Reports (or should that be leaks) suggest the Queen’s Speech on Wednesday will include a new statutory code of conduct on bank lending.
The code is expected to require lenders to give customers specific notice if they plan to withdraw or alter credit and leave banks open to fines if they do not treat customers fairly.
And a proposed Banking Reform Bill would include measures to allow the Bank of England, Treasury and FSA to intervene earlier to prevent another bank crisis.
The bill was introduced early and has already started its passage through Parliament, with some reports suggesting it will include extended powers to take other financial businesses into public ownership.
The Queens Speech is part of the ceremony that marks to state opening of a session of Parliament. The Queens Speech is written by the Government and lists the acts and measures to be introduced by the Government during the next session of Parliament. The differences between the UK’s Parliamentary system of Government and the US Presidential system are considerable, but often obscured by the role of the Monarch. The Queen may be making the speech but the Government has written it and it is the Government that writes the agenda and introduces the bills and acts.
In a Parliamentary system the Government rules by getting acts passed in Parliament and has no executive power once the party is not able to control a majority in Parliament. We can expect many individual MPs to try to get amendments passed that will be more consumer orientated than the government would prefer, the government’s ability to control the agenda will depend on its perceived political strength and ability to keep a consensus in the party.
It will be a political battle to stop the code from moving from rules of etiquette to rules that impinge on credit risk. The rhetoric is likely to be very anti bank, but perhaps the impact will be marginal.
We have already seen RBS announce they will not start the process of repossession on mortgages until after 6 months of arrears have built up. Lloyds TSB (soon to be Lloyds TSB HBOS and any other acronyms we can think of) have made an announcement about not with drawing existing facilities or increasing rates to small businesses.
So far it is all harsh rhetoric and practical common sense measures, but there is a point where it changes to control of lending policy. The Governments aim is good, but it may get derailed by back bench intervention.