Independent Commission on Banking — Question

– in the House of Lords at 2:36 pm on 28th February 2011.

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Photo of Baroness Kramer Baroness Kramer Liberal Democrat 2:36 pm, 28th February 2011

To ask Her Majesty's Government what assessment they have made of the progress of the Independent Commission on Banking.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, the Government set up the Independent Commission on Banking to consider reforms to the banking sector. We welcome the progress that the commission has made and look forward to receiving its report in September.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat

Does my noble friend agree that strengthened regulation supervision and stronger capital requirements are welcome but that neither of them deals with the underlying structural problems of "too big to fail" or "too interconnected to fail"? Will he commit the Government to act on any recommendations from the ICB for reform in this area, even if it means splitting the banks or ring-fencing activities with functional subsidiarity?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

I certainly agree with my noble friend that there were two areas that the Government needed to address urgently resulting from the failure of the previous system of regulation and the over-leveraging of our banks. The first one on which we have brought forward proposals is the system of regulation, although I completely agree with my noble friend that that is not sufficient, which is why we set up the independent commission to look into the structure of banking. I am certainly not going to pre-empt either the conclusions that it comes to in its final report or the Government's response, but I am greatly encouraged by the papers that it put out and by the recent lecture by Sir John Vickers, which indicate that the commission is tackling all the major issues and stimulating a vigorous debate.

Photo of Lord Myners Lord Myners Labour

My Lords, in light of the agreement on Project Merlin, do the Government now regard bank bonus practices and numbers as acceptable?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, this afternoon we are talking about the Independent Commission on Banking. Questions of pay structures have not been set by the Government as part of the commission's remit and it is sticking to a series of other questions.

Photo of Lord Lawson of Blaby Lord Lawson of Blaby Conservative

My Lords, I congratulate the Government on having set up this independent commission, which must produce the right result. I agree with the remarks of my noble friend Lady Kramer, and the speech of Sir John Vickers the other day very much echoed the identification of those problems. I hope that we can get international agreement but does my noble friend agree that it is important to do the right thing even if we cannot get that agreement?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, I certainly agree with my noble friend. He has been thinking about these things for many years and I very much value his thoughts on them. I absolutely agree that the UK wants to do the right thing, but the remit that the commission has been given also reflects the international and global contexts, of which we have to be mindful. I wait with interest to see what the commission says and repeat that I do not want in any way to prejudge its thinking.

Photo of Lord Eatwell Lord Eatwell Shadow Spokesperson (Treasury)

My Lords, the Statement that the Chancellor of the Exchequer made on bankers' bonuses contained a peculiar sentence about the Independent Commission on Banking. It said:

"I should make it very clear that nothing that I will say today about the settlement that we have reached with Britain's banks ... in any way prejudges the outcome of the commission".-[Hansard, Commons, 9/2/2011; col.310.]

What was peculiar about this sentence was that he was answering a question that nobody had asked. Will the noble Lord confirm that in recent weeks there have been threats of resignation from the commission if its remit is in any way constrained?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, I am attacked one week for not answering questions that have been asked, and now my right honourable friend is being queried as to why he answers questions that he has not been asked. He wanted to make it absolutely clear, which he did in the Statement on Project Merlin, that nothing there pre-empted or in any way cut across the independent remit of the banking commission. I think the position remains clear.

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, does the Minister agree that one of the issues that the Vickers Commission is looking at is how to reduce risk within the banking sector and risk taken by individual institutions? In light of that, do the Government support the decision by Northern Rock to increase the proportion of loan-to-value on mortgages to 90 per cent, which many people see as the first step towards a return to the bad old days?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, I agree with my noble friend that risk and the stability of the system go the heart of the remit of the commission. However, the individual product sets which are offered by individual banks is at the moment a matter for the Financial Services Authority, and I am sure that it will be taking its responsibilities very seriously in relation to the business models and products of all the banks it regulates.

Photo of Lord Barnett Lord Barnett Labour

My Lords, whatever the final recommendations of the commission, what work has the Treasury done with regards to splitting? Would it be helpful to the certain sale of our shareholdings? If it turns out to be bad, will the Minister be acting, as the noble Baroness asked, on a potential splitting?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, there are a lot of hypothetical questions bound up in this. We will not see what the commission is proposing until September and then it will be up to the Government, in light of all the circumstances, to decide what to do with its recommendations. I can confirm that the separation of retail and investment banking is one item which goes to the heart of the remit of the commission.

Photo of Lord Tomlinson Lord Tomlinson Labour

As the noble Lord has now had plenty of time to reflect on the question that he was asked by my noble friend Lord Eatwell, will he now, as there seems to be plenty of time, get around to answering it?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

I see the clock is advancing because of the length of that question. I gave the answer I wanted to give.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

Are not 90 per cent mortgages dangerous in conditions where the property market might decline by 20 per cent?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, it is up to the banks to decide what products they offer. They have to do that within a set of rules that are set down by the regulators. It is not for me to comment on either the business model of an individual bank or the regulation and supervision of the regulators on this point.