My Lords, I, too, thank the noble Lord, Lord Myners, for this debate, which is unusually timely for your Lordships' House. This is a vital subject and the debate has already taken on a rather academic air. The noble Lord, Lord Myners, appears to give the Vickers report a beta plus query plus, the noble Lord, Lord Griffiths, definitely has it in the alpha category-alpha alpha minus. I am somewhere in-between; I am a beta-alpha man on Vickers in that I think that it is an excellently argued case, but I do not think that it is a full answer to the problems that the British Government have been grappling with since 2007-08 of what on earth to do about the banks.
I had a little personal knowledge of this when I was helping as an adviser to the noble Lord, Lord Mandelson, when he came back into the Government in the middle of the crisis in 2008. In that crisis, the Government had very clear objectives: to save the banking system from collapse and to save the world from falling over the precipice into another worldwide great depression. I think that over the succeeding six months the Labour Government-the Prime Minister, Gordon Brown, and the Chancellor, Alistair Darling, ably advised by the noble Lord, Lord Davies of Abersoch, and the noble Lord, Lord Myners, with their great banking experience-handled this task very well, with the policies of recapitalisation and economic and international co-ordination. For all the froth of memoirs that one reads-on the whole, I am in favour of people telling the truth in their memoirs-I think that this will go down as a proud historical legacy for that Government. Indeed, if I can engage in one note of party politics, I only wish the present Government would show the same urgency and commitment to international leadership in the present parlous situation-they are clearly not doing that at the moment.
The Labour Government faced the conflict immediately after the crisis of, on the one hand, wanting to sustain lending to business when the banks wanted to strengthen their balance sheets, and, on the other, wanting to restore the banks' profitability so that the taxpayer could get a return on the vast billions that had had to be injected into them to shore up their finances. An attempt was made to resolve that unresolved tension through the lending agreements, and under the present Government we have had Project Merlin. I am not satisfied that that has worked and I do not know that there is any answer to those problems in the Vickers report. However, the clear problem that happened after 2008 which was not resolved under the Labour Government was that, having rescued the banks, we had created a moral hazard for the future, which, I suppose, is why Mervyn King was so reluctant to get involved in the first place.
"Too big to fail", once we accept the argument, results in an implicit taxpayer guarantee and taxpayer subsidy. This is a very real issue: I got very frightened by the substance of this issue when I read an excellent paper-Banking on the State-a couple of years ago by Andrew Haldane, who collaborates with the noble Lord, Lord May. It really frightened me and I think, as a social democrat, that the British welfare state would find it very difficult to withstand another major banking crisis on the kind of scale we have seen. We have to find some effective solution to this problem and I think Vickers, with his proposals for separation, goes in the right direction. My doubts about it are over the effectiveness of the ring-fence and the obvious fact that structural reform is not, in itself, a complete answer to the problem. After all, the Labour Government ended up having to nationalise Northern Rock, which was not a universal bank, and Lehman Brothers, which was not a universal bank either, collapsed yet everyone now thinks that it was a great mistake not to rescue it. The problems are complex and Vickers goes some way towards resolving them.
What it does not resolve, to my mind, is the key problem of access to finance for industry. I think we are going to need much more public intervention in banking in future and that this is bound to happen as a result of the higher capital adequacy ratios that we are inevitably going to impose on the banks as an insurance policy. This is a crucial issue for access to finance for innovative SMEs, which are our future if we are to rebalance our economy. It is also a crucial issue for mortgage lending and will lead to great social inequality and stress if the current rules on mortgage lending stay in place. I think that we are going to have to have public/private interventions to try to deal with these problems-possibly a national investment bank, along the lines of what Roosevelt did in the housing market in the 1930s with Fannie Mae and Freddie Mac in the United States. We should not address these problems simply by structural change.
The other point that I will make in conclusion is that these are long-term reforms. I am in favour of getting on with them: I am not in favour of a long and protracted process. They are long-term reforms, but we face a very immediate crisis. There is a real possibility of a second banking crisis as a result of what is happening in the eurozone. The British Government ought to be showing more leadership on this issue. It seems that all our Chancellor of the Exchequer is doing, while throwing out interesting ideas about the need for fiscal union, is using the eurozone as a distraction from Britain's problems, and at the same time dangling before Eurosceptics on the Conservative Benches the possibility of fundamental change in our relationship with the European Union. This is far too serious for that kind of playing about. As my noble friend Lord Myners said, we need, urgently, a plan for the recapitalisation of European banks. As the noble Lord, Lord Griffiths, said, we are affected by this because of cross-border impacts. We cannot say that because we are not in the eurozone it does not affect us. We are deeply affected and I would like the Government to urge that on our partners. So yes, let us move ahead with Vickers-but let us also address other fundamental issues that are important to our future.