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Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020

I thank my noble friend the Minister for her excellent exposition of these important, though very technical, SIs. Clearly, as we leave the EU and leave the transition period, we must have in place our own regulations to ensure the safety and security of our financial institutions and the protection of consumers within our financial system.

I welcome these SIs. I do not think that they are particularly contentious, and I do not believe that any of our scrutiny committees have raised particular concerns. Like the noble Lord, Lord Mann, I would like to raise a few issues and ask my noble friend a number of questions, particularly on the issue of capital buffers. Who is in charge of assessing the buffers? What ongoing analysis is undertaken to ensure that the buffers that have been put in place are of the standard that they were expected to be when they were introduced, and how timely is that analysis? For example, has any new analysis been conducted in light of the Covid situation, and what might we perhaps expect in that regard?

In addition, what scenario analysis is undertaken in light of potential market distortions resulting from the ongoing quantitative easing programme of the

Bank of England, and the potential interference in capital market valuations that may result from the extraordinary monetary measures which at the moment are focusing on driving down long-term interest rates and driving up asset prices in order to encourage growth or protect downside risk to growth?

On those measures, I express my significant concern at the rise in the levels of debt across our economy, and the almost exclusive focus on interest rates on debt being a measure of security of assets. In particular, there is the idea that government bonds—sovereign debt—are the lowest-risk asset which underpins all our capital asset pricing models and will drive the assessment of the capital buffers backing our financial institutions, and the question of whether we believe that this is wholly reliable in the current circumstances.

I certainly agree with the noble Lord, Lord Mann, that no bank or financial institution should have been—or should be in the future—too big to fail but, in reality, surprises happen in markets. I wonder whether the new financial services regime that we will have after we leave the EU transition next year will consider potential nationalisation, in circumstances where the Government and taxpayers would otherwise have to bail out shareholders—and indeed bondholders—because of the risk of failure of the assets that they invested in and the potential damage to wider society should that failure actually occur.

What assessment is made of the property markets and other asset markets when assessing capital buffers? In particular, there is a question mark as we pull out of the MREL regime—as my noble friend has described—and focus more on the TLAC US regime, which has a different range of assets as its capital measure. Is that expected to continue to be a trend we will follow?

I welcome the emphasis on gender equality in our new regulatory system, in terms of pay. That is most welcome in the financial services sector, as in all other sectors.

Finally, I ask my noble friend how the Government, the Bank of England and the PRA, and other regulators perhaps, see the position of our major pension funds, which are enormous relative to the size of the economy in some ways. Certainly they are much larger than many financial institutions regulated under these instruments. How are those pension funds seen in terms of security, capital buffers and importance of delivery and security? If she has not got the answers, of course she is welcome to write to me.

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