Banking Reform

Part of Backbench Business — [11th allotted day] – in the House of Commons at 6:20 pm on 29 November 2010.

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Photo of Mel Stride Mel Stride Conservative, Central Devon 6:20, 29 November 2010

That is precisely my point. If we speed up the rate at which the banks have to recapitalise, there is a real danger that we will choke off the supply of lending. There is an argument that lending is not just about supply, but about demand. Companies are not taking up many existing bank overdraft facilities, so it is conceivable that there is an issue with demand, as well as with supply.

We have heard a great deal about the importance of united global action. In an internationally competitive world, there is such a thing as regulatory arbitrage. If one jurisdiction adopts a particularly light approach to regulation, vast sums of money can flow in that direction. However, as the Chancellor of the Exchequer has pointed out, our country needs to retain flexibility to reflect the particular conditions in our banking markets.

I agree with many of the comments on the importance of transparency in corporate pay, and in particular bonuses. I accept that because banks can ultimately turn to the state and the taxpayer for support, we have a right to take an interest in that matter and to see that fair dealing prevails. However, I concur with Sir David Walker's recommendation that we should act in a united way globally so that we do not disadvantage countries that might move on their own.

We have heard very little about taxation on banks. I congratulate the Government on being the first to introduce a permanent tax on banks. However, the arguments about taking out capital that banks might otherwise lend also pertain to that measure. We want the banks to lend more, but the picture is not clear as to why they are not lending, as I alluded to in response to my hon. Friend Matthew Hancock. It may not be just a lack of supply owing to recapitalisation and a greater aversion to risk among the banks, but to do with a lack of demand among companies, many of which are focusing on paying down debt, rather than taking on more.

My hon. Friend Joseph Johnson and John Mann mentioned competition. This country has a highly concentrated banking sector and it became more concentrated after the financial crisis, when some foreign lenders withdrew and some banks amalgamated. Lloyds and RBS make up 50% of lending to the retail, mortgage and small and medium-sized enterprises sectors. That is a huge degree of concentration. There are high barriers to entry to banking, not least the very regulation that we are discussing. Over the past century, the only new high street bank, disregarding demutualisations, has been Metro Bank, which was created last year. On the other hand, Australia and Canada have highly concentrated banking sectors and seem to have been spared the worst of the financial crisis.

I welcome the Government's approach to Basel III and their setting up of the Financial Policy Committee, along with its oversight role in relation to the Bank of England and the Financial Services Authority. I particularly welcome the setting up of the Independent Commission on Banking under Sir John Vickers, which has been welcomed broadly by business, including in a recent speech by Richard Lambert, the director general of the CBI. I welcome some of the approaches that the Government are taking to encourage equity finance to increase above the current level of 1 or 2%.

I fear that stalking the perimeters of the debate on the Government side and perhaps at the heart of the debate on the Opposition side is the idea of bashing bankers and of revenge. Mr Umunna, who I think is no longer in the Chamber, denied that that was what he said. However, when he was speaking, I jotted down his reference to bankers being "to blame". That is the kind of populism that we must get away from; emotionalism must not triumph over the rational when we consider such issues.

This is a highly important sector in which we have a world-leading position and we must retain that. Protectionism, trade imbalances and exchange rates are threats, but I argue that we must not lose momentum on banking reform, particularly in countries that have not been as swept up in the crisis as we have, for what has bitten us may yet come round to bite them.