Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120 - 129)



  120. What was the response?
  (Mr Earls) The response is that they are very interested in what is happening in the United States. They tend to question its applicability, but as we say, we are not talking about the transposition of that legislation. I do hope that the Government do still retain an open mind to this as a policy option.


  121. I am interested in that aspect of the Community Reinvestment Act because when the Committee visited the United States in January, we did meet Bill McDonagh who is the Chairman of the Federal Reserve in New York, and indeed, a few weeks before, he had taken Gordon Brown to Harlem to look at the good work that was going on in that community as a direct result of investment from the Community Reinvestment Act and he stated to us, in an American context, "If banks had been doing their job properly, there would be no need for the Community Reinvestment Act." How far does that apply over here, and what particular characteristics do you think we should take from that Community Reinvestment Act and use in this country?
  (Mr Murphy) There are huge parallels and what we have to bear in mind is that this is not something that the United States of America have done recently, they have had this for 25 years. This is quite an old piece of legislation in that respect. The bits that we are particularly keen on is banks accepting an obligation to meet the credit needs of their communities. It is a two-way street, it is not just a one-way street, and that is something that we mentioned in our submission. But also any decision to pull out, there has to be evaluations of the lending performers, financial institutions, so they cannot just make a Boardroom decision. It has to be based in the community, based in the type of business. Nobody is suggesting that then you would ignore all of that. All that performance has to be taken into account when considering merger, acquisitions, closure, whatever, and that seems to be a very positive way of making sure that we can get the balance right between what business requires and what the communities require.
  (Mr Earls) The key element centres around information disclosure because that is what enables people to make informed choices about what banks are doing.

  122. There is insufficient information -
  (Mr Earls) There is insufficient information about what the banks are doing. I know this is a concern of the Government and previous ministers in the past have very publicly and quite strongly encouraged banks to disclose more information on a voluntary basis.

  123. Like what information?
  (Mr Earls) About their lending activities to the communities that they serve. We also highlight to you in our submission that the Social Investment Task Force in its report to the Chancellor highlighted again the issue of greater disclosure by banks to their communities, and they also recommended that if this was not pursued quickly on a voluntary basis, the Government should consider some CRA type legislation.

  124. So you would like to see a public notice in the local papers indicating what particular projects and communities the banks have invested in?
  (Mr Murphy) I think there is that element of it. There is also the element of their business decision, as they call it, for pulling out. I remember a few years ago Nat West closing a branch in Toxteth and the reason they gave us is that they were not selling enough mortgages. It did not surprise us, to be quite honest, and if that was the measure and the only measure, then the decision was something that had nothing to do with that. So it is a question of getting this balance right. I think it comes to the point Mr Plaskitt was saying earlier, we recognise that branches will close, people's way of accessing their financial services alter and change, but there needs to be some understanding of why those branches have been closing, why particular disinvestment policies are being pursued, and we do not have that transparency at the moment, we do not know. It is a mysterious system that produces a list that says, "These 70 will close on Friday".

  125. I think we are winding up now. Maybe I could ask you just a couple of questions to end with. In terms of your relationships with the banks, maybe not confined to the big four and without necessarily naming banks on that, how do you get on with banks and what characteristics define the banks that you have best relations with?
  (Mr Murphy) We get on fantastically well with all of the banks on a day to day basis.

  126. There is no need for us to call the banks, then?
  (Mr Murphy) I think there is. One of the difficulties that I think banks have is understanding what it is that we as a Union want to have in our relationship with them. Some people that we deal with still do not quite believe that the flat caps and donkey jacket era has gone, and that we want to sit down, as I said before, and be at the centre of the decision making process with the employer. That is the process that we want. All the banks that we deal with we have a good relationship with. We do fall out occasionally, and I will not name names, but items do appear from time to time in the press of issues that we have. We do fall out over matters of pay. At the moment, we think there is a bit of a disparity between what our members get and what some of the Chief Executives get. The Chief Executives do not seem to have a problem with it but we do. On the whole though, if we have an issue or a problem, we can go and talk to them about, and we do go and talk to them about it. I am not sure that all of the banks that we deal with, if they have a difficulty or problem they feel able to come and talk to us about it first off, we would maybe pick it up second or third hand. Banking has gone through a revolution in the last 5-10 years, will continue to go through a revolution. There are issues about mergers, there are issues about acquisitions that we sometimes come head to head with the bank about—Lloyds TSB is a classic example on their proposed takeover of Abbey National. We had a different view to the one that they had. It has caused some local difficulty along the way, but the relationship is robust enough for us to be able to go through that and move on to what the next issue is.

  127. Finally, within these four walls, give us a telling knockout question we can ask the banks.
  (Mr Murphy) "How do you justify paying your Chief Executives so much when some of your workforce get zero pay increase?"

  128. Nothing wider?
  (Mr Murphy) You can ask them how sometimes whether the banks are successful or not and some are more successful than others, but they still manage to have massive pay increases for senior executives regardless of the performance of the bank. It is the mysteries of the Remuneration Committee, they are all on each others.

  129. But this is not confined to the banks, this is corporate government's issue, is it not?
  (Mr Murphy) Of course.

  Chairman: However, I do not know if we will ask that telling question but we will put it in the bank anyway for future reference. Can I thank you again for your Memorandum and your contribution today. It is very helpful to us in this further inquiry.

***-Asterisks denote commercial-in-confidence matter and have therefore not been reported.

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