Tyrie the Troublemaker
George Osborne must be ruing the day he set up the Parliamentary Commission on Banking Standards. The body, originally set up to examine banking ethics in response to the Libor scandal, morphed into a committee to conduct pre-legislative scrutiny of the Banking Reform Bill. Indeed, the parliamentarians have found it so difficult to reach agreement on what to do about industry standards that they have asked the clerks to do a first draft of their final report over the Easter recess that members can discuss in hope of coming to a conclusion.
It is in its role as interrogator of the ICB’s proposals in which the Commission seems most comfortable but which has called the greatest trouble for the Chancellor. In the Commission’s second report, published the day before Second Reading, it reiterated its demands for strong powers for the regulator to split up banks across the whole sector and for a higher leverage ratio for banks, proposals which the Chancellor does not favour.
The bill may be safe in the Commons but Osborne will be well aware that he might face a number of senior members of the Lords – including Lord Lawson and Lord McFall (we assume the Justin Welby now has more godly things on his mind) – standing up to speak against his proposals. The Commission also intends to stay in place for at least the duration of the legislative process, providing plenty of opportunity for its members to scrutinise the bill as it proceeds through Parliament.
This bill is a particularly good example of the current balance of power between government and backbenchers. Weak party leadership and greater use of pre-legislative scrutiny has meant parliamentary committees are more influential and more rigorous. Continued political instability will give backbenchers many opportunities to be vocal.
An Accessible Budget for SMEs
One of the worst kept secrets ahead of the Budget was that the Government would be introducing measures to improve SME financing through changes to the Funding for Lending Scheme. This, alongside the Business Bank and the largely overlooked announcement to axe stamp duty on shares traded on growth markets, is a positive move, but how far will these measures go to improve access to finance for SMEs?
Loans to SMEs decreased significantly in the last quarter of 2012 due to more onerous capital requirements restricting the flow of credit and weak demand from businesses. Although these new measures may free up more capital from bank lenders, without flexibility in the regulatory framework, they are likely to have a muted effect.
Perhaps then, the answer is to look to crowd funders, Peer2Peer lenders and other alternative types of business credit. By way of example, payday lender Wonga has seen a major increase in demand for the overnight loans to businesses it provides. However until these alternative financers are given a regulatory framework and more government backing, it is difficult to see them becoming the first port of call for SME loans.
Have we crossed the Rubicon?
Having achieved an agreement on CRD IV, the Irish Presidency has now moved on to tackle that other stalled piece of regulation, MIFID. Like CRD IV, member states appear to have irreconcilable differences. The use of organised trade facilities and the permissibility of matched principal trading are some of the most controversial issues, with the UK and some other member states making demands that other countries firmly reject.
UK negotiators will be determined to avoid losing out on another piece of financial services regulation and are arguing that matched principal trading will improve liquidity in the market. After London lost the argument on bonuses, many commentators have worried that a precedent was set and the UK will now face being regularly outvoted on FS regulation.
However, in this case the differences are on highly technical issues rather than a populist cause and other countries’ politicians will have far less political capital to gain by voting against the UK. Britain’s negotiators will be hoping that this will mean that CRD IV may not in fact have been the watershed moment for UK influence on financial services regulation.
Tweet of the Week
Thank God for the Budget leak at noon: it gave me just enough time to write my piece for tomorrow’s Times about it before it started. Lunch!
— Giles Coren (@gilescoren) March 20, 2013