Banking: National Savings & Investments

Debate between Baroness Kramer and Lord Peston

Wednesday 5th December 2012 Lords Chamber

[Lord Peston]

My Lords—

[Baroness Kramer]

My Lords—

Financial Services Bill

Debate between Baroness Kramer and Lord Peston

Wednesday 18th July 2012 Lords Chamber

[Baroness Kramer]

My Lords, I shall speak to Amendment 110ZC, which stands in this group in my name and that of my noble friend Lord Sharkey. I thank the noble Baroness, Lady Hayter, for her kind words. This amendment illustrates why I and, I suspect, this House and the other place had a preference for a parliamentary committee, which will report by the end of the year, over a judicial committee which will report in a couple of years, because the issue addressed in it would certainly have been resolved one way or the other by that point and, I suspect, with damaging effect. I hope that the Government will respond to the amendment by telling me that it is completely unnecessary, but it arises out of deep concern following various newspaper reports that have discussed the size of the liability that may fall on the banks involved in LIBOR manipulation. We are talking not just about the fines that come from the regulators—they are significant but small in the way of things for banks—but about the liabilities that may arise from the various actions that are now under way and others which I am sure will join them.

As the Committee will know, two cases are already under way in the United States. One is in the Southern District of New York, which is a class action lawsuit titled “In re LIBOR-Based Financial Instruments Antitrust Litigation”—the use of “antitrust” obviously has significant consequences—and the second is in the northern California district court, filed by Charles Schwab against a series of banks, including a number of UK banks. Charles Schwab claims in its complaint that “significant harm” has resulted from the mispricing of,

“tens of billions of dollars in LIBOR-based instruments”.

Its complaint outlines the methodology of comparing the banks’ LIBOR quotes with some market-based yields and CDS spreads. Some excellent work done by the securities analyst Cenkos estimates that the LIBOR quotes were understated by 30 to 40 basis points in some cases. Cenkos does a simple calculation to show that if LIBOR had been mis-stated by even five basis points over four years, on £1 trillion-worth of notional contracts, the damages would be £2 billion. We are therefore looking at multiples of billions of potential charges.

It struck us as we were looking at this and reading some of the stories about Barclays considering separating the bank into an investment bank and a retail bank—that is the direction in which we are going in this country through ring-fencing, and I am very much in favour of it—that there might be scope for organisations to decide that those liabilities generated by LIBOR manipulation could happily be sited in the retail part of banks rather than the investment part. I am afraid that that view comes with some cynicism, as many of us now would not put anything beyond the decision-making powers of some bank boards and directors.

We are seeking from the Government some stern comments to the effect that we have got this entirely wrong and that safeguards are in place. If it is not the case, we hope that someone will quickly pay attention, because the decisions that could set this process in train could happen fairly quickly. I think that every one of us here and the public at large would be shattered if that was the conclusion to this aspect of the scandal. This is in no way meant to be a comprehensive response to the amendments; it is one particular issue that struck us as being in need of immediate comment.

[Lord Peston]

My Lords, I listened with enormous interest to the noble Baroness, Lady Kramer, and am sympathetic to what she said, but I cannot see how the amendment fits into this section of the Bill. If I have read it correctly, new Section 1D(2)(b) states that the integrity of the financial system includes,

“its not being used for a purpose connected with financial crime”.

As I understand it, these people have engaged in financial crime and been fined for it already. If the noble Lord, Lord Carlile, is to be believed, they will be brought before the courts to be examined some more. What unfair allocation does the noble Baroness have in mind? If some American investors have lost a great deal of money as a result of criminal activities by people connected with British banks, it would not be unfair if those banks had to meet the cost of those criminal claims. Is she saying that that would be unfair, or have I totally misunderstood the purpose of the amendment? It is most likely to be the latter.

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[Baroness Kramer]

I would hesitate ever to say that the noble Lord, Lord Peston, had misunderstood any issue. Perhaps I can clarify. This is a probing amendment, and I cannot pretend that it is drafted with skill or placed in the Bill where, ultimately, a sophisticated legal mind— or, perhaps, the noble Lord—would put it. We felt that it was an issue that needed to be raised promptly. I fully accept that if courts decide that there is liability, that liability will be met, but if the institutions are dividing themselves into separate pieces and there is flexibility on where the liability is then allocated—into a retail entity or the investment banking entity—that is of acute interest.

[Lord Peston]

This sounds a bit like tax avoidance in a new version. If they separate the institution into two parts, they will then claim that there is a part that is not guilty. Is that the point of the amendment?

[Baroness Kramer]

I think that this is an issue that I will hand off to the Minister.

Financial Services Bill

Debate between Baroness Kramer and Lord Peston

Tuesday 10th July 2012 Lords Chamber

[Lord Peston]

Speaking as an economist, that sounds complete nonsense to me. I point out to the Minister that the measure I have just described was at the centre of the collapse of both the British and American financial systems in the post-2007 era. This is precisely what these financial intermediaries were up to and precisely what led to the enormous damage that all the economies have suffered. How the Minister can possibly say that that is not a relevant tool is completely beyond me. I could give him some more examples, but let us leave it at that one.

The only question then is whether the noble Baroness, Lady Kramer, is right that if it were introduced as an order we could not debate it in a way to be able to say that the Government’s method of dealing with this problem could be bettered. That is the only point at issue here. I would not like us to do this all the time. I would simply like us—and I mean the other place at least as much as us—to have the power to be able to say, “We can see that you’ve identified the problem and that you’ve got a solution, which you’re introducing by this order, but we think you could do it better this way”. That is all I am arguing and I cannot see what is unreasonable about it.

[Baroness Kramer]

I thank the noble Lord, Lord Peston, for giving way on that because I am again working in murky waters here. The Minister may correct me but I think the example that he referred to was of a leverage ratio, in which the assets had to be weighted in some way for their riskiness or toxicity. There would be an argument for using those weights within a leveraged ratio, would there not? You can use risk weights on anything, I say, having used them. However, that is not the kind of detail we would want to get into on the Floor of this House. My argument is that it would become so highly technical. If there is an amending capacity, that is exactly where we will take ourselves—and without a series of blackboards and three academics to lead us through it, I am not sure we could manage, frankly.

Financial Services Bill

Debate between Baroness Kramer and Lord Peston

Tuesday 26th June 2012 Lords Chamber

[Lord Peston]

My Lords, I shall not talk about the Treasury representatives because we have an amendment relating to them later in the list and I shall save my vitriol for then.

I did not understand Amendment 9 until the right reverend Prelate the Bishop of Durham spoke. I am grateful to him because I now understand it. In essence, he is saying that three different people ought to chair the three different committees, which makes perfectly good sense. Chairing a committee is an important task and would involve a great deal of work, and I am sympathetic to the amendment.

However, going back to my and my noble friend Lord Barnett’s amendment, these appointments are only titular. It is not for your Lordships’ House to decry those who like titles. In other words, if there are three people, men or women—although I am afraid that these days it seems to be all men in the Bank of England—who want to be called deputy governor, it is no big deal. If it turns them on, and if a wife refers to her husband as the deputy governor and that cheers her up, why not? However, I am concerned as to whether it is more than that in two ways. First, do you get paid more for being a deputy governor? The Minister keeps telling us that we have to be economical, so we have to ask whether this is the correct way to spend money.

More specifically, the amendment is also about the following. First, can we have a full job description in each case? Does a full job description for these three posts exist, and if so can we see it? Secondly, how are the three of them appointed? For example, are the three jobs advertised, and can someone from outside apply to be a deputy governor with appropriate references, experience and so on? Thirdly, who appoints to this post? Those are the questions that I wanted answering. In the transparent, modern world in which we live, the answers should be that anyone can apply for these jobs, that the jobs should be advertised, and that there should be a precise job description and a proper appointing panel. That is the world in which we live, so I hope that the answer to all my questions is yes.

[Baroness Kramer]

My Lords, perhaps I may comment quickly on Amendment 9. The noble Lord, Lord Turnbull, presented what I suspect will be the Government’s argument, which is that having the Governor of the Bank of England in all these roles provides co-ordination. At Second Reading, I described the twin-peaks strategy as a small mountain range, so your Lordships will understand that I appreciate the need for co-ordination, but to use as the co-ordinating mechanism the single person of the Governor of the Bank of England strikes me as exceedingly inadvisable. The challenge is huge. It is a mechanism for co-ordination that is likely to suffocate, challenge and encourage group-think, but, frankly, no matter how much of a superman the individual who is appointed to that post is, I cannot see that they could possibly have shoulders broad enough to carry all those roles in the demanding way which this legislation and the economy require. Co-ordination strikes me as not the appropriate argument. If the argument is to be made, it must be on other grounds and not to make up for other weaknesses in the Bill.

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[Lord Peston]

My Lords, I shall speak to Amendment 8A in my name and that of the noble Lord, Lord Barnett. In doing so, I shall not comment on Amendment 6 in the name of the noble Baronesses, Lady Kramer and Lady Wheatcroft, simply on the grounds that the subject is totally beyond me. I am no expert on governance whatever, and I could not tell good from bad governance if it hit me over the head. However, what the noble Baroness said sounded very persuasive, and I am sure that she is right.

I also apologise to my noble friend Lord McFall. I just did not notice his Amendment 10. If I had done so, I would have tabled an Amendment 10A as I have tabled Amendment 8A.

I take noble Lords back to the Bank of England Bill, which the noble Lord, Lord Barnett, and I played a full part in debating. Indeed, one thing that I still remember with enormous pleasure and some amusement is the fact that, while the noble Lord and I were enthusiastically in favour of the Bill and said so, Conservative noble Lords who were then on the opposition Benches were doubtful. One of my tasks was to try to persuade many Conservative Peers that what Gordon Brown was doing was not only the right thing but that it was a very strong move in a Conservative direction to give independence to the Bank of England for monetary policy. I still give the odd lecture, and I sometimes boast that I was once involved in educating the Conservative Party in the correct way in which to run monetary policy.

In the course of debating the Bank of England Bill, all references to feeding back were to the House of Commons. The noble Lord, Lord Barnett, and I put down an amendment—I think that it was the only one that was accepted from us—to say that wherever the word “House of Commons” appeared it should be deleted and replaced with “Parliament”, and the Bill was changed so that Parliament became the body, meaning that it included the House of Lords. That established the fact, on which Lord Williams of Mostyn got a definitive opinion from the Clerk of the Parliaments, that the House of Lords is fully entitled to look at any matters of this kind and to be consulted on them. The Commons does not have to take any notice of us on these matters, but we can certainly exercise our rights. That is why I object very much to the form of Amendment 10 in my noble friend’s name and feel that the correct wording should be, “Treasury Committee of the House of Commons and the Economic Affairs Committee of the House of Lords”. This is a matter of principle for your Lordships’ House. I am personally not persuaded by any of what might then happen, but that is another story. If it is going to be done, I feel very strongly that both Houses should have access.

That was all about appointment, which comes up several times later on other things, but I shall make one speech do for all the other times it comes up. In my total naivety, it never occurred to me that there was any question of removal from office being a serious matter. That is another reason why I apologise to my noble friend. I would probably emigrate if we got to a state in our society where we were dealing with the removal from office of the Governor of the Bank of England. I hope that that was what the noble Lord, Lord Turnbull, was saying as well. We are all very keen on science fiction, but I think that we can go a little too far.

[Baroness Kramer]

My Lords, I have attached my name to Amendments 5, 6 and 10, so I think I will by definition be hated by any future Governor of the Bank of England.

I want to speak for a moment on Amendment 6, which was spoken to by the noble Baroness, Lady Wheatcroft. The 2009 report by Sir David Walker, on behalf of the Government, which took a detailed look at corporate governance in the UK banking industry, is very relevant. Your Lordships will remember his recommendation that:

“Balance also needs to be found between the role of executives and non-executives on a well-functioning bank board”.

Amendment 6 goes a significant way towards achieving that and establishing that real relationship between a non-executive chair and the Governor of the Bank of England as the chief executive. That distinction is also important for the purposes of accountability which others, including the Minister, have described as significant and important.