Examination of Witness (Questions 579-618)
- Chair: Thank you very
much for coming before us this afternoon. I'd like to begin by
quoting to you what Xavier Rolet said when he came to give evidence
to us. He told us, "Some people"by which he meant
in Paris"see an opportunity through the regulatory
harmonisation process to claw back some business from London".
Do you agree with him?
I am sure that people are attempting to do this and I think some
countries are better organised to do this than we are at defending
what we're doing.
- Chair: Can you elaborate
a little on our inadequate defences?
Yes. To take the French, for instance, which I know a bit about
and something Xavier obviously knows a great deal about, certainly
under Christine Lagarde'swho is the French Finance Ministerreign,
they set out very early to have a series of wise men groups that
worked on projects to carve out a position for Paris in certain
key sectors of the financial services industry. So, for instance,
they decided very early on that it was necessary to create more
clearing capacity in the Eurozone, particularly over euro instruments,
and that Paris was well placed to do this.
So very early on, under the aegis of the French Treasury,
they set out a plan of campaign to do more clearing in Paris.
It had a financial services dimension and it had a political dimension
as well, because using the necessity of doing euro clearing in
the Eurozone is not unreasonable politically. It was used as a
very good weapon to do this. The interesting thing, Chairman,
is that they didn't rely on the industry to get these things going
because the industry, in their view, I think, tends to focus on
immediate issues. They think strategically for their own companies,
but not necessarily strategically for the broad good.
So some of these processes were kick-started by the
Treasury itself, by getting this group of wise men to say, "Let's
try and get the industry to look a bit beyond what they are doing
today and tomorrow, what the clearing activity might look like
in five years' time, how Paris would fit into that and how they
could benefit from it". We're beginning to see the results
of that now.
One of the results, for instance, is that London
may be excluded from access to euro liquidity from the European
Central Bank. If that happens, the role of clearing in London
is seriously under question. The consequence of this is thatto
take one examplethe New York Stock Exchange, which has
traditionally done all its European clearing activity through
London, now has to build up a presence in Paris as well as London,
because it doesn't know whether the UK is going to have access
to euro liquidity from the European Central Bank or not. If it
can't, they can't afford to place all their eggs in one basket.
I think all this was quite carefully mapped out in the work that
was done in the French TreasuryI'm giving you one exampleand
I'm not sure that we have mechanisms that do the similar sort
- Chair: So we've been
outwitted by the énarques?
You could phrase it that way. Potentially; I think they have a
more dirigiste approach to these things. But I think we need to
get smarter about it ourselves.
- Chair: Rather than
pursue that now, it would be extremely helpful, since we have
the man whose task is protecting us from such mischief, Mr Barnier
himself, coming to see uswe are very pleased that he has
changed his mind and decided to comeperhaps you could give
some thought to what we should be asking him, and in due course
come back to us. Of course, whatever you give us we'll put into
the public domain prior to the meeting.
Chair: Because I think
it would be right for Mr Barnier to have an opportunity to see
- Andrea Leadsom: Rather
cheekily, we have Monsieur Barnier, who of course is very influential
over regulation in the future for the UK, we have Monsieur Rolet,
who is now running our stock exchange, and we have Monsieur Villeneuve.
Is there a bit of a conspiracy going on? Is this the mountain
coming to Mohammed? Is there some sort of group thing going on
here from the French?
I don't want to bore you with my history, but I was born and brought
up in this country and I have a British passport.
Andrea Leadsom: You give
a very good impression of having been brought up in this country.
My parents are French, but they came over here before I was born
during the Second World War, thanks to the English, and they stayed.
Chair: They used to be
in the Navy, presumably, once?
Well, I owe my job to the fact that I was hired by Mr Nelson in
my first job.
Andrea Leadsom: So there's
This is not a French conspiracy.
Andrea Leadsom: Excellent.
Although I do talk to the French often and I do speak French.
If that's held against me, I don't know what to say.
- Andrea Leadsom: Very
good. So just looking then at Basel III, which has a very big
impact on the success of the British banking industry, and in
a way is seen as perhaps being a bit light on British banks and
on the banking system in general. Do you think that it goes far
enough? Do you think Basel III capital adequacy requirements go
far enough to prevent future problems in the banking system?
I would start by saying I'm not an expert on capital adequacy.
I chair a group that covers a whole lot of subjects. There is
always a trade-off between regulation and growth, and there needs
to be a trade off, and the question is: do they have it about
right? me. The view I'm hearing from the banking industry on my
group at the moment is that it's probably a bit heavy in its current
versions, rather than light, that there will be an impact on growth.
They haven't quantified this yet in the way that I would recognise.
Different banks have different models and the original
proposal of Basel III didn't recognise that adequately. It is
viewed that it recognises it extremely adequately now, because
I think the timescale goes up to 2020 for, say, French and German
banks to apply it. There is a question mark about whether the
Americans are going to apply it. I'll stop, because you don't
like long answers.
- Andrea Leadsom: Okay,
so just to reiterate, do you think Basel III could contribute
to preventing a future crisis,? Do you think it is part of, or
a full, solution?
I am told by people more expert than me that raising capital standards,
and looking at liquidity standards and leverage, should help prevent
a future crisis. Nobody has told me what the magical point is
at which it does. We're talking about 2 percentage points or 3
percentage points. I don't know whether 8 is good or 11 is good.
I'm not expert enough to be able to answer it in those terms.
- Andrea Leadsom: Do
your UK banks tell you that Basel III will harm their future profitability
in a global sense, or help it?
All the banks that are on my group recognise the need to raise
capital standards. All of them also say that raising capital standards
will mean they will have less money to lend. So yes, there should
be a bit more comfort with higher capital standards. Yes, it will
have an impact on the economy.
- Andrea Leadsom: So
it is a trade-off between the security of the system and the prospects
for lending to companies to enable growth in the domestic economy?
That is broadly the way it has been put to me, yes.
- Andrea Leadsom: Thank
you. Do your banks tell you that the European regulatory changes
are compatible with what we're proposing to do in the UK?
Are you talking about the new supervisory authorities?
- Andrea Leadsom: Exactly,
yesthe new supervisory regulatory reforms coming through
from Europe. Are they seen by your banks as being compatible with
what we're proposing to do with the new
We do not mirror what has happened in Europe. In fact, I do wonder
whether this paper was written even with Europe in mind, because
it was clear when the paper was written what Europe was moving
towards. So no, we don't mirror it ,and this has shown up very
clearlyas Xavier, I think, pointed out to you as well,
if I read his thing correctlyin ESMA, which is the European
Securities and Markets Authority. We have a very puzzling situation
as to how the UK is going to be represented on ESMA. The proposal,
as I understand it, is that the consumer authority will represent
the UK on ESMA. Now, you have to bear in mind that the UK is by
far and away the biggest international wholesale securities market
in the world. So it's really a wholesale market and it is being
represented by somebody that is essentially consumer.
So the question then comes: how broad is the remit
of the consumer agency herethe CPMAin as far as
it represents the UK in this essentially wholesale set of discussions?
Most other European regulators are not as concerned with the consumer
as we are, so it won't be a consumer discussion, it will be a
wholesale discussion. If the remit of the CPMA is very broad,
then the delineation between the CPMA and the prudential regulator
becomes challenging again, because where do you draw the line?
If it's quite small, then our representation on that group is
going to be fairly meaningless, because other regulators may not
take very seriously a UK representative that is totally focused
on consumer issues in the wholesale equities market discussion.
- Andrea Leadsom: So
would your banks then say that we have it wrong, that our proposed
regulatory structure in the UK is wrong, or that the proposals
in Europe are wrong, or is it just an observation?
None of my banks say that anything is right or wrong, because
they're focused more on outcomes than they are on structures.
Every structure has its upside and its downside. You have one
tripartite system being replaced by another tripartite system,
essentially. It is very difficult to find the perfect model, so
I think my members recognise the difficulty in finding the perfect
model. The problem then is: what remit do you give these different
groups and how do you make sure that they are as effective as
possible in fulfilling their duties?
- Mr Umunna: While capital
adequacy is extremely important in ensuring that we don't have
a repeat of the mistakes that were made over the last two or three
yearsand it is something that has preoccupied a lot of
regulators and those who work within the financial services sectorthe
one issue that is brought up, more than anything else, in respect
of the banks and the sector by our constituents, is the remuneration
of those who work in the Square Mile in particular.
We have the next bonus round about to start in a
few weeks. I know the FSA are just completing, I think, their
consultation on the new code that they intend to put in place.
We've had the Capital Requirements Directive coming out of Europe,
which suggests a whole raft of measures. Do you think the new
rules, which are being implemented at the moment, will help prevent
a repeat of the financial crisis we saw emerge over 2007-08?
Let me start by saying I'm not a banker and I don't get bonuses
and I don't even get paid for what I do, so let's be quite clear
on that. In our group, we try and cover issues that cross sectors,
but on remuneration, we have left it to the trade bodies to represent
their own interests, because they're different. The British Banking
Association is putting representations of bankers; the ABI is
putting representations of insurers, and so on.
Where we do come in is in the range of institutions
that the FSA is proposing to cover, and here it differs from just
about every other country that I am familiar with. Most other
countriesor all other countries in Europe, anywaythat
are dealing with this are focusing on a very narrow range of banks
and a very narrow range of people within their banks. The FSA
has decided to go ahead of the pack and they want to cover 2,400
institutions, as far as I understand, which includes fund managers,
insurance companies, which are not, as I understand it, covered
in France or in Germanycertainly not in the US, which isn't
even trying to micro-manage remuneration in this wayand
this is worrying. The FSA is seen as being too far ahead in this
debate of other countries, so the end result is whether the level
of remuneration here is appropriate or not. We may end up being
very uncompetitive with other countries in what is essentially
a global market, and we're an international centre, so we have
to be interested in what the global markets are doing.
- Mr Umunna: Following
on from that, in April 2009, we had Jacques De Larosière
carrying out various reviews of these types
of issues, in addition to Lord Turner, whose paper, I think, was
tabled at the G20 in April 2009. Given what you say, do you think
that the Government have done enough to lead on this issue at
a G20 level, andI happen to think Europe generally is on
the right course heredo you think enough is being done
to ensure that the standards that we're looking to put in place
here are also followed by the SEC and others in the States?
This is a very important question you raise, because it has broader
issues than just remuneration. I think what we have at the moment
is a European approach on remuneration. We have a UK approach
on remuneration, which looks at this stage to be a lot harsher
than the European approach, although that remains to be seen.
The American approach is to rely largely on shareholders, and
not micro-manage remuneration from the centre, so they're encouraging
shareholders to challenge the remuneration committees of banks.
The Asian approach is open season.
Now, the issue is then: where does the G20 come in
if you're worried about being an international financial centre?
The Prime Minister told us last night that he wanted London to
be an international financial centre that was as competitive as
anyone. So this is a very important issue, because there's no
evidence at all that the G20other than the principles that
they laid out very early on, about how much was going to be paid
in cash and how much should be paid in deferred stockare
going to be applied universally throughout G20 countries. In fact,
there's a lot of evidence that that won't be the case.
- Mr Umunna: But just
going back to my question: do you think they need to take more
of a lead? I mean, in some respects, they're in the perfect position
to do so, simply because of the City of London being here and
it being rather unique as a financial centre. Do you not think
they're in a good position to lead on this issue and do you think
they are providing sufficient leadership on it, given the concerns
that you have raised about the UK going it alone, in some senses,
with a tougher regime? Not that I'm saying I agree with that,
but that's what you seem to be saying.
I have to say I don't think the UK is taking an adequate lead
in the G20 in general about this, because what we're seeing now
is fragmentation in the G20 on remuneration and on other issueswhich
I won't go into nowand therefore we are going to get regulatory
arbitrage and remuneration differences, for instance, between
the Asian centres and the EU on the one hand, and possibly with
the UK at the extreme of the EU on the other. I think that if
the UK doesn't take a tougher stance with the G20, or recognises
that this can't be managed, which is quite possible, because the
Asian countries are looking at very different objectives in all
this, we need to draw the consequences of what it means for an
international centre which has to live with a world regime, not
just a UK or an EU regime.
- Mr Umunna: Can I just
ask one last question, and this is something that I suppose has
happened quite recently? We saw reports yesterday that the British
Bankers Association informallyI know it's denied formally
doing thishas sought to reduce the level of bonuses that
are due to be paid out in the imminent bonus round. We have seenwhich
they have said is speculation and nothing more than thatfigures
of £7 billion being bandied about, and the reports were that
they were trying to reduce this to something in the region of
£4 billion. Granted that this could involve on their part
breaching certain regulations if they're not careful, do you welcome
a move collectively by the sector to try and rein in bonuses,
as the rest of the country looks to tighten its belt? That doesn't
really do justice to what is about to happen.
I don't think the industry has handled the remuneration issue
very well, but I won't make moral judgements to this Committee.
It's not my role and all the rest of it. The real issue is that
these people have to deal in a world environmenta lot of
them are international banks, or if they're just UK banks, for
certain activities they have to fish in the same pond as international
banks; fishing for people. So that has to be recognised. Whether
that is a good or a bad thing, it has to be recognised. I can
tell you that having just come back from 10 days in the US with
my colleague at the City of London, who is chairman of the Policy
and Resources Committee, we went to see a large range of top banks,
fund managers and markets and they are completely mystified by
the UK approach, the FSA's approach to remuneration.
Mr Umunna: In what sense?
They just think it's far too prescriptive, far too micro-managing
and they don't think it's appropriate for remuneration levels,
beyond what was agreed at the G20, to be set by Government. They
think it's much more appropriate that the shareholders should
be involved in that.
- Chair: They are getting
their shareholders involved, are they, in the US? That would be
a first, wouldn't it?
They're trying to.
Chair: It would be a first.
Well, I sit on the board of a big US company and I can tell you
that shareholders are getting a lot more aggressive in the US
than they used to be about these things.
- Mr Umunna: Are you
more aggressive? As one of those shareholders, as you were just
saying, are you raising questions in the way that the US regulators
seem to think you will do?
As a shareholder? I'm a tiny shareholder of US companies. As a
director of a US companybut it's not in financial services
and therefore has a very different profileyes, when I joined
this board ten or 11 years ago, the remuneration committee did
its work almost in a closed environment and the other board directors
were just told what the result was. We are now all involved in
discussing the conclusions, at least, of the remuneration committee
before they're agreed. So there has been progress in the US.
Mr Umunna: Sounds like
a small amount.
John Thurso: I
just want to follow up on this question of remuneration, because
it seems to me there is a fundamental problem that exists in banking
that doesn't exist to the same degree in non-banking companies,
which comes from the history post-big bank. The vast bulk of merchant
banks, both investment banks in America, and merchant banks in
this country, were unlimited liability partnerships, where the
entire wealth of the individual was on the line.
In that circumstance, if they took the profit and
split it all among themselves, that's fine. There is a direct
correlation between risk and reward. These have all either now
become, like Goldman Sachs, stock companies with shares, or they
have been absorbed into, in the case of most of our big banks,
companies with shares, but they took the same rewards as they
used to when they had all that risk. They don't have the risk
nowwe have it, because they are all attached to retail
banks and if they go belly-up, we rescue them. It seems to me
it's a fundamental flaw in the capitalist model that the reward
is no longer following the use of capital, and that has to be
wrong and has to be changed. How can that be done unless either
the City of London or the FSA, or somebody, steps in says, "Enough
First of all, I recognise and am personally very sympathetic with
what you said, and I think the change to that model was very fundamental.
John Thurso: It
was Warren Buffett who came up with it first during the Salomon
I think if it can be changed by international agreement, that
is one thing, but I think that all that will happen if the UK
goes it alone, because it can't persuade other major countries
to follow its lead on this, is that we will just lose out and
I don't think that's good for the City.
- John Thurso: Would
we lose out? If you follow that line of argument, then all it
takes is one relatively major financial centre somewhere to say,
"We're not going down that route" and everybody else
can't do it. If America or Singapore or wherever says, "We're
going to go on paying at that rate" that argument seems to
say that nobody can change unless everybody changes.
We are talking about major centres here, but I'm afraid all the
evidence indicates that the US, to take one exampleand
we have a big US bank presence in this countryis not going
to go this route. Unless you found something I didn't find in
the last 10 days, they have no plans, particularly after the results
of the mid-term elections, and particularly with the new influence
of the Republican Party in Congress, to go this route. So the
reality is whatever we do here, we'll be doing it alone if it
exceeds that, unless we can negotiate with the Americans to change
- John Thurso: Just
so I have got this straight our choice is: follow the Americans
or give up being a banking centre?
I think that's drawing the wrong conclusion from what I said.
You mean give up a banking centre, in the sense that we lose people?
- John Thurso: We
In that sense, yes. We lose people, and it's simple. By the way,
we were told in no uncertain terms that the banks that we saw
in America already had their plan Bs worked out, so that's the
way it's going.
- Andrea Leadsom: In
my past career, I used to write quantitative compensation schemes
in a fund management company. It's always seemed to me that that
a far more acceptable route is to force, if you like, to legislate
for banks to have to have a quantitative compensation scheme.
I think when they're making money and the risk is not high, it's
a reasonable bet. The problem that I think we have is where people
are taking enormous risks and being compensated, regardless of
the risks that they're taking. I wonder if you could comment on
I think the remuneration boards need to do a lot more work on
banks. I believe that they are doing more work on banks. That
includes the US, by the way, because although they're not as hard-line
as we are, the shareholders are beginning to get pretty agitated
about some of this. So I don't think the remuneration boards should
continue in the old way, I think they should set standards and
benchmark properly and not just say, "Because he's paying
that, we have to pay that", but look at risk and all sorts
of other issues as well.
Chair: Drop us a line
with the proposal to galvanise shareholders and we'll be very
- Mark Garnier: I want
to keep on with the competitiveness of the City of London. The
cost of financial regulation: do you have any estimates at all
of what financial regulation is costing the City of London?
No. You seem to be another Frenchman like I'm a Frenchman, if
I've understood your name.
Sorry, I don't. I have been trying to make an assessment
of this. The answer is that when the financial crisis hit, the
FSA roughly quadrupled the amount of work it was doing in each
bank, so the amount of regulatory and back-office staff, that
the banks had to take on to be able to respond to this increased
substantially already at that point.
What is not clear is whether, as a result of these
new proposals, there will be further increases. I am being told
in the insurance industry, for instanceI sit on the board
of an insurance companythe answer to that question was
no, probably not. I have to see the detail, but they don't think
it will affect it very much. The banks I have spoken to think
they will have to make a few small adjustments. It won't be big,
because the big adjustments have already been made, but I think,
pending final review of all this, I don't know that we have the
final answer. But you should not underestimate the ramp-up that's
already taken place as a result of the process.
- Mark Garnier: A four-fold
ramp-up sounds quite sort of scary.
That's what has happened. It's done.
- Mark Garnier: What
on earth did they do before that? Was the FSA really that wrong?
They were more pragmatic in their approach to regulation than
they are now. I think the
Mark Garnier: I bet they
regret that, in retrospect.
Yes. By the way, this is being replicated in other centres.
- Mark Garnier: This
is what I am coming to. What I'm particularly interested in is
the cost of financial regulation in the city and the changes that
are about to come through. Notwithstanding everything else that
is going on, are they going to make the City of London less competitive
compared with somewhere like Paris or Frankfurt or New York?
I don't sense this from the people I've talked to. Their concern
is, "We are where we are now." They have had to ramp
up already. One bank said to me, at a very senior level, "We're
prepared to take a small extra cost, as long as the new system
is efficient". So the efficiency is the thing they focus
on more than the extra cost.
- Mark Garnier: You
have, to a certain extent, duplication of the regulatory system
and if you're an investment bank, I think you're regulated by
both the CPMA and the PRA.
Mark Garnier: Again, that
in itself must have an increase in the costs of regulation.
We need to look at the details of it. I imagine there will be
some rate of increase, but how big it will be, in proportion to
what has already increased, I don't know. I have to say, of course,
that international banks don't just worry about what is happening
here. They have increase in regulation all over the world, so
if you take their regulatory costs as a whole, they have gone
up massively, but I think they just see that as the cost of doing
- Mark Garnier: I just
want to get an idea of how expensive the cost of regulation is.
Would you have any idea of what percentage of a bank's overheads
are relevant to regulation, compared with everything else?
No, but I can try and get a figure for you on that.
Chair: Would you? We would
be very interested.
What I will say is this: that in the US, a typical
bankand I had this conversation the other day, actuallydeals
not with two or three or four, but with 27 different regulators
and supervisory authorities, if you include all the exchanges.
So they have the CFTC, the SEC, the Fed and the New York Stock
Exchange, and so on. I won't go through the list, but there are
27, and the figure is bigger here. Of course, a typical European
bank has to deal with regulators all over Europe, of which there
are a greater or lesser number in different countries. So the
proportion of the UK part of the regulation in all thisand
I am not saying it is not insignificant, of course it's very significantin
the context of all the regulators that they have to deal with
for an international bank, I'm not sure is that significant.
- Mark Garnier: The
gold standard we would be looking for, though, would ultimately
befollowing on from what you were just sayinga very
comprehensive, efficient, but simple regulator: one regulator,
one set of contacts, one department that is doing it, that covers
everything without duplication or having to pick up 27 different
telephone lines to go and talk to someone.
Yes, that would be nice, but I think the issue the banks have
hereand I don't know whether I should go this routeis
combining that with monetary policy. As you know very well, our
Central Bank is going to be by far and away the most powerful
central bank in the civilised worldmaybe not; I don't know
how China operates. Certainly in this country, it will be easily
the most powerful, because it combines monetary policy with regulation.
So in France and in Germany, monetary policy is done by the European
Central Bank but here, it's done by them.
Now there is an issue of accountability here. To
fire a central bank governor who is independent and responsible
for monetary policy, you can do it, but it has a significant impact
on sterling, possibly, or on the view of the international markets
on the UK's standing. On the other hand, he also has a supervisory
role now, so the question I think is: how do you hold him accountable
for that supervisory role? Can you fire him without damaging his
position as head of the monetary authority? I don't know how that's
- Mark Garnier: You're
opening a fascinating avenue of debate, which I am tempted to
follow with the Chairman's permission.
Chair: We are running
up against time, so perhaps if you have further thoughts on it,
you can come back to us.
I'll raise the questions. I don't have the answers, but it's an
important question which is not answered
Chair: It is fascinating,
I agree. It is curious that we've moved from having one of the
weakest central banks in the world, just over a decade ago, to
having the strongest.
- John Cryer: The competition
in the banking sector, or the lack of it, has been one of the
greatest controversies in the last few years. Do you think any
of the new bodies should have responsibility for promoting competition
in banking and finance?
Yes, I think they should have responsibility for growth and competitiveness,
which includes competition, as well as for financial stability
and prudence, and they don't, as far as I know. By the way, I
think the individual who is worried about pension funding, or
savings or mortgage instruments, would benefit from the banks
he goes to being supervised in that way, so that they're not just
supervised from a prudential stability point of view, but they're
also supervised from the point of view of are they providing the
right range of instruments in a simple form to their constituency?
- John Cryer: Do you
think if the proposed bodies are purely going to look at what
instruments they provide[Interruption.]
Sorry, could you start that again? That's fine, thank you. Sorry.
John Cryer: Is that a
spacecraft going off?
Chair: We still have tea
trolleys in the House of Commons.
John Cryer: Yes, we do.
Yes, we like things like that.
If the proposed bodies are purely concerned with
the instruments, then will that be sufficient to promote competition,
or does it have to go further than that?
I haven't seen papers that address this properly. All I have seen
are papers that address the financial prudence and stability issues.
I haven't seen papers that address the role of these bodies in,
say, growth and competitiveness. I don't think I've seen anything
that suggests that they do this. Maybe I haven't read all the
papers properly but, for instance, just to take it at a very crude
level, the Federal Reserve Bank in the US is responsible for growth
as well as for financial supervision. The Bank of England absolutely
is not. Now, the question is, as a result of this new structure,
do you change that? Do you then spread it beyond economic growth
responsibilities, to at least take them into consideration, to
competitiveness, take that into consideration, and how far do
you go down the competition and competitiveness route?
- John Cryer: How would
you go down that route?
I would go down that route. Given the huge remit that this organisation
has now, you could have a serious mismatch between an organisation
that is totally focused on financial prudence and the impact on
economic growth, competitiveness and the range of products that
are being provided to the consumer.
- John Cryer: How would
you promote competitiveness? It might not be in any of the papers,
but how would you do it if you had a free hand?
Well, I thinkthis is a long questionif you would
prefer, I will try and do a written submission on that. What I'm
saying is you should develop criteria to do that. I'm not personally
expert enough to tell you off the top of my head what those criteria
should be, but I'm saying that, in addition to financial prudence,
there should be criteria on economic growth, competitiveness and
John Cryer: I think we'd
all be interested to see that, wouldn't we?
Chair: Very much so.
- John Cryer: I'll tell
you what springs to mind, and this is relevant. When Northern
Rock was rescued, the EU rules meant that the Government had a
responsibility to make it less competitive. That was the bottom
line. It had to be made less competitive. At the same time, Alistair
Darling, while having to make it less competitive according to
EU rules, of course had to try and make it a going concern. Now,
when you have rules applied like that, it seems to me that is
just round the bend. So, I can't see us going down that sort of
I like the first part of your question, if you see what I mean,
and I would think that we'd have to look very closely at how we
could encourage these things. I think a narrow remit for these
bodies is not a good idea. I don't think in the end it would produce
the environment you want, and I'm not even sure it would de-risk
things, because if you look at financial prudence too narrowly,
you don't necessarily end up de-risking everything.
- John Cryer: Do you
think British banks are now too big to fail?
Well, too big to fail is interesting. Was Northern Rock too big
John Cryer: Apparently.
Yes. So the answer is "yes".
- John Cryer: Yes, and
do you think that is a good thing?
No. I mean, I think it's an interesting question, because when
people talk about "too big to fail", they're talking
about the big banks, and when they talk about SIFI I've
forgotten, it's an acronym basically for the big banksSystemically
Important to Financial Institutions, I think it stands for. When
we look at SIFIs, we're talking about 50 or 60 banks globally.
But effectively, Northern Rock was a SIFI, because it was considered
important enough for the Government to step in and rescue the
whole thing. So you wouldn't have said that was a systemically
important bank, but it turned out to be very much in the UK interest
to rescue it.
- John Cryer: I think
it was too big to fail, and I think that the Government was right,
but the last time there was a run on a bank was, as you probably
know, was Overend, Gurney in 1866. That was allowed to just go
down the tubes. Now, that could not happen today. It simply couldn't
When you see queues round the block of branches on television,
it becomes too big to fail.
- Mr Mudie: Yes, I was
interested in what you said about the bank pay, the bonuses and
so on, because I have thought since we started this, that whatever
position we took on regulation, in all its aspects, we may have
to roll back when we see what our competitors are doing, and you've
mentioned American terms of bonuses and even central banks. What
other areas do you think we may have to roll back on, in terms
of stances we've taken so far?
Mr Mudie: No, on general
dealing with the crisis and changing the regulatory structure.
I think we have to look very much at the detail I was talking
about earlier, about how we're represented on the European bodies.
What I didn't say, of course, is that I think we've done a poor
job in making sure that we have the right people in the Commission
and on these new bodies, and I have evidence for that. In fact,
I brought the figures with me. Just to give you a crude example,
Britain has 2.9% of the people who work in the European Commission,
Italy has 6.1%, Spain has 3.8% and Germany has 4.6%. More worryingly,
if you look at the grades of people coming inin other words,
the new blood that is coming inwe're the lowest by far.
We're roughly equivalent to Lithuania in the number of people
now coming into the Commission from the UK. The result of this
is we don't have the right people in position there. I don't think
we've done a good job on this and I think we have to sharpen up
our act. That's not in any of the papers that I've seen.
- Mr Mudie: On that,
when you were speaking about that first, you said you had set
up this group in Paris, and they worked out a strategy, of which
this was one particular point which you raised. Is this strategy
in writing and are there other areas listed?
Sorry, I didn't understand the strategy one.
Mr Mudie: You were speaking
about how well the French had prepared for it in Paris, and you
said they had a strategy; you raised one point and expanded on
one point. That wasn't the only one point in the strategy, was
Oh, I see. Well, if you want a letter with more examples, I'm
happy to give them.
Mr Mudie: That would be
very helpful, thank you.
Chair: Thank you very
much for coming before us today. You've been asked to provide
a lot of further written information, but it's such a vast area,
I hope you understand those demands.
Of course. We do it with pleasure.
Chair: We're very grateful.
Thank you very much indeed.