My Lords, I am delighted to participate in this debate and would like to thank my noble friend Lord Myners for securing it. I draw attention to my registered interest. I am a director of NBNK Investments, which is one of the companies looking to acquire banks.
One of the South Sea bubble stocks was entitled “A company for carrying out an undertaking of great advantage, but nobody to know what it is”. The evidence that I heard as chairman of the Treasury Select Committee over the years convinced me that, 400 years on from 1620, quite a lot of banking philosophy and practice was characterised by that. Essentially, privatisation of profits and socialisation of losses must give way to a more democratically functioning market system, which is more aware of its wider social responsibilities.
I am aware that we will never be able to eliminate risk in future financial crises, but taxpayers should not be required to come to the rescue again. Vickers is very clear:
“The risks … associated with banking have to sit somewhere, and it should not be with taxpayers”.
That is why structural change is essential to make UK banking more resilient. In that vein, I welcome Vickers, but I am very much aware that there are issues that the report will not tackle. For example, it will not tackle the issue of too big to fail or the issue of cross-border resolution, particularly in Europe at the moment, but it has taken a stab at it.
The characteristics of the financial crisis were, quite simply, complexity, extreme risk-taking and lack of corporate governance. Those characterised quite large parts of the industry. Vickers provides a blueprint not only for a national debate but for an international debate. I have described it as a game changer. But what is the game? There is still a lot to fill in. Is it, as Philip Stephens said in the Financial Times this week, a victory to the “bankers’ shop steward” Bob Diamond, whom he compared with Bob Crow in his appreciation of fine wine and food, or is it a real game changer? The core issue is the ring-fence. Is the ring-fence an impervious wall, or is it one with multiple gateways that are easily passable? That is the issue for us as politicians and policy-makers.
As my noble friend Lord Myners said, 2019 is an awfully long time away, and if we park this even for a year or two in Parliament, it will lose its potency. We currently have a Draft Financial Services Bill before us, and I would suggest that, after talking informally to regulators such as the Bank of England, the issues are so complex that we need to get on with it and put some of the elements into that draft Bill. If we are to have a Bill on its own, there has to be a commitment from the Front Bench that, in the next Queen’s Speech, there will be a financial Bill taking this on. We need clarity on that point for politicians and for the industry.
On the issue of the objectives of the new bodies, which we are discussing upstairs in respect of that Bill at the moment, such as whether competition should be the primary objective of the financial conduct authority, I think that those issues can all be reduced. I think the primary objective of all these bodies should be to have a fair and transparent market for financial services, which will lead to confidence. Do not say that you have to establish confidence without the ingredients for confidence. The transparency of the market is very important. To change that, we need to tackle the culture of the market. I think that if Vickers missed anything, it was looking at the issue of culture and governance.
I happen to be a member of the Future of Banking Commission, which I established along with David Davis, a former shadow Home Secretary, Vince Cable, who is now Business Secretary, Clare Spottiswoode, Roger Bootle and others. Surprisingly, one of our advisers was Father Christopher Jamison, the former abbot of Worth, because we wanted a wider concept of society in terms of the culture and philosophy of banking, and that proved to be very important. One of our witnesses was the noble Lord, Lord Green, when he was chairman of HSBC. He said:
“‘It is as if, too often, people had given up asking whether something was the right thing to do, and focused only on whether it was legal and complied with the rules”.
In that report, which we did pro bono, we suggested a code of conduct for the banking industry and a new professional industrial body along the lines of the General Medical Council or the Legal Services Board. If individuals in banking engage in misconduct, they would be struck off. I think that if banking wants to be seen as professional, it has to step up to the plate on that issue.
During our inquiry, we looked at the issue of culture and ethics, culture being behaviour and ethics being how to negotiate conflicts of interest. We got a very interesting from Goldman Sachs, whose ethics code states:
“Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives”.
Hear, hear to that; but ominously, there was a rider, which said that from time to time, the firm may waive certain procedures of the code. However, we do not want an opt-out. It is for us as legislators to look at such fine words to see what they mean and to put them under a microscope and ask “What will that mean in practice?”. It is only culture and behaviour that will change the financial services industry in the long term. My plea is that companies that are presently looking at their business models as a result of Vickers should incorporate that issue of culture and ethics.
But behind Vickers, we need to ask the question of what it will do for jobs and growth. That is the shadow that is overhanging us at the moment. The prosperity of society is behind all this. I remind noble Lords that economic prosperity and social stability go hand in hand, and if we forget this, we may get one but we will damage the other and damage society at the same time. We cannot afford to do that.