We need watchdog to keep banking behaviour in check, says George Osborne - UK Politics - UK - The Independent

We need watchdog to keep banking behaviour in check, says George Osborne

 

George Osborne indicated today that he wants a professional standards organisation set up to keep banking behaviour in check.

The Chancellor defended the Government's banking reforms but admitted more needed to be done to monitor the industry and suggested replicating systems used in teaching and medicine to keep standards high.

Appearing before the Parliamentary Commission on Banking Standards, Mr Osborne urged MPs not to unpick the Government's "ground-breaking legislation", influenced by proposals drawn up by Sir John Vickers.

Sir John and his colleagues on the Independent Commission on Banking last year recommended that UK banks ring-fence their high street or retail arms from high-risk investment divisions.

Mr Osborne previously said the reforms would be fully implemented by 2019.

The Chancellor said today: "I would be very wary of unpicking a consensus that has been arrived at. We have spent two years getting to this point."

He added: "I would point out this is one part of the answer but I think it is the right structural change.

"It's not the only thing that needs to change and I hope this Commission would look at other issues, like the standards we expect of the profession and how, for example in the medical profession and the teaching profession, we expect certain standards and those standards are administered by the profession often, but how we can create something similar in the banking industry."

Mr Osborne warned the Commission of the consequences of seeking to rewrite the Financial Services (Banking Reform) Bill so close to its passage through Parliament.

"You will be unpicking of a consensus that has been established over the last two years," said the Chancellor. "You will be unpicking the work that John Vickers and his commissioners did. That work has been accepted, as far as I'm aware, by all the major political parties. We are now on the verge of getting on with it.

"If you come back and tell me 'This entire approach is wrong, we should have a completely different approach', you are well within your rights but the consequences of that will be either you will carry the day, in which case we will have start all over again with a new piece of legislation, or you won't carry the day."

Commission members bridled at the suggestion that Mr Osborne was seeking to limit their inquiry.

Labour MP Pat McFadden told the Chancellor: "If you are worrying about the freedom and powers of the Commission, perhaps you should have thought about that before establishing it...

"If you were sitting on this side of the table, you wouldn't take too kindly to a Chancellor saying 'I want you to look at that, but not to look at that'."

And Commission chairman Andrew Tyrie said the members did not find it "very convincing to be told that we should be wary of unpicking a consensus".

"Just because something has achieved a consensus does not necessarily mean that it is right. It is our job to take a look at it," said Mr Tyrie.

Mr Osborne assured the hearing that he was "very supportive" of the Commission's work, but said he did not see it as the best use of their inquiry to become involved in pre-legislative scrutiny of his Bill, which was already being looked at by three parliamentary committees.

Mr McFadden raised concerns that regulators may find it impossible to enforce the ring-fence envisaged by the legislation between the High Street and "casino" arms of big banks, because the details of how the ring-fence will work are not spelled out in the Bill itself.

But Mr Osborne said the details of how high and how impermeable the ring-fence should be - including measures to separate the different arms' governance, risk management, remuneration structures, human resources, capital and liquidity - will be included in secondary legislation, to be published by the time the Bill reaches the committee stage in the House of Commons.

This would give future chancellors flexibility to adapt the ring-fence to suit developing circumstances, he said, adding: "If we prescribe all of these things in detail in primary legislation, I have no doubt that in 10 to 15 years' time, some clever legal firm will have found some way to get round it."

But Mr McFadden said: "We have a problem which has been put to us by regulators... They said they are not sure they have a mandate to ensure this degree of separation. What is your response to the regulators' fear that they don't have the mandate to put this into practice because it is not in the Bill?"

Mr Osborne insisted that the regulators will have the necessary mandate.

But Mr Tyrie said the Commission was not happy that details of the scheme were still not known.

He told Mr Osborne and Financial Treasury to the Secretary Greg Clark: "We want more than reassurance, we want more than a blank sheet. We want more than we are getting now.

"You are both honourable men and we are grateful for your assurances, but we are hopeful that we can rely on more than those before we have done with this process."

Mr Osborne said the primary purpose of the legislation was to ensure that, in a future crisis, a Chancellor is able to allow a bank to fail while protecting consumers, rather than being forced to bail it out, as his predecessor Alistair Darling was because of the "inadequate" legislation in place at the time of the 2007-8 banking crash.

"Ultimately, what this is all about is so that the person doing my job - hopefully not on my watch - when faced at midnight with that decision 'Do you let this very large bank go bust?' has enough confidence to say 'I think we can let it go because the banking Bill has provided me with enough reassurance that we can continue to provide core services, that people can go to cashpoints and get their money out'," said Mr Osborne.

"My predecessor, when he was faced with that decision, felt he was not confident that people would be able to get their money out of the cashpoint in the morning.

"If, at the end of all this, the person doing my job is still not confident that people can get their cash out of the cashpoint even if they let the institution fail, then I think we as a Parliament will have failed."

It was revealed today that the Commission will miss its deadline of December 18 for producing its final legislative recommendations.

In an exchange of letters, Mr Osborne warned that any delay in completing the Commission's scrutiny of his draft Bill could "seriously jeopardise" the Government's commitment to delivering its reforms.

But Mr Tyrie told the Chancellor that he was now aiming to produce an interim report in December and a full report as soon as possible in the new year.

Just days after the publication of the draft Banking Reform Bill last month, Mr Tyrie wrote to Mr Osborne: "The original intention to include all proposed legislative action in our initial report will no longer be possible in the light of the pre-legislative scrutiny work that we will be undertaking.

"Recommendations for legislative action may well be contained in our final report next year... The Commission has asked me to obtain assurances from you that a means of legislating will be available to give statutory effect to recommendations for legislative action made in the new year."

Mr Osborne responded: "It is vital that I introduce primary legislation into Parliament early in the new year. I take seriously the scrutiny process you are undertaking and I wish to do justice to your report by having time to consider it fully.

"It is therefore absolutely essential that you report on that scrutiny by December 18 as per the orders establishing your Commission.

"Any delay would seriously jeopardise the coalition Government's clear commitment to deliver these important reforms.

"Any further work you do, for example on corporate governance, that requires legislative changes needs to be published as early as possible in the new year... The sooner we have your final report after the new year, the more likely we are to take on board its conclusions."

In a reply on October 24, Mr Tyrie said: "The Commission will aim to produce both an interim report in December and a final report as soon as possible in the new year."

Mr McFadden told the Chancellor he was asking MPs to "write a blank cheque" because there are too many gaps in the legislation which would allow banks to find ways round the ring-fencing rules.

"This leaves a situation down the road where we are asked to approve an enabling Bill in Parliament where much of the capacity to implement it is given to a regulator and the banks, with their huge resources, their record of picking away at things, can start to burrow under, as the regulator fears, this ring fence," the Labour MP said.

"The policy problem here is that you are leaving the regulator at the mercy of the banks."

Mr Osborne admitted that banks would attempt to find ways round the reforms but insisted the legislation would give regulators enough power to tackle the problem.

"We are creating an incredibly powerful regulator. We are putting the Bank of England in charge of regulation," he told the committee.

The Chancellor insisted the Bank of England was powerful enough to withstand industry lobbying and would be backed up in law when secondary legislation was taken through Parliament.

"The industry, by its very nature because it is a free market and there are lots of actors in it, not all of who adhere to the highest standards, will seek ways to get rounds the rules.

"That has always been the case and will probably always be the case."

Mr Osborne said that was why he was creating reforms which would "stand the test of time" instead of legislation that was "absolutely right for 2012" but could soon by bypassed.

"We have got to give ourselves as a Parliament the flexibility to give the regulator the weapons they need."

The Chancellor told the Commission there were not enough banks for customers to choose from in the UK.

"We don't have a huge number banks, sadly, large banks. I would like to see many more."

PA

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Energy Markets Analyst

£400000 Per Annum: The Green Recruitment Company: Job Title: Energy Markets An...

Junior Web Analyst – West Sussex – Up to £35k DOE

£30000 - £35000 Per Annum Plus excellent benefits: Clearwater People Solutions...

Nursery Manager

£22000 - £23000 per annum: Randstad Education Bristol: We are currently recrui...

Web Analyst – Permanent – Up to £40k - London

£35000 - £40000 Per Annum: Clearwater People Solutions Ltd: We are currently r...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week