My Lords, I am sorry that the noble Lord, Lord Eatwell, has not yet had a chance to read the very detailed White Paper because, when he does, he will see that a lot of his detailed questions have been addressed.
I find it disappointing that the noble Lord comes here and takes such a picky attitude towards this fundamentally important reform being introduced by the Government. The previous Government had two years in which to act on the collapse of Northern Rock and then on the failures of RBS and Lloyds and did absolutely nothing about them. Did it not occur to them that there might be a problem with the structure of banking in this country? It seems not. For two years, they sat on their hands, asked no questions and did nothing. When this Government came into office, we established within weeks the Independent Commission on Banking under the chairmanship of Sir John Vickers. It has come up with a very fine report to government. We have considered it very carefully and have published our final response today. What we have before us is one of the most radical reforms of banking that I suggest the world has ever seen.
Why have we done that? We have done that because we face in this country something which my right honourable friend the Chancellor has characterised as the British dilemma: how do we continue to host a world-class financial services sector, a sector in which our banks are able to go out to compete vigorously, as they do, around the world with the best and biggest that the rest of the world has, without putting the UK taxpayer at excessive risk? That is what is encapsulated by our response to the Vickers commission, a response that picks up the essence of what Vickers recommended but which interprets it in a way that is appropriate, flexible, forward-looking and balances those key interests of ensuring that we have a world-class but safe banking system.
The noble Lord, Lord Eatwell, talked about risk-taking in the financial markets. The critical thing is that we want to make sure that the parts of the banks within the ring-fence, the parts of the banks in which the savings of the men, women and children of this country go, are properly ring-fenced and protected-the parts of the banks which service the SMEs of this country. We want to ensure that there is not inappropriate risk-taking within that ring-fence. The noble Lord asked how that is to be monitored. It is not for Her Majesty's Treasury to monitor it; it will be up to the Financial Policy Committee to look at the system as a whole-as it already is in interim form-and it will be for the Prudential Regulation Authority, under the Bank of England, to supervise individual firms in future.
The noble Lord then talked about curbs on growth. That area is very important, because the flow of credit must go on, particularly at this time of challenge in the economy. That is precisely one reason why Sir John Vickers and the commission recommended that the implementation of the recommendations should be concluded by 2019, a recommendation that we have accepted. The numbers are set out in the document, but I suggest that the costs of implementation over that period and beyond on a running basis are very modest in relation to both the cost of the banking crisis over which the previous Government presided and the size of the UK economy.
The noble Lord then referred to the flow of funds in from Crown dependencies. He is clearly an expert on this subject. I believe that he is on the regulatory body of the States of Jersey. I am aware, as he is, that significant deposits flow from that and other Crown dependencies into the UK wholesale markets. That plays an important part of the funding of the wholesale markets and should continue.
The noble Lord, Lord Eatwell, then asked: what compels a saver to deposit his or her money in a ring-fenced bank? The fact is that 87%, or thereabouts, of deposits in the banking system at the moment are within banks that will be subject to the ring-fence. It is highly implausible to suggest that it would be wrong to protect 90% of the deposits of the British public but not to say that there are other places that are not ring-fenced that are accessible. What the noble Lord presents is not a realistic picture. Sir John Vickers and his commission raised the question of a de minimis limit and we set a limit that the ring-fence should not operate for banks with deposits below £25 billion. I suggest to the noble Lord that one thing on which we might agree is that we need more diversity, more competition, and more new entrants in the banking sector. It is entirely appropriate, we believe, that the ring-fence should operate for only the biggest of our banks-those which account for some 90% of deposits.
The noble Lord then asked a number of technical questions about the way that the ring-fence will operate. I refer him to the details in the White Paper. If he has further questions that it does not answer, I would of course be happy to write on any supplementary questions that he may put, but there is a very full analysis there.
As to the capital ratios proposed here, the noble Lord talked about the Government proposing them but of course what analysis there was underpinning them was all the ICB's analysis. The Government have done one thing in this area today, which is to put out a 3% rather than a 4% ratio against total unweighted assets. That is to create a level playing field with what is proposed in Europe. We want this measure to be not a front-stop but a back-stop, in line with what the ICB proposed, and we want to make sure that our banks have every opportunity to compete on a level playing field.
The noble Lord then asked whether we should ask the ICB to return to the operation of the ring-fence, by keeping it under review and coming back to it one year after it comes into operation. Given that the implementation date is set by Sir John Vickers at 2019 it might be a little unreasonable to Sir John and his commission, who have done tremendous work on this, to keep them on the hook until 2020, or later, to ask them to come back to these issues. I am sure that there will be other ways of looking at the impact of these measures in due course.
Lastly, the noble Lord asked whether we should put these measures into one Bill with those in the Financial Services Bill, which is already before your Lordships' House. This is to misunderstand the different nature of what is being addressed here. On the one hand, the Financial Services Bill deals with the structure of regulation and, on the other, the measures that we are talking about today relate to the structure of banking. I accept of course that the two things taken together are the measures that, combined, will make sure that this country has a world-class financial services sector and will not put UK taxpayers excessively at risk. However, they are two sets of distinct measures. Your Lordships will now have them in front of you so that you can read across from one to another but any suggestion of delaying the legislative process, which the noble Lord and others have constantly urged us to get on with, would be wholly inappropriate.