Banking Reform

Part of Business of the House – in the House of Commons at 12:54 pm on 14th June 2012.

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Photo of Edward Balls Edward Balls Shadow Chancellor of the Exchequer 12:54 pm, 14th June 2012

Let me begin by thanking the Minister for notice of today’s Treasury statement on the vital issue of banking reform. The reforms are so important that—we read in the newspapers—they are to be the subject of the Chancellor’s Mansion House speech tonight.

The Minister said the statement was serious, and I am sure Opposition Members and Government Members will all be thinking: “Why is the Chancellor not making it?” Should I call him the part-time Chancellor? He was able to spend the afternoon on the Government Bench yesterday to support the embattled Secretary of State for Culture, Olympics, Media and Sport, but he is seemingly unwilling, despite media trails, to come to the House today. What is the Chancellor running scared of? Is he too busy this week on his other duties to be the Chancellor, or is the truth that he is ducking answering the questions because—once again—he is not on top of the details of his brief?

There are questions to answer. Last September, the Opposition welcomed the report by Sir John Vickers and the Independent Commission on Banking, which sets out radically to reshape our banking industry. We urged the Government to implement the reforms without foot-dragging or watering them down, but I fear that watering down is where we are heading. Is not the truth that, having failed to secure international agreement in Brussels and Basel on tougher international banking standards, the Chancellor is now being forced to water down and fudge the Vickers reforms?

That is one area in which the Opposition would not welcome a U-turn from the Chancellor. The Minister will say in his response that I am wrong, and that there is no U-turn, just as Ministers said we were wrong to spot U-turns on pasties, caravans, churches, charities and skips, but a pattern is emerging with this Chancellor. He declares, “This Chancellor is not for turning,” and then sends along a hapless junior Minister to do the job for him. We can ask the Exchequer Secretary all about that.

If the Chancellor is not watering down Vickers, why will he not agree to the Opposition’s request to ask the Vickers commission to come back this autumn and publish an independent report on progress in implementing its reforms in the past 12 months? The Chancellor could publish that report alongside the autumn statement, when he will have to come to the House to explain why his failing economic plan has plunged our economy back into recession. That is one area where a U-turn would be warmly welcome.

On progress against the three tests for banking reform, first, to protect taxpayers, the Opposition support the Vickers conclusion that banking services should be safeguarded and ring-fenced. In November 2006, the Minister told the House that

“light-touch…regulation is in the interests of the” financial

“sector globally.”—[Official Report, 28 November 2006; Vol. 453, c. 995.]

May I ask this champion of light-touch regulation to explain why, contrary to Vickers, it is right to allow retail banks inside the ring fence to trade in derivatives and hedging products, which are among the controversial interest rate swap products that many small firms complain they were mis-sold in recent years? I have said many times that the previous Government got bank regulation wrong. Those on the Government Front Bench also got it wrong, but they are getting it wrong again. The Chancellor should be careful about leaving the door too wide open.

The Opposition agree with the Vickers view that we need a minimum leverage ratio and higher equity requirements for larger ring-fenced banks, but will the Minister confirm that the Chancellor is setting a lower minimum leverage ratio than the Vickers commission recommended, and that he is departing from the recommendation that larger banks should have tougher rules?

The Chancellor implied in December that he would mandate those services specifically within the ring fence to provide clarity and certainty. Can the Minister explain why the Chancellor is now delegating that detailed task to the Bank of England—the regulator—and not putting it in primary legislation? Will the Chancellor—or, on his behalf, the Minister—commit to inserting in the Bill the requirement that large UK retail banks should have equity capital of at least 10%? Is not the real problem that the Chancellor is not in the driving seat on this agenda?

That takes me to our second test, on international agreements. In December, I asked the Chancellor whether he was confident that he would get the necessary international and EU-wide agreements to implement Vickers. The answer is that he has not succeeded in delivering that. The Chancellor himself said at last month’s ECOFIN, when he refused to agree to an EU statement on capital requirements, that they would

“make me look like an idiot”— a muttering idiot perhaps! Two weeks later, though, he signed up to exactly the same deal. The problem is that there remains the risk that he will be overruled by the EU.

There is a wider problem. We agree with the Chancellor that the UK should not contribute to a eurozone-wide deposit insurance scheme, but the Commission’s proposals go much wider and are said to be intended to apply to the 27. The Chancellor gives the impression that he has a veto on the plans, so that they would apply only to the 17. Will the Minister tell us, then, whether the proposals for Europe-wide banking supervision will be subject to qualified majority voting under existing treaties, and will he tell us how the Chancellor is doing building alliances across the EU to ensure that British interests are properly protected and that Vickers is implemented?

That brings me to my final test: the impact on growth and the wider economy.