Returning to responsible lending

On Sunday 18 October Andrew Marr interviewed City Minister Lord Myners.

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

ANDREW MARR:

Now in his latest podcast, Gordon Brown's promised to end reckless banking and protect consumers. Meanwhile, even government owned banks are still offering homebuyers mortgages four or five times earnings, and Christmas has come in October, as usual, for top bankers. The city minister Paul Myners joins me. Welcome, Lord Myners.

LORD MYNERS:

Good morning.

ANDREW MARR:

This new initiative to help consumers out, we're talking about people who have been offered mortgages that, if things turn down, they frankly have no chance of repaying, and yet we read this week that even banks in which the taxpayer has majority are still offering four and five times and some other banks are offering six, seven times earnings.

LORD MYNERS:

The emphasis of the statement made by the Prime Minister this weekend is about returning to responsible lending - putting the obligation and burden on banks to ensure that when they advance loans, they carry out a meticulous analysis of the ability of the individual to repay the loan, Andrew.

ANDREW MARR:

Old-fashioned banking as we remember it. But how can you actually enforce that change of culture because it's gone so far the other way?

LORD MYNERS:

Well the FSA is going to tighten up its regulation of issues around lending. We're not going to have a mandatory limit on loans to value or loan to income, but rather a prudential limit that says that the bank must ensure that it is in the interests of the borrower to take out the loan on these conditions.

ANDREW MARR:

And so would that mean that if things went belly up, it would be the bank to blame and not the borrower …

LORD MYNERS:

Well I think the bank …

ANDREW MARR:

because there must be some sanctions?

LORD MYNERS:

Yes, I think the bank must take more responsibility here than it's previously been required to do so. As they must also be in the area of foreclosure and helping people who are struggling to repay their debts.

ANDREW MARR:

Because generally we've heard politicians say things must change and things will change, and the Prime Minister as well. Meanwhile, the banking industry has carried on pretty much as before and it seems to me the problem is that you don't have the sanctions, you don't have actual levers to apply.

LORD MYNERS:

Well I think a great deal has happened. We are requiring the banks to hold much more capital than in the past. We are addressing failures of governance. At the heart of this issue, Andrew, were failures by the owners of banks and their boards of directors to exercise appropriate control. So Sir David Walker's report is going to set out a route map for significant improvement there. We've also secured agreement from the banks over the last fortnight, myself with investment banks earlier this week, that they will apply a much more conservative approach to remuneration in the future.

ANDREW MARR:

To bonuses - well… We read in the papers just today that the Royal Bank of Scotland, which we all now own as taxpayers, is putting aside vast sums for bonuses in their investment banking division. Will you stop that happening?

LORD MYNERS:

I think the Royal Bank has denied the story and said it's not based on any fact at all. Through UK Financial Investments, the agency which holds the investment in Lloyds Banking Group and Royal Bank on behalf of the taxpayer, we are requiring a much stronger policy on remuneration. We're simply not going to accept high levels of remuneration which are not justified and earned. The nation is angry about this. I'm angry about it, Andrew.

ANDREW MARR:

And, therefore, if you see huge bonuses coming towards you in these banks, will you yourself actually veto them? Will you stop them happening?

LORD MYNERS:

We've made it very clear through UKFI that investment … bonuses must be justified, that boards of directors must challenge the decisions. And if we found the bonus policy was an unreasonable source of risk or simply not justified, we would vote against it.

ANDREW MARR:

You would vote against and, therefore, stop it happening?

LORD MYNERS:

We …

ANDREW MARR:

Because I mean that's the key thing. I mean you can be angry, you can feel that more needs to be done in terms of investigating whether they're justified, but in the end do you stop them or not?

LORD MYNERS:

We have the powers to approve the framework within which these decisions are taken. These are private sector entities. They must compete for talent in the market. My own view is that this market's not working efficiently, that people are being grossly over rewarded for their contribution to the value added …

ANDREW MARR:

(over) But, sorry, coming back to it nonetheless as a politician, as a member of the government, it seems that you're not actually able to stop it happening.

LORD MYNERS:

We have the powers or could take the powers to do so if we felt these decisions were contributing unreasonably to risk or simply were not justifiable. But it's the shareholders who own these banks, Andrew, people who look after our pension funds …

ANDREW MARR:

(over) I hear your passion, but nonetheless I keep picking up newspapers. There's Goldman Sachs - good old Golden Stacks as it's known - back with vast, vast bonuses you know gushing out across London again. It seems to many people that it's just business as usual.

LORD MYNERS:

Well let me be clear: it's not business as usual. A year ago this weekend, Andrew, we were rescuing the banking system. The bankers have been told not to forget that. I had a very for…

ANDREW MARR:

(over) But they have forgotten it! They're taking the mickey, aren't they?

LORD MYNERS:

Well you say they have. Let's see the evidence. The decisions have not been taken. Sums may be put aside which could be paid in bonuses. No decisions have been taken yet. We will require those decisions to be taken in the best interest of the financial system and not contribute, as they have in the past, to unreasonable risk taking.

ANDREW MARR:

So how is it possible for a company like Goldman Sachs then to be paying these huge, huge bonuses just a year after everybody was facing oblivion?

LORD MYNERS:

Well, Andrew, as I said I think there's an element of market failure here. Quite frankly, the clients of these investment banks probably are not challenging enough on the fees and the very large spreads that the investment banks are currently charging. So I'm saying to companies for goodness sake, why are you paying these huge fees? I'm saying it to pension funds. Why are you paying such large …

ANDREW MARR:

(over) But, sorry, in simple terms voters will you know look at the record of the government, remember the vast amount of public money that has gone into shoring up the banking system, have heard the promises that the days of big bonuses have gone, and then they pick up the papers and, by golly, the big bonuses are still being paid.

LORD MYNERS:

Well let's be proportionate about it. Firstly, the vast majority of people in banking are not paid terribly well. They're working in branches, they're working in call centres. We're talking here probably about less than 5,000 people globally who are being paid these enormous bonuses. That has to stop. It isn't justifiable, it can be a source of risk. We are taking action with the G20.

ANDREW MARR:

(over) And you're going to stop it?

LORD MYNERS:

Yes, with the G20. If we can work together, as Gordon Brown has led the G20 to address this issue, then we can do a tremendous amount to bear down on the current bonus culture.

ANDREW MARR:

Lord Myners, we will keep watching intently. Thank you very much indeed.

LORD MYNERS:

Thank you.

INTERVIEW ENDS

E-mail this to a friend

Printable version