Parliamentary Commission on Banking Standards

Lord Davies of Oldham Excerpts

Thursday 8th September 2016 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, I thank the right reverend Prelate for introducing the debate. It is an important issue and he focused on the most important question we have to ask the Minister. We want a report not just on progress thus far, because we can do some of that work ourselves, but on how the Government will monitor their aspirations to success in what we all recognise is an extremely challenging environment, how they will measure their success and how we will get reports on it.

The call, of course, is for a moral dimension to banking. The noble Baroness, Lady Kramer, said that she was underwhelmed by the response thus far. I am a little more disappointed than that. I am pessimistic about it. It seems to me that the City has to a very large extent returned to its prime driver, which is the culture of greed. If we are going to get some moderation of that position and recognition of responsibility to the wider society, the Minister needs to respond to several of the salient points made in this debate.

We all recognise that the financial industry is a very important part of our economy. It is a major earner of overseas earnings and important to our balance of payments. We all therefore want it to be healthy, but that also means hitting higher standards than those which led to the appalling collapse in 2007-08. Since then, we have not had a great deal of evidence of a commitment by the City to improve its level of morality. Its friends in Westminster, of course, blamed the Labour Government of the time—an extremely successful ploy in electoral terms but not much referred to now when we talk about the financial industry, because we all recognise the depths of the issues which bought it low and caused so much pain to our wider society. After all, few in the banking industry have been brought significantly to account. Many have returned to business as usual. Those who were brought to account were on the whole smaller fry than those who had responsibility and took the great rewards.

We want the Minister to give a clear response. The Government have been somewhat selective in the advice which they have taken and implemented. Both the most reverend Primate and the noble Baroness, Lady Kramer, referred to the key proposals first presented to the Government in the Vickers report. Sir John Vickers indicated that he was severely disappointed at the action taken in consequence of the report. The Government have some explaining to do in circumstances where a very clear model of reform was presented but we have had limited action.

Of course, I give credit to the Government for introducing the Bank of England Bill, the fact that the Bank of England has been put firmly at the centre of banking regulation and that there is an improvement in the bodies now authorised to carry out this exercise. We all recognise the virtue of a concept such as ring-fencing, which was recommended in Vickers, but it does not come into effect until 2019. I therefore cannot feel that driving, effective pressure from the Government is under way when they are prepared to subscribe to a timetable to which substantial delay is built in.

I share with the noble Baroness, Lady Kramer—who also referred to this—that the only issue that seems to have given a real shudder of anxiety in the City about its processes and conduct at present and the possibility of government regulating it with some force, was that of the burden of proof. Of course, the Government reversed this so that the regulator has to establish the case, not the person who is being examined on the basis of damage that might have been done. To many of us that looked like a signal to the City that this Government could be and indeed were soft in that instance.

We should also appreciate the extent to which the rewards system in the City seems to have changed very little. The banks can make colossal losses and still pay out very heavy bonuses, which are matched by scarcely any others in society. Surely there must be a recognition, in circumstances where bankers see that they have to pay out for the mistakes of the past, that it cannot possibly be right that significant amounts of money are going to senior staff. One part of the morality of the City is to recognise that its basic unfairness and disregard for the society that it serves are no advantage to it, except in terms of the pockets of those who get the financial bonuses.

What my noble friend Lord Haskel referred to and what also underpins this is that the Government must think about empowering those, in addition to the regulators, who can hold the banks to account. That means changes in shareholder powers. It means a companies Act that gives real responsibility to shareholders rather than to those on the remunerative merry-go-round that they appear to operate at present.