Lords Grand Committee
Wednesday 8th July 2026
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Speaker 1
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Speaker 1
Our policy is how do we design against delusion in 25 years time?The classic problem for human institutions and for the design of our regulatory structures. And when we have another, this time it's different. This time we're cleverer than the previous generation. Another quote. Financial crises don't often happen immediately, one after another. There tends to be a lag, while those people who learnt lessons move out of the industry in. An. Opting for the ring, fencing, the PCBs warned of the future pressures to weaken the separation.
These pressures will include the siren voices of those who contend that structural separation, as implemented, represents a barrier to financial innovation and growth. That's a press, I think, a prescient indeed. Now, Baroness Neville-rolfe, in a previous committee day, said that I look too much to the past, and memory I accept is inconvenient. But the amendments that are coming today from Baroness Neville-rolfe and her colleagues are coming from a party that perhaps, with the exception of Nigel Lawson, never accepted its responsibility for light touch regulation, never expected its responsibility for the culture of hubris and for the casino mentality was indeed quite heralded.
That, and led to the crisis in 2008. I still hear little sympathy, frankly, from those benches for the ordinary people who bore the consequences. While most of the banking community, and I don't want to denigrate the banking community, there are many good people. But that banking community walked away largely untouched and with the rewards of those activities that led to the crisis. With those personal rewards still in their pockets now respecting the positives of the financial sector always has to sit with the recognition that so much money can be made from just a bending or an adjustment of the rules, that guardrails are a necessity.
As I listened to the proposals in this group, I realized that growth has become an excuse and resolution has become a cover for eliminating the ring fence and essentially eliminating the precautionary principle. Resolution for systemic banks is not just untested, but. And I was thankful to Lord Tunnicliffe for quoting for my second reading speech. It has a poisonous side effect for others in the financial sector, notably the insurance and pension funds that hold. In this case, most of the bail in bonds.
Merrill. And of course, for their customers in 2023. The fifth, the Swiss financial regulator, Finma. And I suppose I was reminded about this in a way by Baroness Lalla, who talked about the Swiss being so secure that the Swiss financial regulator saved the equity holders of Credit Suisse Suisse, a collapsing bank in. Order to rescue it, but wiped out the bondholders, an issue that is still in litigation and has cost the Swiss very dearly in their bond issuances. Finma took its decision on the grounds that any other action would have undermined financial stability.
It was so conscious of the contagion that comes when you activate a resolution procedure. Well, the Bank of England has said it would not hesitate to activate resolution procedures and wipe out both equity and bond holders. I find very few people in the industry that actually believe the bank in those kinds of statements, and I think no one should look with equanimity at the idea that we allow a bank to fail and be rescued only through the extreme activities of resolution, rather than looking at the precautionary principle.
Yesterday, the ground shifted even more, and Lord Tunnicliffe again referred to a report. Financial Stability Report, July 2026 from the Bank of England. That's. I haven't had time to read it thoroughly. I've only done a first read, and frankly, it's schizophrenic. The first half of the report and others have raised. This issue is chilling in its assessment of increased risk. That's a Lord, Lord, Lord Faulks, that's a raised some of these questions that a private credit the Iran war and AI and especially of these crises, Crystallising.
At the same time. But the second half of the report explains policy decisions to weaken the regulatory capital buffers for banks, that regulatory system that everyone has been talking about here, or several people have spoken of here as being the reason why it's possible to remove the ring fence that was weakened. Yes. In yesterday's publication, the reasoning appears to be that regulators overseas are weakening their buffers and for international competitive reasons, we should too. Now, last Sunday, the Sunday Times ran a piece in anticipation of this change.
It entitled it Bank Set to Relax Capital Rules for lenders. Again and. My reaction to the report is mirrored by the quote from Sir John Vickers in that times article in which he cautions against reducing capital requirements. And he says at a time when risk has plainly gone up, it would not seem sense to dial down insurance. So, my Lords, the bank, I suspect encouraged by Treasury, is weakening the resolution system.
These pressures will include the siren voices of those who contend that structural separation, as implemented, represents a barrier to financial innovation and growth. That's a press, I think, a prescient indeed. Now, Baroness Neville-rolfe, in a previous committee day, said that I look too much to the past, and memory I accept is inconvenient. But the amendments that are coming today from Baroness Neville-rolfe and her colleagues are coming from a party that perhaps, with the exception of Nigel Lawson, never accepted its responsibility for light touch regulation, never expected its responsibility for the culture of hubris and for the casino mentality was indeed quite heralded.
That, and led to the crisis in 2008. I still hear little sympathy, frankly, from those benches for the ordinary people who bore the consequences. While most of the banking community, and I don't want to denigrate the banking community, there are many good people. But that banking community walked away largely untouched and with the rewards of those activities that led to the crisis. With those personal rewards still in their pockets now respecting the positives of the financial sector always has to sit with the recognition that so much money can be made from just a bending or an adjustment of the rules, that guardrails are a necessity.
As I listened to the proposals in this group, I realized that growth has become an excuse and resolution has become a cover for eliminating the ring fence and essentially eliminating the precautionary principle. Resolution for systemic banks is not just untested, but. And I was thankful to Lord Tunnicliffe for quoting for my second reading speech. It has a poisonous side effect for others in the financial sector, notably the insurance and pension funds that hold. In this case, most of the bail in bonds.
Merrill. And of course, for their customers in 2023. The fifth, the Swiss financial regulator, Finma. And I suppose I was reminded about this in a way by Baroness Lalla, who talked about the Swiss being so secure that the Swiss financial regulator saved the equity holders of Credit Suisse Suisse, a collapsing bank in. Order to rescue it, but wiped out the bondholders, an issue that is still in litigation and has cost the Swiss very dearly in their bond issuances. Finma took its decision on the grounds that any other action would have undermined financial stability.
It was so conscious of the contagion that comes when you activate a resolution procedure. Well, the Bank of England has said it would not hesitate to activate resolution procedures and wipe out both equity and bond holders. I find very few people in the industry that actually believe the bank in those kinds of statements, and I think no one should look with equanimity at the idea that we allow a bank to fail and be rescued only through the extreme activities of resolution, rather than looking at the precautionary principle.
Yesterday, the ground shifted even more, and Lord Tunnicliffe again referred to a report. Financial Stability Report, July 2026 from the Bank of England. That's. I haven't had time to read it thoroughly. I've only done a first read, and frankly, it's schizophrenic. The first half of the report and others have raised. This issue is chilling in its assessment of increased risk. That's a Lord, Lord, Lord Faulks, that's a raised some of these questions that a private credit the Iran war and AI and especially of these crises, Crystallising.
At the same time. But the second half of the report explains policy decisions to weaken the regulatory capital buffers for banks, that regulatory system that everyone has been talking about here, or several people have spoken of here as being the reason why it's possible to remove the ring fence that was weakened. Yes. In yesterday's publication, the reasoning appears to be that regulators overseas are weakening their buffers and for international competitive reasons, we should too. Now, last Sunday, the Sunday Times ran a piece in anticipation of this change.
It entitled it Bank Set to Relax Capital Rules for lenders. Again and. My reaction to the report is mirrored by the quote from Sir John Vickers in that times article in which he cautions against reducing capital requirements. And he says at a time when risk has plainly gone up, it would not seem sense to dial down insurance. So, my Lords, the bank, I suspect encouraged by Treasury, is weakening the resolution system.