Davis: "we must break up the banks"

On Sunday 13 June Andrew Marr interviewed Chair of the Future of Banking Commission David Davis MP.

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

ANDREW MARR:

"We must reform the banks". How many times have you heard that, and when might it actually happen? The new government's setting up a commission. It probably won't report for a year or so, but do they really need to wait because there is another distinguished Commission on the Future of Banking - all party, took evidence from across the industry, and partly set up with the consumer group Which? Its report is out today and its Chairman is the Conservative MP David Davis who is with me now. Welcome.

DAVID DAVIS:

Good morning.

ANDREW MARR:

This substantive new report, it's quite a thick report - really at the centre of it is the idea that, yes, we should break up the banks into the sort of safe, normal bits of the banking industry that most of us deal with day in daily; and the bits that take risks, the investment banking?

DAVID DAVIS:

Yeah - that's right, that's exactly right. I mean the first thing to say is that if we don't do something along these lines, the next time this happens it'll break the country. We'll go bankrupt.

ANDREW MARR:

As we depend so much on the banking industry in this country?

DAVID DAVIS:

Much more than anybody else. Much more. Five times the GDP is tied up in bank assets. Five times. So if we have to guarantee that through another crash like the one we've just had, it'll all be over. We'll make Iceland look like a successful economy. So from that point of view, it's got to be done. The separation is not easy, of course, and the reason the government's having this commission - I think it's taken as read that the separation is necessary - is it's got to be done in negotiation with foreign countries - America in particular, the Europeans; but also it's got to be done intelligently because it's quite an expensive thing to do. You take all these big companies and take them apart, it's going to be quite tough to do.

ANDREW MARR:

It's interesting because Vince Cable was a member of the commission before he joined the government …

DAVID DAVIS:

(over) Yes, up until three weeks ago. That's right.

ANDREW MARR:

Absolutely. And stands entirely by its proposals, as far as one understands. And there had been a bit of a suspicion that somehow the banking industry would lobby the coalition government; that in the end there wouldn't really be a big structural change and the banks wouldn't be broken up.

DAVID DAVIS:

Yes, I mean that was in part the fear that led to the commission being set up, I guess; that somehow the power of big finance would influence it. I mean one of the arguments has been that Glass-Steagall, the last break up of the banks, was overruled about ten years ago as a result of Wall Street lobbying. So there is a fear about that.

ANDREW MARR:

And there hadn't been a bank crisis all the way through the years of Glass-Steagall and separation …

DAVID DAVIS:

(over) Sixty years without a …

ANDREW MARR:

(over) … and within a few years of it going, bingo.

DAVID DAVIS:

Sixty years without a crisis under Glass-Steagall; and in ten years, bang, we have the biggest crisis since Glass-Steagall.

ANDREW MARR:

So let's be clear. What you would like to see is all the big banks broken into the investment bit, so you'd have a high street bit of Barclays, a high street bit of Royal Bank and so on?

DAVID DAVIS:

The detail is difficult. There are about five things you achieve through breaking up the banks. I mean you protect the taxpayer, you protect the depositor, you stop the conflict of interest. And you stop the conflict of interest that we've heard about - the Goldman Sachs allegations where they bet both sides of the street, as it were, as they say in America. You've got four or five things which you need to achieve. So the detail of how you do it, I expect this government commission to come up with; but broadly speaking - yes, you've got to have that separation.

ANDREW MARR:

But if it's this important to the economy and if it's this urgent, shouldn't they really be getting on with it now?

DAVID DAVIS:

Well you can do some things straightaway. We've talked about things - what they call living wills …

ANDREW MARR:

Yeah.

DAVID DAVIS:

… which is essentially you draw a dotted line down the middle of the bank and say if you have a crisis, this bit's protected; that bit goes to the wall. That helps. That starts people to behave as though they've got separate banks. You've got to do that in public. So things like that. And there are a lot of other things that have got to be done as well.

ANDREW MARR:

You've also been involved in the campaign to get the government to kind of moderate its threat to raise capital gains tax to 40 or 50%.

DAVID DAVIS:

Yes.

ANDREW MARR:

How are you going on that. Do you think it's going to be a successful campaign?

DAVID DAVIS:

Oh pretty well, I think. I mean the thing you've got to understand straightaway is that these things like the capital gains tax provision came about as part of a coalition deal struck over a week under high stress, and what I think will happen is that the Tory half of the coalition if you like will be able to meet the Liberal half's requirements for a high headline rate, but mitigate it in such a way it doesn't harm pensioners, people who've saved through second homes or holiday cottages or whatever or equity - people who've been let down once by Gordon Brown's reforms of the pensions, which did real harm, and have looked somewhere else to put their money. Those people have got to be protected.

ANDREW MARR:

And what, finally, about the 55% rule - this idea that we're going to be … parliament won't be able to vote for dissolution, won't be able to go to the country or ask the Prime Minister to go to the country unless 55% of the MPs have voted, which seems un-parliamentary?

DAVID DAVIS:

It did, and that's another of these concerns. But you know you're going to see this a lot in the coming couple of years where we're going to have debate in public and …

ANDREW MARR:

(over) So you don't think the spirit or integrity or identity of the Conservative party as an organisation is going to sort of be blurred or diluted or threatened by this coalition?

DAVID DAVIS:

Well I don't think the Conservative party as an organisation will let that happen.

ANDREW MARR:

Yuh.

DAVID DAVIS:

It will have its say. What's going to be different, however, is how your profession deal with it. Are they going to say every time we have a sensible, intelligent debate, oh there's a split? Or are they going to say well actually that's quite a good argument and maybe they should modify it and maybe that compromise is a good idea?

ANDREW MARR:

Do you think … Yuh, the tone of politics has changed, hasn't it?

DAVID DAVIS:

Yeah.

ANDREW MARR:

The public mood is different, isn't it?

DAVID DAVIS:

Absolutely. I mean ironically I mean my banking commission was coalition politics before the coalition: it was three parties trying to come together to fix something. And I think there's a great deal of scope for using the common interests of the parts of the coalition to actually solve the country's problems. No bad thing in that.

ANDREW MARR:

Very interesting. David Davis, thank you very much indeed for just now.

INTERVIEW ENDS

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