My Lords, I rise with some trepidation to give my maiden speech, particularly in this debate introduced so ably by the most reverend Primate the Archbishop of Canterbury. First, I wish to declare my interest as a non-executive director and deputy chairman of a bank, as declared in the register of interests, but I shall return to that later. No, the reason for my trepidation is that it is a bit cheeky to intervene in a debate on a detailed and comprehensive report which I had no part in preparing. My only justification is that, when not being a politician, and indeed sometimes when trying unsuccessfully to be a politician, I earned my living as a banking practitioner.
First, I would like to thank my sponsors, my noble friends Lord Trefgarne and Lord Patten, each of whom has been hugely kind to me both now and over many years. Since I took my place in your Lordships’ House, they have given me invaluable advice, some of which I have taken. My mistakes and blunders, however, are my own, although I am delighted to give them the credit for anything I might have got right.
I would also like to thank the staff who look after your Lordships’ House so well. Black Rod and his staff and the Clerk of the Parliaments and his staff have been hugely friendly and willing to answer even the silliest of questions with good humour and patience.
As some of your Lordships may know, I spent some years in the other place. As has been said many times before, the contrast between the Chamber down the Corridor and here could not be greater and is almost universally in your Lordships’ favour. Noble Lords on all sides of your Lordships’ House, who I knew as sparring partners and controversialists before they came to the Elysian fields, have been mellowed by the transformation and have treated me with friendship and kindness. Your Lordships will understand that I found this at first a confusing contrast with past attitudes but a huge and welcome relief.
One of the other joys in this place is the Chamber itself. Although the Chamber in the other place is a delight, the Luftwaffe removed much of its history. Your Lordships are fortunate to have a Chamber where it is still possible to see the ghosts of our great predecessors—perhaps Lord Beaconsfield sitting impassively, watching events cynically through his monocle, or the great third Marquis of Salisbury making one of his many speeches in favour of social reform with his back turned firmly towards the Woolsack, the better to address the Press Gallery.
As I mentioned earlier, I am deputy chairman of Gatehouse Bank. It is a small and very specialised institution. It is a Sharia-compliant bank, providing services that are often called Islamic banking. Its client base is Muslims who wish to live their lives and conduct their business affairs in accordance with the precepts of their religion. We expect our staff, a mix of Muslims and non-Muslims, to act in a highly ethical way. We are also forbidden by the Sharia from entering into some of the more complex hedging instruments which caused such devastation to conventional banks.
Banking has gone through traumas. One of the puzzles is what went wrong and why. We understand the trajectory that has brought us where we are. We will be able to see how we get back on to a better path. The excellent report of the Parliamentary Commission on Banking Standards highlights many problems and provides many remedies. I want to look at only two.
The first is the role that regulation played in the banking crisis. The regulators did not, of course, cause the banking crisis but neither did they prevent it. I am a regulated person and have some first-hand experience of the excellence, as well as the limitations, of the old FSA. Part of the problem is that they took the understandable approach of developing a detailed rule book, which led to what my honourable friend Andrew Tyrie, the Member of Parliament for Chichester, has referred to as the box-ticking culture.
The problem with a rule book is that, if an action is not specifically forbidden by the rules, it is assumed to be allowed. Banks employ very clever people, often recruited from the regulator itself, who did and do ensure that the banks’ unacceptable risk-taking rarely breaks the rules. So I am delighted that the new regulator, the PRA, is taking the view that it has rules but that it also has opinions and will rely on what it calls a “judgement-based, forward-looking supervision”—which I think and hope means that if, in the opinion of the PRA, something a bank is doing is unacceptable, even though it is not forbidden, it must stop. This is the way the old Bank of England banking supervision regime used to work when I first started my career in the City. It may be the only way to regulate banks, which are ever changing and innovating. Unless a regulator can say, “What you are doing may not be illegal, but I will not allow you to do it”, another banking disaster will sooner or later occur.
The second issue I want to comment on is the culture of the banks. The culture of payment by results and of large bonuses dependent on doing deals leads to all sorts of unintended consequences such as short-termism and disguised risk-taking. Other than for staff who took short-term risks, such as money market and foreign exchange traders, it was only in the late 1980s that bonuses in banks became substantial multiples of base salary. I accept that deferring bonuses is a way of curbing these disasters in waiting, but in reality the motivation of employees to take unacceptable risks will be removed only if the long-term risk-takers are paid through salary rather than bonus.
This is an excellent report, but we are on a long path to resolve the issues in banking. Ultimately, it will require international agreement, which will be hard to achieve. My last thought is that, whatever we do here in the UK, we must ensure that London—and the UK generally—retains its place as one of the three global banking centres. Our country’s tax receipts and hundreds of thousands of jobs depend upon it, so whatever changes we propose in the future must make London the centre most trusted in the financial sector and not give less scrupulous financial centres an opportunity to take away jobs from the UK.