To ask Her Majesty’s Government when they expect the first report of the inquiry into the corporate governance of the banking industry, chaired by Sir David Walker.

My Lords, Sir David Walker will examine the board management of risk, incentives to manage risk in bank remuneration policies, the competences needed on bank boards, board practices and structures, and the role played by institutional shareholders. As part of his review, a consultation document will be published in the summer of 2009, and conclusions will be published in the autumn.

My Lords, I thank my noble friend for his Answer and for an answer that he gave yesterday, when he explained an equation: MV=PY. I am sure that that pleased everyone in the House and that they thoroughly understood what he was talking about. May I put a simpler equation to him? If the banks, which are supposed to be lending and have been promised to lend, equal all the money that has gone in, rightly, to try to help them to do so, but they still do not lend, will my noble friend assure us that his policy of an arm’s-length relationship with the banks will change and that he will scrap that arm’s-length policy, or at least moderate it, and see that they do lend?

My Lords, I thank my noble friend for his question. He brings considerable experience to these issues and I always welcome his questions, as indeed I welcome those of the noble Lord, Lord Higgins; they are a truly impressive duo. The negotiated lending commitments with the Lloyds Banking Group and the Royal Bank of Scotland have reached totals of £48 billion of new and additional loan commitments. After careful scrutiny of the plans of those banks and assurances from them on the basis of their economic forecasts for the next 12 to 24 months, and having regard to prudent lending criteria that they are entirely achievable goals, those banks will report to the Treasury on a monthly basis, and we will submit an annual report to Parliament on those lending commitments. All parties entered into them on the basis that they believed they were achievable.

My Lords, as reference has again been made to the very useful Cambridge monetary equation, may I point out that the correct formulation is MV=PT and not MV=PY, as the noble Lord, Lord Barnett, has just said and as the Minister said yesterday? I was going to say, “Eight out of 10. See me afterwards”.

My Lords, I am not sure that I could spot the question there. I did, however, come prepared, because there are different formulations of this equation. The noble Lord, Lord Higgins, is absolutely correct that in previous days it was expressed as MV=PT. However, in more recent economic textbooks, I am told, it is now expressed as MV=PY. The basic concept remains the same.

My Lords, the noble Lord, Lord Barnett, referred to the arm’s-length relationship between the Government and the banks, as has the Minister many times. Perhaps he will clear up a confusion in my mind. In his speech yesterday, the Secretary of State for Business, Enterprise and Regulatory Reform said that the taking of up to a 35 per cent share by the private sector would still ensure that the Royal Mail remains in public ownership. How can the Royal Mail remain in public ownership when the private sector has 35 per cent, whereas banks appear not to be in public ownership when the state has significantly greater than two-thirds of the shareholding?

My Lords, I am sure that it all depends on the framework agreement for governance. My noble friend the Secretary of State for Business, Enterprise and Regulatory Reform has a very clear method by which he will achieve his declared objective in that respect. I will wisely not allow myself to be drawn further into that area.

My Lords, what does the Minister consider the rate of gearing should be for these banks now that they have been recapitalised by the taxpayer? Should that gearing be going up or down, or should it compare with what it was before? What are the Minister’s views?

Lord Myners: My Lords, the level of gearing can be determined only by reference to the nature of the banking activity. Clearly, a number of banks became substantially overleveraged throughout the world. One has to have regard to the quality of the assets and the nature of the funding. The approach to gearing levels and leverage must be particular to the specifics of the institution, rather than a generic statement that a certain figure is either appropriate or a maximum acceptable level. I look to the Financial Services Authority and other global regulatory bodies to provide more guidance on leverage levels.

My Lords, I am sure that I am not the only Member of your Lordships’ House who is not terribly au fait with all these formulae. Will the Minister confirm that his first reply to the noble Lord, Lord Barnett, means that banks will lend to ordinary people who want to borrow money if they are solvent and good propositions?

My Lords, that is precisely what I mean. We want banks to play a critical and important role in the provision of credit to support investment, enterprise, business and individuals. To do that, they must be able to lend with confidence on the basis that they have strong capital, which is more than sufficient to cope with the challenges that lie ahead, adequate funding and access to liquidity. That is the combination we have sought to achieve. I believe I can state with confidence that UK banks, which have already increased their lending over the past 12 months, will further increase that lending over the next 12 months because they can do so from a very confident background.

My Lords, does my noble friend agree that the banks of today are in a much better state with the Government’s help than they were when they were left to their own devices?

My Lords, whether we would have needed to give the support we have is an entirely different matter. But the support we have provided in terms of capitalisation, funding and liquidity puts British banks among the best capitalised in the world and the most effectively positioned to provide their critical economic function in supporting British jobs, British families and individuals in the pursuit of their goals and objectives.

My Lords, I am glad to hear that from the Minister. But can he also assure us that the interest rate on new loans to be made by the banks will reflect at least in part the reduction in interest rates down to 0.5 per cent by the Bank of England?

My Lords, I assure the noble Lord, Lord Renton, that the data we receive at the lending panel indicate that the full cost of lending is declining in accordance with the reduction in interest rates. It is very encouraging to see that LIBOR, which at one stage was somewhat isolated from the base rate, has come down as we expected. We have grounds for some encouragement in the way in which that trend is developing.