My Lords, I congratulate the noble Lord, Lord Myners, on initiating such a timely debate. Indeed, it is so timely that some of us have been struggling to read every last word of the Vickers report before we drafted our speeches. Indeed, some may have failed to do so.
It is also a great pleasure to follow the noble Lord, Lord Lawson, who, at Second Reading of the Banking Bill last year made the most powerful case I have yet heard for splitting retail banking from wholesale and investment banking. When he did so-and I supported him-the mood was very different from that of today. Those who argued for a complete split or for a firewall were in a small minority. There were some noble exceptions, including the noble Lord, Lord Blackwell, and the noble Baroness, Lady Ford. Indeed, the mood of the time was admirably captured by the noble Lord, Lord Myners, who said:
"I should say to the noble Lord, Lord Newby, that the separation was not something that I and the Government reject because we believe that it cannot be done. We believe that it can be done but do not believe that it is necessary that it should be done".-[Hansard, 10/3/10; col. 282.]
In the same debate the noble Baroness, Lady Noakes, said:
"My own party does not have a definitive view on the right way forward in terms of structure"-[Hansard, 10/3/10; col. 279.]- of the banks. I am very pleased that the Conservative Party now has a definitive view.
Why then has this mood changed whereby we now have a near consensus for at least what Vickers is proposing? It is partly because over the past 18 months there has been a growing realisation of the advantages of making such a change. For example, I have been struck by the comments of Sajid Javid, a Conservative MP in another place, who was an investment banker on Wall Street when Glass-Steagall was in place and remained an investor as it came off. He described in words of one syllable how the banking in which he worked started to behave much more riskily with the funds available. It is a very compelling argument.
It has also become even clearer that if anyone had hopes that the banks would mend their ways, those hopes were forlorn. There have been a number of examples of that, including the continuing unwillingness to lend to many small firms on reasonable terms, and the continuing payment of huge salaries and even bigger bonuses. Like the heart attack patient who continues to have a daily full English breakfast, the banks have gone back to business as usual.
If there is now almost total agreement on the desirability of separation, what are the concerns and pitfalls? Clearly, cost is not an issue. Although it is easy to mock the cost estimates that have been produced, nobody is mocking their order of magnitude. If the order of magnitude of cost is £4 billion to £7 billion, the fact that broadly speaking that equates to the bonuses that bankers pay themselves each year gives some sense of how difficult that is likely to be, particularly against the estimated annual cost of another banking crisis of £40 billion. I suspect that we will hear no more, even from the BBA, about the cost of the proposals.
The next question is: how can we be sure that it works? The noble Lords, Lord Myners and Lord Lawson, expressed concerns about the efficacy of the proposals. How do we know that we will get what we want? Some people were particularly concerned to read in the papers yesterday that Bob Diamond says that Barclays can live with the proposals. I must say that that was not a reassuring comment.
However, a number of aspects of the proposals, if implemented, should give us at least some confidence that they may be effective. No doubt other noble Lords, like me, will have had a wry smile when it was suggested that the basis on which many of the risk principles should be applied should be that currently used under building society legislation, given that it is the demutualisation of the building societies that has led to some of the problems with which we now find ourselves. However, that legislation, that framework, is tough and it would be very sensible to use it.
I take the point that independent boards have their limits, but they are better than nothing. The principle that the ring-fenced bank and the other entities in the same group should operate no more favourably than third-party relationships is sensible. It is also sensible that the ring-fenced bank should meet its regulatory requirements on a stand-alone basis.
The other factor that will be crucial in implementing the proposals effectively is the way in which the new PRA operates. Surely, if that new organisation is to be worried about anything in its reputation, it will be that it manages to regulate the newly divided banks effectively.
What about the timetable for implementation? Vickers said that,
"Early resolution of policy uncertainty would be best".
Despite the Government's support of the principles of Vickers, the only way we get the ending of uncertainty is by early legislation. Here I disagree with the noble Lord, Lord Lawson. We will shortly have before Parliament the financial services Bill. It is fit for purpose in implementing Vickers. That should be possible because, I suspect, much of the detail of implementing Vickers will be not for primary legislation but for secondary legislation, and even more for the rulebook which the PRA will draw up. My very strong preference is to use that Bill as an enabling Bill for the legislation that is required to implement the principal proposals in Vickers. I very much hope that that will be the Government's working assumption in the advice and guidance that they give to parliamentary counsel. I see no reason in principle or practice why a separate Bill would be more desirable.
How quickly should this be implemented? Vickers says by 2019 at the latest- not, incidentally, before 2019. Like other noble Lords, I think that that is too long. I cannot believe that it is necessary, given the work that is needed in the banks to do it. I think they would probably prefer to get on with it now that the die is cast.
Secondly, we must remember why we are doing this. We are doing this to protect the country against another banking crisis. Although I am an optimist by nature, I am not 100 per cent certain that we will not have another banking crisis before 2019.
Vickers talks about other aspects of banking which I do not have time to deal with today. In my view, the Vickers proposals are a necessary part of making the banks the servants of their customers and the country rather than their masters.