Independent Banking Commission Report

Geraint Davies Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

In a sense, the right hon. Gentleman is right. The proof of all the arrangements that we are putting in place, and the international arrangements, will be in the pudding—although it is not really the kind of pudding that we want, because it is a banking crisis.

[Geraint Davies (Swansea West) (Lab/Co-op)]

A golden egg pudding?

[Mr Osborne]

Yes, perhaps there are too many kitchen metaphors. The point I was making is that we are trying to clean up the mess.

We should not just assume that banking crashes happen every 70 or 100 years. We must hope that they will never happen at all, but we need to put in place the regulatory arrangements, capital requirements and structural changes that will ensure that the person who is in the hot seat the next time it happens, and has to do the job that the right hon. Member for Edinburgh South West (Mr Darling) had to do, will have more tools available to him than the right hon. Gentleman had as Chancellor.

--- Later in debate ---

[Mr Osborne]

The proposals will help because they will mean that these universal banks will have retail banking arms, in a ring fence, that are very focused on getting lending going to the economy outside the centre of London. We may think of it like this: the boss of the Royal Bank of Scotland a couple of years ago would have had someone running NatWest—running a ring-fenced subsidiary—who would have been totally focused on trying to get NatWest lending as a successful retail bank, rather than worrying about whether they could take over a Dutch investment bank. The ring fence will mean that parts of a universal bank will be extremely focused on getting support to businesses, in the black country and elsewhere.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Eight years is a long time, given that we are facing a sovereign debt crisis across Europe and, possibly, the end of the euro in that time frame. Does the Chancellor accept that the taxpayer will continue to foot the bill in the event of an investment bank, such as Lehman’s, collapsing? Does he accept that we will remain in a situation where bankers can take irresponsible risks and receive massive bonuses if they come up trumps, and where the taxpayer will continue to have to pay out if they go down?

[Mr Osborne]

The hon. Gentleman is being unnecessarily defeatist. I do not see why we cannot construct a regime that means we do not have to bail out banks when they fail. There are a number of different parts to this: requiring banks to hold more capital, including requiring people who hold bonds in the bank, as well as shareholders, to suffer a loss should the bank fail; the role of the regulator in preventing banks from doing stupid things, such as buying a big Dutch investment bank once the credit markets had already frozen up; and the proposals on ring-fencing. We have to work to get to a system where we are not standing behind banks that are too big to fail. If that were the case, we would end up with a banking system that is just a utility, and that would change the way in which banking interacts with our economy. We want banking to be successful and to be out there lending, but we want it to be properly regulated and we want to make sure that we do not have to stand behind it.