My Lords, this is not a very satisfactory Bill for a variety of reasons, as many noble Lords have said. It bears all the hallmarks of a hasty, knee-jerk piece of legislation, motivated by a sense of the need to do something. In that way, it is similar to the Dangerous Dogs Act and will probably have as little practical effect as that did. The noble Lord, Lord Saatchi, among others, shares my scepticism. As my noble friend Lord Newby remarked, the opportunity has been missed for viewing the banking crisis in the round and for careful reflection prior to legislative action. That is why the Bill should be subject to a sunset clause.
One problem with the Bill is that, in attempting to rationalise the regulation of the banking system, it merely tries, as many noble Lords have said, to formalise the existing interrelationships between the trio of regulators: the Treasury, the FSA and the Bank of England. The question is whether this will be any more effective than the more informal set of relationships that previously existed. The elaborate network of roles and processes outlined in the Bill is overcomplicated and verges on the Byzantine. Would they have prevented a Madoff crisis in the UK? I very much doubt it.
The collapse of Northern Rock and its subsequent nationalisation, and the later need to pile masses of public funds into the banking system more generally, were primarily caused by the incompetence and greed of directors and senior managers of the banks concerned, as the noble Lord, Lord Peston, has remarked. How far this amounted to fraudulent behaviour in certain cases is still to be determined. As the implications of the extent of the crisis sink in, there will undoubtedly be widespread public demand that any wrongdoing is revealed and the perpetrators punished. In this respect, the US authorities are proving a good deal more active than their UK counterparts. The shysters must be punished, as—somewhat belatedly—David Cameron agreed yesterday.
The other cause of the crisis was the failure of the trio of regulators to discern what was happening and to take appropriate and timely action. As the noble Lord, Lord Bilimoria, and many other noble Lords have said, both the Treasury and, in particular, the FSA were found wanting, while the Bank of England's oversight powers had been removed a decade earlier. That is why the noble Lord, Lord Bilimoria, wants to see the Bank's pre-1997 position restored, which I heartily endorse. Because of its earlier standing and reputation, the Bank should be recognised as the lead agent of regulation, rather than a mere partner in a triumvirate. That would help to restore confidence in the system, as the noble Lord, Lord Smith of Kelvin, stressed.
I emphasise, as many other noble Lords have done, confidence rather than trust in this context, following the work of my noble friend Lord Plant of Highfield. He has pointed out that public trust in many areas of life, not least the financial services, has broken down. In any case, that approach was appropriate to a more naive and deferential age. These days, the public want to have confidence in the workings of the private and public institutions. That is what is clearly lacking in the banks. As was said in the course of the peace process in Northern Ireland, confidence-building measures are prerequisites for progress to be made. I say to the noble Lord, Lord Peston, that I, too, have had PhD students. Here I declare an interest. Following the analysis of the noble Lord, Lord Plant, Professor Andrew Massey, my former PhD student, and his co-author William Hutton, a former banker, stressed in a recent CIPFA publication the need for competence in building confidence. Clearly, competence has been at a heavy discount in the banking world of late.
In the debate on the Queen's Speech last Monday, I drew attention to the need to improve standards of corporate governance generally, but particularly in the financial services sector, and to the related issue of achieving a far better gender balance on the boards of public companies. I specifically asked whether the Government would use the Banking Bill as an opportunity to impose a Norwegian-type requirement that 40 per cent of directors should be women. The Minister did not reply to me and has not so far written to me, despite his undertaking. His silence speaks volumes. We now know where the Government effectively stand on the question of gender equality. I invite the Minister to address this issue in winding up, although I am not holding my breath.
Another major defect of the Bill is that it does too little to improve corporate governance more generally. Effective regulation from the top is only one part of the solution. The other, and much more important, aspect is to try to influence the individual and corporate behaviour of main board directors. That is difficult but it must be attempted. A number of actions can be taken to improve the situation. As I said last week, the function of internal audit must be strengthened. Secondly, external auditors must be more aware that they are reporting to shareholders. As I wrote in the foreword to the fourth edition of Professor Andrew Chambers's authoritative compendium on corporate governance, one of the problems is the near-monopoly of the big four accountancy firms of the external auditing market, which is deleterious in itself because it makes for a far too cosy and complacent culture.
What I believe would really help is the creation by the Government of a standing conference on corporate governance and business ethics to monitor regularly trade and industry practices and to make recommendations for improvement. Such a body would comprise representatives from the four chartered accountancy bodies, the Law Society, the CBI, the TUC, the Institute of Directors, the Serious Fraud Office and the deans of the main business schools. It should also contain a large element of investor representation. A main function of such a body would be to recommend syllabus changes in professional and postgraduate business training to improve professional competence. Apart from making practical proposals, the body would, in its formation, signal the seriousness with which the Government regard the necessity for better corporate governance. Pace the noble Lord, Lord Bilimoria, I suggest that its motto might be not "Back to basics" but "Forward to basics".
It may be said that this Bill should be confined solely to the matter of regulation, but that will not wash as an excuse. This Government have made a practice of devising vast portmanteau Bills incorporating disparate provisions. Regulation from above must be complemented by better corporate governance from below and this Bill should be amended to secure that. Bailing out the banking system with unprecedented sums from the Exchequer—and more may yet be needed, as noble Lords have pointed out—gives a wholly different meaning to public-private partnerships. Both in the magnitude of the sums involved and the risk being assumed by the Government on behalf of taxpayers, the benefits have been privatised and the costs nationalised, in the words of Dr Vince Cable. For that reason alone, every effort must be made to minimise opportunities for further fraud and illegality so that we have a more transparent, ethically professional and accountable UK banking system.