Financial Services Bill

Harriett Baldwin Excerpts

Monday 6th February 2012 Commons Chamber

[Ed Balls]

The problem was the US sub-prime mortgage market, and that the failure of regulation there rippled around the world. There were failures also of lending and regulation at Northern Rock here in Britain. I do not in any way deny that there were failures here in Britain and failures of regulation, but I do not accept that it was solely a UK failure, because it happened in America, France, Germany, Japan and all around—

[Harriett Baldwin (West Worcestershire) (Con)]

rose—

[Gordon Birtwistle (Burnley) (LD)]

rose—

[Ed Balls]

I will make some progress and take both interventions in a minute.

I understand why politically the Chancellor is so keen to blame the structure of UK regulation—the tripartite relationship between the Bank, the Treasury and the FSA. He wants to claim that his particular institutional reforms are the solution, but my advice to him is to be very careful indeed, because this was not a peculiarly British crisis; it was a global crisis. It hit countries with tripartite systems of regulation, quartet systems, twin peaks, more powerful central banks, less powerful central banks and statutory and non-statutory regulators alike, and it was not a failure of regulatory structure, but a collective global failure to see the risks inherent in the structure of the global financial services industry.

We heard from central bankers earlier, but Alan Greenspan, the former chair of the US Federal Reserve and architect of the US system, when asked by The New York Times about his and the world’s understanding and management of risk, said:

“The whole intellectual edifice…collapsed”.

He was right. It was not simply a failure of structure, but a flaw in the way regulators understood the financial system, and that is why the British Bankers Association is right in its submission on the Bill to say that

“we consider that successful regulation depends more on regulatory culture, focus and philosophy than structure.”

[Harriett Baldwin]

On that very point, I should like to understand where the right hon. Gentleman is coming from in his objections to the Bill. What was his philosophy in terms of separating the supervision of banks from the Bank of England, which has day-to-day responsibility for monitoring that canary in the goldmine—their day-to-day funding operations?

[Ed Balls]

I am going to come on to explain my analysis. I am not sure I fully understood the question, but I might as time passes.

At its heart, the regulatory failure of the global financial crisis was not a failure of one approach to the institutions of regulation, but a failure of understanding and risk assessment which covered central bankers, regulators and Treasuries throughout the world. That line is not in the Conservative party Whips’ briefing, but it is absolutely true none the less.