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We strongly believe that an artificial division between simple and complex banks is simply unworkable. There is no sign anywhere in the world of any Government or regulator moving in that direction. Where there is scale and complexity, we need to ensure that there is competent management, effective regulation, adequate capital and high-quality liquidity. As a consequence of that, our large and complex banks such as HSBC and Standard Chartered will continue to be a source of great national pride and economic contribution.
Lord Lea of Crondall: My Lords, I would like to ask a couple of questions that arise from the Statement, which I welcome. First, does my noble friend agree that it is quite extraordinary to hear the representative on earth in this House of the financial services industry-namely, the Front-Bench spokesman for the Conservative Party-say that everything that has happened was the Government's fault and that nothing was the fault of the accountants or of anybody in the financial services industry? Given the Conservatives' approach to this matter, some of us conclude that they are all living on a different planet. Only a year ago, the accountancy profession signed off the accounts of all the major banks and said that they were fine-in other words, "It's nothing to do with me, guv"-yet there are serious questions about the cosy relationship with the banks and all the fat fees that the accountants sitting over there get from them. I was very pleased to hear my noble friend say that the accountancy profession would be looked at. Secondly, even if it were not the case that the financial services industry-
Lord Lea of Crondall: My Lords, we are now in the sixth minute. I am emulating the speech of the noble Lord, Lord Lawson. Secondly, the question arises of the relationship between this country and the rest of the European Union. Does my noble friend also agree that, far from France and Germany stitching things up against our interests, as the noble Baroness, Lady Noakes, said, and far from their resenting the City of London, the truth is that this country has been very reluctant to accept what has now been accepted for the first time, which is that Britain needs to stand alongside France and Germany as regards European regulation? We now have a body chaired by the European Central Bank to do that. Does my noble friend further agree that the different planet that is being lived on by noble Lords in other parts of this House cannot last?
Lord Myners: My Lords, I read with interest the Oral Question on auditors. I am sorry that I could not be in the House then, as I was being cross-examined by the Treasury Select Committee. During that cross-
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The clear and primary culpability for the problems that the banking industry faces lies with the boards of directors, management and shareholders of banks; of that I have no doubt. Regulatory deficiencies across the world and shortcomings in supervision will need to be addressed and will lead to improvement, as will enhanced macroprudential supervision, but the core of the problem lies with the management and boards of directors of the banks. I think that we will find that Sir David Walker has some very interesting proposals in that respect.
Like my noble friend, I found myself believing that the party opposite was living on a different planet as regards some of the comments that were made. I find it quite extraordinary that it appears to want to foist on the Bank of England responsibilities and a role that the Bank is not seeking. The governor has at no point indicated that he wants to have microsupervisory responsibility for banks, building societies and systemic institutions.
Finally, I endorse many of the comments that were made in this House yesterday on the responsibility that the accounting profession, in its accounting principles, must accept and respond to in respect of its part in this global financial crisis. The accounting system, through mark to market, contributed in part to the crisis.
Lord Stewartby: My Lords, will the Government ensure that as much emphasis is given to looking at the problems in supervision as to looking at those in regulation? In the Chancellor's Statement, there was barely a passing reference to supervision, yet that, from an authority's point of view, is where the trouble started. We do not yet have any account of how things developed so badly and the whole arrangement for supervision seems to have gone off the rails in this area. Can it seriously be the case that, when banks and others were stuffing their balance sheets with high-risk assets, the supervisors simply failed to notice? I find that difficult to accept, yet it happened across the board. Before you can put things right, you need to know how they went wrong. I hope that some investigation of the specific failings of the supervisory system can be carried out as a matter of priority.
Lord Myners: My Lords, the noble Lord, Lord Stewartby, brings a considerable degree of relevant experience to this subject and the House always listens to his views with great interest. I draw his attention to the Turner report, which, coming after the audit of the FSA's supervision of Northern Rock, built up a strong case for strengthening supervision. That, in particular, is captured by the FSA's enhanced supervision programme. Shortcomings in supervision were apparent here, as in other countries, but there has been a step change. The FSA is talking about being more intrusive and about close and continuous supervision. It is talking about a more strategic engagement with supervised bodies than was previously the case. We have seen that issue being addressed.
Lord Woolmer of Leeds: My Lords, does my noble friend welcome the fact that the noble Baroness, Lady Noakes, on the opposite side, did not on this occasion commit the Conservatives to splitting up major banks into investment and retail banks? Such actions could only be a threat to the position of London and the importance of the major institutions. Does he agree that, up to March, there had been 46 bail-outs of banks-I am sure that since then there has been an increase-across the European Union in 16 countries, with central banks and financial regulators in charge? It is absolutely bogus to make the case that this is an issue of the central bank versus other methods of supervision. Finally, does my noble friend agree that the Bank of England and those advocating the involvement of the Bank in detailed microfinancial supervision of a very complex and ever changing financial system will eventually come to regret that course of action?
Lord Myners: My Lords, I agree with much that has been said by my noble friend. I repeat that I have seen nothing to suggest that the Bank of England believes that it is the right body to carry out microsupervision of building societies, banks and systemically important institutions. What the governor has been very clear about is that, to deliver the Bank's responsibilities for systemic financial stability, he needs access to information and the ability to influence outcomes. The council for financial stability and the proposals that we are making for improving the capture and delivery of information to the supervisory and regulatory bodies will address those concerns.
That seems very similar to the remarks made in the Statement. Can the noble Lord explain those two things? Who will be in charge at the end of all this-Her Majesty's Government or the powers of Brussels?
Lord Myners: My Lords, the letter from the Leader of the House to which the noble Lord, Lord Pearson, refers is entirely consistent with the views expressed by my right honourable friend. Responsibility for the supervision of UK banks will remain vested with the Financial Services Authority. However, we cannot be isolated on an island. We need to acknowledge the reality of a global financial system and a global financial market, in which we have a strong interest in improved regulation and supervision of banks worldwide, because our banks and our companies transact business with
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Lord Higgins: My Lords, how can we have any confidence whatever in grandiose statements about regulatory authorities being held to account in the future when the Government, and the Treasury in particular, over the years have resisted attempts to make them responsible for their failure of regulation with regard to Equitable Life, despite the recommendations of various committees and the ombudsman? While that remains a blot on the record of the Government, how can we expect that they will act responsibly in the future?
Lord Myners: My Lords, the Government made a clear statement of apology for certain actions taken in connection with Equitable Life by various Governments, including those before 1997. We have established a facility under a judge to take forward necessary payments consequent on the ombudsman's report. Actions are being taken to address this issue and that will continue to inspire confidence in the Government's commitment to good regulation.
Lord Myners: My Lords, the noble and learned Lord asks a very interesting question. First, capital is a core component of banking strategy because it absorbs loss and protects the interests of depositors. A feature of my right honourable friend's Statement yesterday, which was not raised earlier either in this House or in the other place, is the intention that in future capital requirements should be much more sensitive to the risks of individual banking institutions. To put it simply, we will not have a one-size-fits-all approach, and banks with substantial investment banking proprietary trading and casino-like activities will need to carry more capital against those risks. That capital will provide support and confidence for depositors and, as a result of that, funding. Strongly capitalised banks will be able to support the borrowing requirements of their customers. Therefore, I believe that a strongly capitalised banking system is entirely consistent with the proper and correct extension of credit at a sensible price to meet the needs of customers.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bach): My Lords, government Amendment 1 has been tabled in response to concerns expressed by the Electoral Commission that commissioners with recent political experience should be selected by open competition. Although the Government fully subscribe to the principles of open competition, we believe that it is important to retain a role for leaders of political parties in the appointments process for these commissioners. Party leaders are well placed to judge those who have the relevant skills and experience to contribute positively to the Electoral Commission's work.
Having said that, I believe that there is now cross-party consensus that there should be some element of competition in the appointments process for nominated commissioners. In view of this, Amendment 1 seeks to amend Clause 5 on the selection process for nominated commissioners. The amendment would require the leaders of the three largest qualifying parties in Westminster each to nominate three candidates for consideration for appointment as a nominated commissioner, rather than to put forward at least a single candidate each, as the Bill currently requires.
The amendment is intended to introduce a degree of competition into the process for appointing nominated commissioners. The Political Parties and Elections Bill provides that four persons with recent political experience can be appointed as electoral commissioners. The persons must be nominated by the leader of a qualifying political party-that is, a party with two or more Members of Parliament belonging to it. Of these four nominated commissioners, the Bill provides that there will be one from each of the three largest nominating parties and one from another qualifying party. The Speaker's Committee, which appoints all commissioners, will be responsible for running the process and making the appointments, which will first be approved by all the main party leaders and will finally be approved by Parliament.
The nomination of three persons each by the leaders of the three largest qualifying parties and one person from the qualifying smaller parties will ensure that there is a pool of candidates from which the Speaker's Committee can select four successful people on merit-one from each of the three largest nominating parties and one from a smaller party.
Lord Bates: My Lords, I welcome the amendment but I have one or two questions for clarification. The Minister referred to the conversations that he had had with the Electoral Commission but I wondered whether he had had any conversations with the Speaker's Committee or whether he can say what view the committee has expressed on this. Clearly, the amendment will impose an additional responsibility on the Speaker's Committee, in that the committee will adjudicate on which of the three candidates put forward is the most suitable. Given that some of the candidates put forward will, by their very nature, be senior people in public life or former senior members of political parties-and perhaps even Members of your Lordships' House-what
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Lord Rennard: My Lords, I welcome these amendments to Clause 5, which seem to be pragmatic and sensible. It is quite some time since some of us argued that there was a need for a minority of the commission members to have hands-on political experience to facilitate the effective working of the commission, and of course we now feel somewhat vindicated on this issue.
At earlier stages, my noble friend Lord Tyler and I argued that party leaders making nominations should have regard to the need for diversity in the appointment of commissioners. However, I must admit that when we looked at our own amendment, we thought that it would be somewhat difficult if the party leaders were not themselves willing to consider jointly how to address this issue of diverse representation when they made only one nomination each for membership of the commission. Therefore, the suggestion that each of the leaders of the three main parties should make three nominations is very sensible. It will help to ensure that the commission continues to have a diverse membership, and I hope that the Speaker's Committee will ensure that there is a proper and professional process for appointing political candidates from among those nominated. They should have regard to the need for the composition of the commission to be balanced and effective. I hope that in the first instance the party leaders will refrain from considering nominations simply on the basis of seeking to reward long-standing supporters in the belief that they must have some sort of grandee status. Under the process, commissioners should be found with real hands-on experience of winning election campaigns, the nominations process and the election expense rules, and a good working knowledge of election law should be required to add significant value to the commission's work.
Finally, I hope that all those concerned will recognise that there cannot be two levels of commissioner. Appointments may be made by different processes but there should be no question of a different status at different meetings for existing members and politically appointed members of the commission. I believe that the amendment will strengthen the valuable work of the commission and fulfil more of the hopes of those who feel that the body is very necessary in the attempt to modernise and clean up our electoral processes.
Lord Steel of Aikwood: My Lords, before the Minister replies, perhaps I may say how grateful we are that he clearly paid much attention in bringing forward these last-minute amendments. We congratulate the Government on that.
To pursue the point made by my noble friend Lord Rennard, given that the commission will now have more political representatives, we hope that they will pay a little more attention to what was said in this
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Lord Bach: My Lords, I am very grateful for the support from around the House, and particularly from the Front Benches, for these amendments. I have very little to add. The Speaker's Committee is content, and the new Speaker in another place has written confirming the committee's agreement to the amendment.
I take on board the noble Lord's point about protecting the dignity of those who may not be successful. As I understand it, the position concerning transparency-which I think is what his question was about to some extent-will be up to the Speaker's Committee. The names will be put forward to the committee and will not necessarily be made public unless the committee determines that nominations should be made publicly transparent. I think that we can remain fairly confident that those who make up the Speaker's Committee, from the Speaker himself onwards, are experienced and skilful enough to ensure that embarrassment is not caused.
I am grateful to the noble Lord, Lord Rennard, and thank him for his comments. I certainly praise him for his consistency on this issue over what is now almost a decade-a long time in politics indeed. I think that the position we have reached today is one that is generally accepted. I also thank the noble Lord, Lord Steel. I had not forgotten what he said in the debate we had. We will very much keep under review and treat seriously the matters that he raises.
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