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Tuesday Volume 505 2 February 2010 No. 35 HOUSE OF COMMONS OFFICIAL REPORT PARLIAMENTARY DEBATES (HANSARD) Tuesday 2 February 2010 £5·00 © Parliamentary Copyright House of Commons 2010 This publication may be reproduced under the terms of the Parliamentary Click-Use Licence, available online through the Office of Public Sector Information website at www.opsi.gov.uk/click-use/ Enquiries to the Office of Public Sector Information, Kew, Richmond, Surrey TW9 4DU; e-mail: [email protected] 147 2 FEBRUARY 2010 148 Mr. Darling: I agree with the hon. Gentleman that House of Commons global agreement on the reforms that we need is highly desirable. The proposals that the United States made 10 days ago, the requirements for increased capital, Tuesday 2 February 2010 where necessary, to ensure that the amount of capital held is commensurate with the risk undertaken, and the The House met at half-past Two o’clock measures to take forward the work on resolution plans— living wills, if you like—are all very important. They represent a common objective. For the reasons that I PRAYERS explained earlier, I do not take the same view of the proposal that might come from the United States on breaking up large banks. The real problem is the [MR.SPEAKER in the Chair] interconnectivity of institutions, and we need reforms on that. However, I certainly agree with the hon. Gentleman that, importantly, regulation in Europe and in the United States should move forward together, and that is one of Oral Answers to Questions the things that I shall raise at the G7 Ministers’ meeting in Canada this weekend. Ms Dari Taylor (Stockton, South) (Lab): Is it not the TREASURY case that banks that mainly handle hedge funds are seen by many as casino banks? Is it not time that we looked at that world of hedge funds and separated their activity The Chancellor of the Exchequer was asked— in banking terms from that of banks that handle everyday mortgage and saving—that is domestic—needs? Financial Sector Mr. Darling: I do not think that the division that my hon. Friend provides is quite as simple as that. Hedge 1. Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): funds can perform a useful function, but it is important What steps he is taking to protect the economy from to ensure that, when banks engage in risky activity, they the effects of excessive risk-taking in the financial have sufficient capital behind them if things go wrong. sector. [314428] That is why we are very happy to work with some of the proposals from the United States and, indeed, other The Chancellor of the Exchequer (Mr. Alistair Darling): parts of the world. Most people recognise that the Reform is necessary at domestic, European and situation is quite complex, and I see that the Opposition international level to ensure that we have a regulatory have now shifted their position from warmly embracing system that can effectively monitor and, where necessary, the break-up of banks to an assurance, which the curb risk-taking in the financial services sector. shadow Chancellor gave to bankers at the weekend in Davos, that they would not do any such thing. Linda Gilroy: I thank my right hon. Friend for that reply. On the use of regulatory tools, has he noticed that Dr. Vincent Cable (Twickenham) (LD): The Chancellor commentators increasingly suggest that a more equal and I have agreed to differ on the Government’s rejection society is a more effective and efficient society? Will he of the Governor of the Bank of England’s advice on use those tools to bear down on the very high incomes breaking up those banks, but now that the President of that we still see particularly in the banking sector? the United States has made the case that proprietary and, indeed, wider, own-account trading by banks is Mr. Darling: I agree with my hon. Friend that it is dangerous and must be separated from traditional banking, important that we have a fair and just society; that we do the Government not wish to rethink their position ensure that, when people are rewarded, they are rewarded at all? for their effort; and, in the banking industry in particular, that the relationship between what somebody does and Mr. Darling: Interestingly, if one looks at Paul Volcker’s what they get should be better aligned. That is why we proposals, which he made as part of his Group of received the agreement of the G20 countries and imposed Thirty proposals a year ago, one finds that he recognised restrictions on what the banks in which we have that proprietary trading could be risky and recommended shareholdings can do. I hope that over the next short that greater capital be held against such risky activities. period, banks in this country and others remember that We have expressed that view before, and the issue clearly they live in the same world as the rest of us. They ought needs to be looked at. However, we must also bear in to show restraint at a time when everybody else is mind that most British banks do not engage in that having to pull in their belts. much proprietary trading, and it certainly was not the root cause of the recent problems. Sir Peter Tapsell (Louth and Horncastle) (Con): As I say to the hon. Gentleman, as I have said to him the measures already announced by the British and before, that traditionally the regulatory system was European Governments are widely seen as being inadequate modelled on the basis that if one firm was all right, the “to stop the second shoe falling”, will the Chancellor do entire system was all right. Over the past 18 months or his best to persuade the Financial Stability Board and so, however, we have seen that we have to look behind the European Central Bank to embrace as many as that, because risks were laid off to institutions, which possible of the proposals in the Volcker plan, so that we laid them off to further institutions. In some cases, we can have genuinely international bank reform? found that the first firm that had attempted to lay off its 149 Oral Answers2 FEBRUARY 2010 Oral Answers 150 risk was buying it back through another part of the with a complex set of proposals. On the day that the empire, without having any idea of what it was doing. President made his announcement, according to Robert The interconnections of financial institutions are the Peston—[HON.MEMBERS: “Ah!”] Well, I am sure that he problem, and that is why the hon. Gentleman’s proposals is right on this. Robert Peston said that the shadow do not fit the bill. In fact, he is rather like a general Chancellor had told him fighting the last war rather than taking account of “explicitly…that a Tory government would impose an identical where we are likely to be in the future. dismantling of British banks to those suggested by President Obama.” Dr. Cable: The Chancellor says that this is not the Yet on 28 January, in The Wall Street Journal, the hon. basic cause of the problems within the UK system. Is it Gentleman said: not true, however, that there were enormous losses “I fully understand that modern universal banks need to offer within the Royal Bank of Scotland, for example, as their customers investment banking services”— well as within the mortgage lenders? Is not the real in other words, a complete climbdown from the position reason why the Government—and, for that matter, the that he had adopted only seven days earlier. Conservatives—are not willing to go down this route the fact that they have been persuaded by the City, for Mr. Osborne: Let me make this clear to the Chancellor its own self-interested reasons, to adopt this position of of the Exchequer. I agree wholeheartedly with the President a level playing field? Whereas the Government took the of the United States that large-scale proprietary trading world lead in the bank rescue operation, they are now should not sit alongside retail deposit taking. If I were lagging behind the rest of the world in dealing with this in the Chancellor’s job, I would be trying to work on very dangerous problem. that internationally instead of opposing it. Mr. Darling: No, I do not accept that. If the hon. May I ask the Chancellor about something else that Gentleman reflects on what has happened since 2007, the President proposed in that speech? He said that he he will see that the problems were partly to do with wanted a bank levy; and, of course, the Swedish liquidity.For example, Northern Rock was totally dependent Government have proposed a forward-looking insurance on wholesale funding, and when that dried up, the bank levy. At the Finance Ministers’ meeting, the Prime effectively collapsed. However, the other problem was Minister floated the idea of a Tobin tax, but the Governor that too many firms, such as RBS, clearly did not of the Bank of England told the Treasury Committee: understand the extent to which they were exposed, and “I don’t know anyone on the international circuit who is because of that they got into difficulties. That was a enthusiastic about it”. feature of many of the banks that failed. We need, first, Given that the Governor talks to the Chancellor a lot, to ensure that we have adequate capital that stands presumably the Chancellor is included among those behind the banks’ activities, and that that capital is who are not enthusiastic about it.