination
than there was in this country. The hon. Member for Fareham and my hon.
Friend the Member for South Derbyshire stated that it is about using
one’s judgment. When the hon. Member for Chichester talked about
a tripartite arrangement that failed, he went on, unusually for him,
because he is usually intellectually astute, to condemn tripartism
itself. One needs to make a distinction. The tripartite arrangements in
the UK, which the Council for Financial Stability seeks to address, did
not work as well as they should have. I do not leap from that, as he
apparently does, to saying that tripartism is the
problem. That
is the leap of faith that his own Front Benchers take. It was, to use
the words of the hon. Member for Chichester, to do with how things
performed operationally. As the Treasury Committee report stated, we
had complacency and underperformance from the FSA, to which my hon.
Friend the Member for South Derbyshire referred, and, arguably, from
the Bank of England as well. So, putting all the eggs in the Bank of
England basket is not necessarily a great way of preventing
that.
One of the
things that we can learn with hindsight—and the measure was
embryonic 10 years ago, as the hon. Member for Chichester rightly
pointed out—is the lack of co-ordination, the pass-the-parcel
approach, to such matters. If we look back and analyse that, and we get
on to talking about minding the gaps, to which we referred when the
hon. Member for Fareham was opening the debate, we see that it is to do
with interaction and co-ordination. Clause 1 provides the
co-ordination. It does not provide for getting rid of tripartism, nor
should it, because that would lead to another mechanistic approach. It
is mechanistic to say, “Well, instead of having a Council for
Financial Stability, we will put pretty much all our eggs in a Bank of
England basket and downgrade the FSA and so on”. There is not a
bad comparative model on the other side of the Atlantic, in Canada,
which had a tripartite system that worked well and was better
co-ordinated.
Clause 1,
which I favour, tries to address the gaps, the lack of co-ordination
and the complacency and underperformance of the FSA and, to some
extent, of the Bank of England. Clause 1 makes it very clear
statutorily that the Chancellor of the Exchequer is in charge. When the
hon. Member for Chichester referred to what happened in 1987—I
recall that he was a special adviser in the Treasury—he had a
ringside seat, and the Chancellor was in charge. The Chancellor came to
the House to make a statement at 10 o’clock. Of
course the Chancellor is in charge because—to Anglicise the
phrase—the sterling stops with him. We know that it was the
Chancellor, the Government and the taxpayer who bailed out the rotten
banks that had been underperforming and had been allowed to
underperform through the failings of some of the regulators.
Of course responsibility lies with the Chancellor, but it is
helpful
to have it spelled out in clause 1. As Members of Parliament who are all
members of political parties—there are no independents with us
today—we go to meetings, whether of a trade union or a political
party, and we know that it is the Chair who has a big say in what goes
on, as indeed you quite rightly do, Mr. Gale. So, specifying
that the chair of the Council for Financial Stability is the Chancellor
of the Exchequer highlights statutorily in a declaratory sense what we
all know to be the case anyway, but if that is a step to restoring
confidence in the regulation of financial institutions in the United
Kingdom and it helps to prevent further crises, and to rebuild
confidence in our system, then it is a useful thing to do in
statute. Mr.
Hoban: The hon. Gentleman obviously has a very clear view
that the Chancellor is in charge, yet what is he in charge of? He is
chairman of the council, but what does the council do? It keeps the
system under review and it co-ordinates. That is not much. From what I
can see, there is no executive power vested in the Council for
Financial Stability. All it is in charge of is ensuring that things are
kept under review and there is
co-ordination.
Rob
Marris: I entirely agree, but I sense that I place far
more emphasis than the hon. Gentleman does on the role of
co-ordination. Under the system that we have had for the last 10 years,
there was not enough co-ordination—that was one of the failings.
In reality, the Chancellor will be in charge. If three people get
together, and someone from the FSA says, “We’re thinking
of doing this”, and someone from the Bank of England says,
“We’re thinking of doing that”, they will listen
to the Chancellor, and the other two around the table will have some
idea of what is going on. They will not be in silos; I get the sense
that to some extent they were in silos through this crisis and before
it.
Mr.
Tyrie: Can we make this a little more concrete? Under the
hon. Gentleman’s proposal, who would be in charge of ensuring
that liquidity statistics for the banks are collected? We now know that
no liquidity statistics were being collected in a co-ordinated fashion
by anybody, and that is one of the reasons the crisis did so much
damage so early on when it broke. Do we not need to go well beyond
putting someone in charge in a declamatory sense—or declaratory
sense, as the hon. Gentleman said—to the point where somebody
has direct and statutory responsibility for the overall management of
the system?
Rob
Marris: That may well be the case, but getting three
people together in one room so that they can realise that the lacunae
exist sounds like a major step forward.
Mr.
Todd: Indeed, it might be. If my hon. Friend turns to
clause 1, subsections (5), (6), (7) and beyond, he will see that the
Treasury is not merely given the task of being the chair of this body,
but that it will have a substantial functional role. Perhaps he would
agree that some of the more telling points made by the hon. Member for
Fareham were requests for a sharper definition
of exactly what the Treasury would expect from this body. That is where
one hopes the Minister will provide us with greater
information.
Rob
Marris: I entirely agree with my hon. Friend. It is a day
for agreement, and it would have been better had we had some of that
sharper focus in the Bill. I hope that we will get it from the Minister
today. As my hon. Friend said, the first part of clause 1, and the
second part from subsection (5) onwards, take us a step further. I hope
that today the Minister will take the matter even further, because the
amendments do not give us that sharp focus and I shall not support
them.
Ian
Pearson: The debate on the Council for Financial Stability
has warmed up a lot faster than the Committee Room. I will make some
initial observations about performance, responsibility and structure,
which has been at the heart of many of today’s contributions.
I will then discuss in more detail the amendments tabled by
the hon. Member for Fareham.
It is clear
that Governments and regulators around the world have learned lessons
from the financial crisis. No system has proved perfect, and in almost
every jurisdiction the conclusion has been reached that further action
needs to be taken. My hon. Friend the Member for South Derbyshire
raised issues of performance that have been acknowledged by members of
the tripartite body. It is also important to acknowledge and make
explicit in the Committee the roles and responsibilities of individual
executives, of boards and of shareholders in contributing to this
financial crisis. The debate that we have had over the last two and a
half hours has focused on the perceived failures of regulation, without
acknowledging the perceived failures of the way in which companies were
run, which contributed directly to the financial
crisis.
The
Chairman: Order. Before I suspend the sitting, I would
like to make a couple of announcements. I apologise to the
Committee for the fact that it has been petrifyingly cold this morning.
Some things are outside my gift, but a change of room is possible. I
say it is within my gift—it has been gifted to us. It will
require hon. Members to take their papers with them now, but the
Committee will sit in Committee Room 11 this
afternoon.
Mr.
Todd: Is it warm in there?
The
Chairman: That is the reason for going there. The problem
has been that the door does not shut properly in this room. I cannot
guarantee that it will be warm, but it certainly will not be as cold. I
am advised that it is
warm. During
the debate, the hon. Member for Fareham made the point that the
Committee is pressed for time. The sittings resolution—the
ultimate resolution—is a resolution of the House and it cannot
be changed by the Programming Sub-Committee. However, we can use the
time available. I say to hon. Members now, that should it become
necessary, there will be the opportunity on Tuesday next
week—rather than tonight when hon. Members and staff
will already have made
arrangements—to have a further sitting between 8 pm and 10 pm. If
the usual channels decide, perhaps on Thursday, that that is necessary,
I would be prepared to chair a further sitting on Tuesday if that would
help the Committee in its deliberations. I mention that now so that
hon. Members can look at their diaries. 1.1
pm The
Chairman adjourned the Committee without Question put (Standing Order
No.
88). Adjourned
till this day at Four o’clock.
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