My Lords, I should like to comment briefly on two contributions this evening that should not be left unanswered or uncommented on. One was a contribution from the noble Lord, Lord Higgins, which I shall come to in a moment. The other was the recent remarks of the noble Lord, Lord Forsyth. He said that it was obviously absurd that the European Union should fix the level of retail deposit insurance. This is an important matter for financial stability. I put it to the noble Lord that there are extremely good reasons why there should not be a free for all in retail deposit insurance, and he should think about them carefully.
There are two such reasons. One is that if there is a free for all, there is a great temptation for individual states to compete by increasing the level of their guarantee, thereby attracting deposits from neighbouring states—or, as they would see it, competitive states. That is extremely dangerous because it leads to transferring risk from the banking system to a sovereign Government and when taken beyond a certain point, as happened dramatically in the case of Ireland just a few years ago, can produce a crisis of confidence in the credit rating of the sovereign state itself. That would be very foolish.
The other thing that it does is to introduce a moral hazard, when depositors find that in certain countries they face the chance of getting such a large level of guarantee on their deposit from the local sovereign state that they do not have to pay any attention at all to whom they are banking or placing their deposits with. That goes for sophisticated investors who are depositing hundreds of thousands, or millions, of dollars, pounds or euros. That sort of moral hazard is extremely dangerous and leads to lazy banking, and to banks being able to get away without satisfying their depositors that they are solidly and solvently managed—an extremely damaging thing for the stability of the financial system. I give way to the noble Lord, Lord Forsyth, who I hope will take my comments seriously because they are genuinely important.