Banking Bill back on the table

It's a measure of the sensitivity of the subject that, before the House of Lords embarks on its detailed consideration of the Banking Bill - aka the Financial Services (Banking Reform) Bill - next week, the government has published no less than 86 amendments that it plans to add in.

The aim is to placate a phalanx of powerful critics. Conscious that the Lords' membership of the Parliamentary Commission on Banking Standards, which includes such luminaries as Nigel Lawson, Archbishop of Canterbury Justin Welby and the former cabinet secretary, Lord Turnbull, carries enough clout in the Upper House to force through changes, even if the government opposes them, ministers have ostentatiously dropped into listening mode.

At the Lords' esecond reading debate the minister guiding the bill through, Commercial Secretary to the Treasury Lord Deighton promised that a series of concessions to the Banking Commission would be forthcoming, building on concessions already made during consideration in the House of Commons.

He promised to amend the bill to:

  • Offer a new version of the 'ring fence' banks will have to place between their 'utility' operations and their investment operations, bringing it closer to the Banking Commission's call for it to be electrified.
  • enact the recommendations of the Parliamentary Commission on Banking Standards on the 'culture' of financial services.
  • give regulators the power to make rules governing the conduct of anyone employed in financial services, and to extend the time limit for enforcement action from three to six years.
  • make reckless misconduct in the management of a bank a criminal offence, carrying a possible prison sentence.
  • give the Prudential Regulation Authority, the new body which polices the financial services industry, a secondary objective of promoting competition - which is seen as an important way of promoting high standards.
  • end the big banks' control of inter-bank payments systems - a key barrier to competition in banking, particularly for new challengers to the big high street banks. The government is promising amendments establishing utility-style regulation of the payments systems.
  • add technical amendments to provisions on the pension liabilities of ring-fenced banks and introduce amendments to modernise the rules for building societies, helping to create a level playing field between building societies and banks while preserving the distinct nature of the building society sector.

There has been a guarded welcome from Andrew Tyrie, the Conservative MP who chairs the Treasury Select Committee and chaired the Banking Commission.

Even now the Commission has been wound up, he remains a key figure in the continuing debate on how to create a framework which will promote more responsible banking and prevent a repeat of the credit crunch - and he seems fairly happy with the new proposals on "electrifying the ring-fence," commenting today that: "at the request of the Banking Commission the Government withdrew its original amendment on electrification of the ring fence for individual banks - 'the specific powers'.

It has now come forward with a major revision which largely reflects the Banking Commission's intentions. This is very welcome, the product of a number of helpful discussions with ministers.

Banks will game the rules unless discouraged from doing so. The revised amendments enable the regulator to split a bank which tries. That creates a strong deterrent against gaming the ring fence." He and the other Commissioners will now study the detail of the amendments on other issues "to ensure that they implement the Commission's intentions."

But the government has already rejected some key recommendations from the Commission, and Lord Turnbull has put down a series of amendments on some of these points, they cover the reform of the internal governance of the bank of England, the treatment of whistleblowers and the abolition of UKFI, the holding company which controls the taxpayer-owned shares in RBS, HBOS and other banks which had to be rescued during the credit crunch.

Lord Turnbull, a crossbench peer, could prove a crucial voice; votes in the Lords increasingly turn on the crossbenchers, and his authority as a former Cabinet Secretary and Permanent Secretary at the Treasury could deliver many of them.

Mr Tyrie is certainly signalling that the Commissioners want to keep up the pressure: "A number of the Commission's important conclusions were rejected by the government. Last week, commission members tabled amendments to give full effect to a number of these, including recommendations on the leverage ratio, a proprietary trading review, autonomy for the Regulatory Decisions Committee, and governance of the Bank of England. In addition, contrary to the Commission's findings, the government does not plan to provide a statutory basis for some other important reforms. These amendments will now be debated in the Lords. It is crucial that further improvements to the Banking Bill are secured. "

This promises fun ahead, but don't expect an immediate clash of the titans. Committee stage debates in the Lords often turn into a kind of legislative shadow-boxing. While the government may push through its amendments, any hostile action from the commissioners, or others, will probably be aimed at pushing ministers into offering further concessions, and any set-piece moves to defeat the government will probably not be attempted until the bill reaches its report stage, later in the year. One early sign to watch out for is the allocation of extra debating time for the bill, the current allocation of three days looks a bit minimal.

Meanwhile, ministers will be doing their best to maintain a courteous tone. Some are beginning to feel a bit patronised by the commissioners, who, they think, give the impression of regarding the Chancellor and his team as bright enough in their own way, but much in need of guidance from wiser, more experienced heads. I wonder if a bit of needle might emerge, if agreement isn't reached.