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Richmond upon Thames Liberal Democrats:Covering the constituencies of Twickenham and Richmond Park |
Kramer quizzes Sassoon on Regulatory and Banking Reform
June 25, 2011 10:51 AM
• [Jun 16] Baroness Kramer (Liberal Democrat): MY Lords, I must congratulate the Government on their courage in recognising not just the need to reform regulation and the regulatory system, which certainly was not fit for purpose, but to go beyond that to recognise the need to restructure the banking industry in the teeth of a lot of opposition from the industry itself, although a stronger case certainly needs to be made fully to convince all of us that ring fencing is a better strategy than division of the banks.
I shall ask the Minister two questions arising out of today. He talked a moment ago about a new regulatory system bringing together micro and macro, which is what we all wish to see, but he will be aware of the remarks made today by the Governor of the Bank of England, which were quoted in the Daily Telegraph, about reducing the burden of routine collection and focusing on the major risks to the system. He will know that the system collapsed in large part because securitisation and derivatives were piled on top of mortgage loans that were faulty and very often fraudulent. It was the failure to see the link between the micro and the macrosystemic that led to the crisis that we saw. Will he make sure that we do not now have a swing back in the other direction in regulation to systemic ignoring the relevance of the micro?
On the return of banks to private ownership, which is something we all wish to see, will he give some assurances that serious consideration will be given to schemes such as that proposed by my colleague Stephen Williams, MP for Bristol West, which would involve a distribution of shares in part to the public in order that they may gain some of the upside? The Treasury would still receive its funding, but on a deferred basis. Would he agree that UK Financial Investments, being a very silo organisation, is not likely to appreciate the potential benefits of that much wider engagement with the public, sharing upside reward with people who have suffered from the crisis?
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Lord Sassoon (Conservative): I am grateful to my noble friend Lady Kramer for her general support for what we are doing and her recognition of how far the Government have already gone in pushing forward with the structural and regulatory reforms. On the micro/macro link, I refer noble Lords to the full, and very interesting, remarks by the Governor last night at the Mansion House because he talked with great coherence and good sense about what the failure of the previous regulatory regime was, which was to collect a huge amount of detailed data that it was unable to analyse to draw out the conclusions.
However, in the new world, experienced bank supervisors are needed who are able to analyse and draw out the picture, which was never difficult-whether it was on securitisation or on a lot of other matters or funding models-before the crisis. There should be meaningful discussions with the banks in terms of the individual banks that they supervise about what this translates to in terms of the exposure of the individual bank's business model. If my noble friend was to read the Governor's full remarks, the Bank is absolutely where she would like it to be on its thinking on this. I got no sense of swing-back in it.
On ownership of the banks, we are well aware of the proposals that have come in, including that from Stephen Williams on mass retail participation. We and UKFI are actively considering mass retail participation as we think ahead to returning the banks into the private sector, which of course is not the same thing. A subset of it would be distributing the banks' shares for free or on some other basis, which raises value-for-money considerations and quite a lot of technical market considerations. But I can reassure my noble friend that all these proposals will be given due consideration.
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