Parliamentary Commission on Banking Standards

John Bercow Excerpts

Monday 16th July 2012 Commons Chamber

[The Leader of the House of Commons (Sir George Young)]

I beg to move,

(1) That a Committee of this House be established, to be called the Parliamentary Commission on Banking Standards, to consider and report on—

(a) professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process;

(b) lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy;

and to make recommendations for legislative and other action.

(2) That Mr Andrew Tyrie be Chair of the Commission.

(3) That Mark Garnier, Mr Andrew Love, Mr Pat McFadden and John Thurso be members of the Commission.

(4) That the Commission have leave to join with any committee appointed by the Lords to consider the said matters.

(5) That the Commission may hold meetings under the provisions of paragraph (4) of this order at any time after the Lords has agreed to appoint a committee.

(6) That the Commission shall, except as provided for in this order, follow the procedure of a select committee of this House.

(7) That the Commission shall have power—

(a) to send for persons, papers and records;

(b) to examine witnesses on oath;

(c) to appoint specialist advisers;

(d) to invite specialist advisers (including Counsel appointed as specialist advisers) to examine witnesses;

(e) to adjourn from place to place;

(f) to sit notwithstanding any adjournment of the House; and

(g) to report from time to time.

(8) That the Commission shall have power to appoint sub-committees to consider matters specified by the Commission within the terms of this order and a subcommittee shall have—

(a) the powers in paragraph (7)(a), (b), (e) and (f); and

(b) the power to invite specialist advisers appointed by the Commission (including Counsel appointed as specialist advisers) to examine witnesses;

and the quorum of a sub-committee shall, subject to paragraph (12)(b), be one member of this House.

(9) That the Chair may report to the House an order, resolution or Special Report as an order, resolution or Special Report of the Commission which has not been agreed at a meeting of the Commission if he is satisfied that he has consulted all members of the Commission about the terms of the order, resolution or Special Report and that it represents a decision of the majority of the Commission.

(10) That the quorum of the Commission shall be two members of this House.

(11) That, whenever this House shall stand adjourned other than to the next day, any report, Special Report, order or resolution agreed to by, or evidence taken or received by, the Commission, including any under paragraph (9) of this order, may be published or printed under the authority of this House, shall be deemed to have been reported and shall be reported when this House next sits.

(12) That, when the Commission operates under the provisions of paragraph (4) of this order, the following provisions shall apply—

(a) the quorum of the Commission shall be two members of this House and two members of the House of Lords;

(b) the quorum of any sub-committee shall be one member from either House; and

(c) the power of the Chair to report under paragraph (9) may also be exercised with the Chair’s agreement by a member of the Commission who is a member of the House of Lords.

(13) That the costs of the Commission shall be assessed by the House of Commons Commission from time to time and shall be paid by Her Majesty’s Government for the credit of the House of Commons (Administration) Estimate.

(14) That the Commission shall report on legislative action no later than 18 December 2012 and on other matters as soon as possible thereafter.

(15) That a message be sent to the House of Lords to desire their concurrence.

On 5 July, the House debated professional standards in the banking industry for a full day and resolved to establish a Joint Committee of the two Houses on that matter. As I said in that debate, I do not think there is any disagreement between the Government and the Opposition on what we need to do, which is to sustain in the UK a strong, vibrant, transparent and more accountable financial sector that commands international confidence.

The motion before us is the result of negotiation following the House’s decision to establish a Joint Committee. I thank my hon. Friend the Member for Chichester (Mr Tyrie) for the work that he has undertaken while also chairing a very active Select Committee. I also thank Her Majesty’s Opposition. Following the debate, it was essential that Parliament was seen to be acting in the best interests of the public in resolving the issue before it, and that could happen only if the Joint Committee were supported not only by the parties in Government but by the Opposition. I am grateful to those who have added their signatures to the motion.

I do not intend to detain the House for long. I want to make five points, spending half a minute on each. [Interruption.]

[Mr Speaker]

Order. Before the Leader of the House makes his five points, to which I wish to listen carefully, may I gently say to the House that he should be heard? Any Member should be heard, but the Leader of the House is a very senior Member, and Members should not be sitting chuntering to each other; they should show him some courtesy, which they all learnt at one time.

[Sir George Young]

As I said, I have five points and will spend half a minute on each one.

First, the process to establish the Commission is not following the normal process for establishing a Joint Committee. The Commission, if established tonight, will be able to begin its work immediately and to meet during the recess. It is my hope that before the other place rises, it will also establish a Committee of an equal number of members to act jointly with the Commission that we are establishing tonight.

Secondly, the Commission is being established with powers that are already inherent in our parliamentary system. It will also have the novel power to invite special advisers, including counsel appointed by the Commission, to examine witnesses. I do not think that that will become the modus operandi of other Select Committees, but it will give the Commission the teeth that it needs to carry out its important investigative role quickly and effectively.

Thirdly, it is proposed that

“the Commission shall have power to appoint sub-committees to consider matters specified by the Commission”.

Unusually, the sub-committees will have a quorum of one. I have discussed that with my hon. Friend the Member for Chichester. The purpose is to allow a single member of the Commission to consider a specific issue, for example a technical matter, and to send for papers with a view to informing the wider Commission. That will feed into the Commission’s work and allow it to tackle a broad-ranging subject in a compressed time frame.

Fourthly, paragraph (13) of the motion directs the House of Commons Commission to assess the costs arising from the Parliamentary Commission to be paid by the Government. As the Chancellor said in the debate on 5 July:

“I commit to giving it any resources it needs to do its job.”—[Official Report, 5 July 2012; Vol. 547, c. 1136.]

I hope that that reassures my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), who sought reassurance during our debate on 5 July that the Commission should not raid

“the staff and resources of other Committees.”—[Official Report, 5 July 2012; Vol. 547, c. 1149.]

Fifthly and finally, the motion sets a deadline for a report on legislative action of 18 December. That will include pre-legislative scrutiny of the banking reform Bill and any recommendations of the Commission’s inquiry that require a legislative vehicle in order to be implemented. The December deadline will give the Government time to consider any recommendations in time for the introduction of the banking reform Bill, which is planned for January 2013. If the Commission cannot complete all its work by 18 December, we will expect it to report on the other areas as soon as possible thereafter.

We have in this Parliament the skills, expertise and mandate to do the job. I am confident in the ability of the new Commission to rise to the challenges that confront us and to address the central issue at stake: restoring confidence in the UK banking industry. I commend the motion to the House.

--- Later in debate ---

[John Mann (Bassetlaw) (Lab)]

It appears that this Commission, which was originally described as a very narrow one, is broadening so that, as the Leader of the House said, it can now look at particular matters with sub-committees of one, and there are suggestions that it should broaden into criminal prosecutions.

The issues remain as they were, but the evidence is changing and will continue to change. That is the problem with setting up ad hoc committees. Just in the past hour, further e-mails have come from the Bank of England that have some significance for matters that have already been looked at, looked at again and looked at a third time. Those e-mails are significant to what the Treasury Committee looked at the first time, and doubtless information will continue to emerge.

This is a moving feast, and the problem with a moving feast is that setting a time limit when one does not know what will happen next can lead to a certain momentum, which can be in the wrong direction. The problem is not that it is an arbitrary time limit—any time limit is arbitrary—but that it could be an irrational one.

Tomorrow in the United States, a new court action is being initiated not on LIBOR but on other market manipulation by banks, and specifically a British bank. We will see what happens as that court action proceeds, but simply examining LIBOR, and especially only the one bank in which what has gone on has been partially exposed, rather misses the point about market manipulation by investment banks over the past 10 years.

Even within the context of LIBOR, we have only just reached the stage of seeing some of the market manipulation that happened, and only in one bank, Barclays, which has received bad publicity. There is far more to be revealed about that, and I am certain that there will be more surprises to come in the next day, week or two weeks. Those surprises may well continue to flow.

Even in the case of Barclays, the manipulation of LIBOR is one tiny part of the allegations of market manipulation and anti-competitive work. A swathe of evidence is beginning to emerge, and more people are now prepared to speak out about how a range of markets have been manipulated in a range of ways. Derivatives have been used as the basis of that manipulation, but in fact it is much more complex than that. At its heart, as Barclays has said, was the making of a quick profit. In the past two weeks, courts in Canada have specified in a non-LIBOR-related case where the judge has pronounced that it was manipulation for short-term profit on an anti-competitive basis.

That is just one bank. No one can answer—the question was not answered by the Financial Services Authority today; perhaps it is not in its remit to do so—what the contingent liability is for Barclays. That is a small concern, and of significance to people working for the bank, people who have shares in it, and the wider economy, but it is clear that the largely state-owned banks, not least the Royal Bank of Scotland but also Lloyds TSB, have been doing the same thing. The problem that we will face is not just the issues of criminality that may or may not emerge. Proving a criminal case in any of that is fiendishly difficult—both finding the person who has committed an act and finding a victim so that a case can be taken. If law suits, beginning in the United States but spreading elsewhere, start to succeed, the amounts of money that have been fiddled are so great—because of the instruments that were used—that the British taxpayer may face a huge, unquantified bill, and we do not know when it will arrive. The future of Barclays is somewhat in question.

[Mr Speaker]

Order. I appreciate that the hon. Gentleman is indulging in scene setting—offering the House the context—but I would politely suggest that he will wish to turn to the proceedings and composition of the intended Committee. If it is helpful to him, I gently remind him, in relation to the motion, that he has 15 paragraphs from which to choose when deciding how to focus his remarks.

[John Mann]

I thank you for your guidance, Mr Speaker. My initial remarks related to the remit of the Committee, rather than its composition, which is frankly an irrelevance compared with the problems of the moving feast of its remit.

The remit has been set so vaguely that it can incorporate anything and everything. We will face the economic consequences when the partially state-owned banks are hit in the same way. These issues are entirely out of our control—indeed, they are entirely out of British control. The American authorities are two years ahead of the British authorities, and have taken a lead, so they will dictate the time scale for what comes next. Whether the considerations are legal or political—there are elections coming up, so there may well be more of a political imperative to be seen to be doing things—they will have grave consequences for these financial institutions and the British taxpayer.

That is why although it may well come up with worthy and credible recommendations, the investigation cannot match the task that it has been set. Because of the course of events and the changes that will happen, arbitrary time limits are, by definition, self-defeating. There is another problem that goes alongside that, and it concerns the other options available to look at those matters. I am pleased that the Leader of the House appears to have given a commitment, and I urge him to clarify it, that no staffing resource will be removed from the Treasury Committee in that period of time. If that is the case, that is a significant step forward. If the Treasury Committee were mothballed at precisely this time, the ability of the House to respond to fast-moving events would worsen significantly.

The Treasury Committee has a heavy workload. Today, Commissioner Barnier was supposed to appear before the Committee in relation to the 17 EU directives and draft directives relating to financial services on the books at the moment. It is essential that this House properly scrutinises and takes a view on what happens with those directives, but that has not been happening—it is a key role that the Treasury Committee needs to fulfil.

--- Later in debate ---

[John Mann]

I take the hon. Gentleman’s point and I agree with him, but I do not intend to go through all the previous debate on this issue—interesting though it would be to do so—because I am sticking to the detail of what is in front of us, however badly worded it is. There is, however, clearly a case for saying that if the Treasury Committee had been allowed to carry on this work, it could have done so as effectively as this Joint Committee. I am sure that the five Members from the House of Lords who are as yet unknown and unnamed will bring great wisdom to this Joint Committee, but if the House of Lords wants to look into matters, it can look into them. This is the elected Chamber, and for this elected Chamber to hand over some of these powers of scrutiny to an unelected Chamber seems a retrograde step, which will come back to haunt us in future.

Once a precedent has been established and it suits the Government, it is likely to happen again—and this was a Government initiative. I am rather surprised that the Opposition Front-Bench team, perhaps looking forward to being in government themselves, have been seduced into accepting this way of undermining the historic, developed and improving role of this House to scrutinise. That, I think, is partly what is at stake here, if this becomes the way of doing business in this House.

I do not see how a Select Committee, denuded of half its members, can in any way work as effectively as a Select Committee operating with all its members. That is the reality of what will happen, and we need to be aware of the unintended consequences that might come from a potential eurozone crisis and other problems emanating from Europe that conflict across the work of this Joint Committee—and are wrongly not referred to within it—because proposals from Brussels are, rightly or wrongly, a fundamental part of the equation, affecting decisions made by this House and by the banking industry in this country and across the world. That aspect has been ducked by the creation of the Commission, which will create unhealthy confusion in the debate.

What should have happened? The remit given to the investigation, which should have been carried out by the Treasury Committee, should have been far broader—[Interruption.] An hon. Gentleman says “Boring” from a sedentary position, but this is not boring. For example, seven investment banks colluded to rig the price of the Kraft takeover of Cadbury’s. That is the real scandal that underpins the profits in investment banking. In some areas, there is ferocious competition, but in the vast majority of investment banking, there is no competition whatever. That is the scandal that created the culture that led to the LIBOR rigging. An investment bank called in by a company to advise on a sale or takeover has so much knowledge of the workings of the company that it has the ability to manipulate the market to determine how things will go. That is the fundamental weakness in the system of investment banking. The implications for British manufacturing and manufacturing elsewhere in the world—

[Mr Speaker]

Order. I have noted the hon. Gentleman’s references to investment banking, but I fear—very considerably—that he is now going to proceed to discuss the state of British manufacturing and any relationship between the banking and manufacturing sectors. He is gyrating between referring to the terms of reference of the Commission and matters of composition, and then talking about matters that are quite outwith the terms of the motion, which ought to afford him adequate scope. I feel cautiously hopeful that he may be nearer to the end of his remarks than to the beginning.

[John Mann]

I have so far got to paragraph (1)(b) of the motion, which I shall quote, so that you are assured, Mr Speaker, that my remarks are directly pertinent. Paragraph (1)(b) refers to

“lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy”.

That is precisely what I was talking about in relation to how investment banks operate. The lack of transparency, conflicts of interests and the narrow remit—

[Mr Speaker]

Order. I am sure the hon. Gentleman is public spirited and trying to be helpful, but he should not misunderstand the terms of the motion. The paragraph to which he refers underlines the importance of the inquiry in learning those lessons. It is not necessary or feasible for the House to do so tonight. It would be a triumph of optimism over reality for him to suppose that the House would do so courtesy of his speech, no matter how compelling it is.

[John Mann]

Thank you for that guidance, Mr Speaker. I am merely outlining my objections to the lack of breadth in the remit given to the Commission.

My final questions on paragraph (1)(b)—[Hon. Members: “Hooray!”] I am surprised hon. Members are so keen to stay and hear the debate, given some of their sedentary comments. It would be helpful if the Leader of the House confirmed unambiguously that the principles behind the setting up of the Commission will in no way—practically and in reality—undermine the ability of the Treasury Committee to meet as often as it has over the past year to discuss subjects that it chooses to investigate. It would help if he confirmed that it can call the witnesses it chooses and that it will have the access to the staffing resource and expertise that it currently has. If he can give those assurances, I will not seek to divide the House on the motion. I look forward to hearing from him.