John Eatwell on why the government is running scared of real reform of the financial sector
This summer saw a succession of financial scandals: HSBC’s involvement in financial transactions that contravened UN sanctions, the “London Whale” that sank the reputation of J.P. Morgan’s Jamie Dimon, and, most shocking of all, the manipulation of the LIBOR rate by Barclays. Together, they indicate that, four years to the day after the “bail-out” of the banks, the Coalition government still hasn’t got a clue on how to reform the financial sector – as Ed Miliband made clear in his speech last week to Labour Party conference.
(Some banks such as Barclays and HSBC boast that they didn’t need bailout funds, ignoring the fact that the failure of Lloyds or RBS would have brought them down too. Moreover, Barclays were the largest beneficiary of the US TARP programme, the Wall Street bailout).
Labour is demanding cultural change. As Ed Miliband said in Manchester, Britain’s banks, and our financial system more widely, need to change if we are to come through this crisis and build an economy that works for all – a one nation economy. We need to rebuild high street banking so that they back British businesses, savers can feel safe, and we get the long term investment needed to bring growth and jobs to our economy. Labour is committed to forcing this necessary change, if the banking sector fails to embrace it voluntarily.
All this while the Coalition is dithering and delaying.
The government’s first response to the Vickers Commission’s proposal to ring-fence UK domestic commercial banking (the system that households and small and medium-sized businesses rely on) was to water down the proposals. This would allow those inside the supposedly safe fence to deal in derivatives, perhaps the most effective way to blow a hole in the fence!
Let us hope the response to the Wheatley Report on LIBOR is more robust. Labour eagerly awaits the Coalition’s reply to this important piece of work. But we are also calling for the government to take these changes seriously and Parliament’s role in scrutinising the proposals.
It has become evident over the past few days that while the Coalition has said it will respond to Wheatley by introducing amendments to the Financial Services Bill, they will attempt to restrict parliamentary debate on their plans. The Bill is already more than half way through its Committee stage in the Lords, and the amendments are likely to be introduced only at Report.
The catch is that discussion at Report stage is far more restricted than at Committee. Other than Ministers, members are only allowed to speak once. Contrast this with Committee: at this stage members may speak as often as is appropriate, and hence the minister can be interrogated in detail over the specifics of what are necessarily complex proposals.
In a letter to Treasury Minister Lord Sassoon, I requested the government “recommit” the clauses to which new amendments to enact the LIBOR proposals will apply, to facilitate proper debate and scrutiny.
We want banks and a financial system which works for the long-term interests of our economy. Four years on from the bail-out, we want to make sure that that the banking crisis that caused those debts could never happen again.
Lord Sassoon has dismissed my request for the recommittal of clauses and it is clear that the government is refusing to engage in getting this part of the process as right as it can. But it begs a bigger question: what are they scared of?
Lord John Eatwell is Labour's Shadow Treasury and Economic Affairs Minister in the House of Lords
Published Monday 8th October 2012