Banking (Special Provisions) Bill

My Lords, I explained that that case was simpler. In fact, however, there was no loss to the public purse whatever. Not one penny was lost to the public purse as a result of the Johnson Matthey operation. This is what should be done on this occasion. I am sorry to have to say this, but there is absolutely no public interest whatever in perpetuating the existence of the Northern Rock bank. It is not as though we in this country are short of mortgage-lending institutions. It is not as though there is any strategic national interest in maintaining one more mortgage-lending institution. There are, however, grave risks in keeping it going. There is greater exposure of the taxpayer, there is the problem of unfair competition, and there is the continuing reputational difficulty which the United Kingdom has suffered as a result of perpetuating the existence of this failed bank. Clearly the Government should be saying, ““This bank will undertake no new business. The existing mortgage book will be managed, and when the financial markets improve in time, as they will, the loan book can be sold off piecemeal at a proper price and in an orderly way to private sector buyers””. That is what should be done. Far from protecting the taxpayer, as the Government are pretending they are doing, they are causing great risk to the taxpayer. Why are the Government doing this very foolish thing? I am afraid that it is difficult to think of any explanation other than the political one: that the Government are sensitive about feelings in the north-east. It is right to be sensitive about feelings in the north-east, but it is not right that these feelings—these rather grubby political feelings, if I may say so in the politest possible way—should over-ride all the other considerations about how the operation following a bank failure should be conducted. Incidentally, I see from the Chancellor’s letter, which I have only just read—I think that the Minister said this in his opening remarks—that, "““the FSA advises that Northern Rock’s mortgage book is of good quality and its assets exceed its liabilities””." I shall make just two observations about that. First, the Financial Services Authority’s record in this matter does not engender great respect and belief. Secondly, even if that is so at the present time, it is well known that if there were to be any further decline in the housing market, Northern Rock would be at greater risk than any other bank or lending institution. The Minister’s complacency is therefore unwarranted. Let us look to the future. How will we best avoid this sort of shambles, which has been extremely damaging to the United Kingdom as a financial centre? We clearly need to strengthen banking supervision. That is what I sought to do, as the noble Lord, Lord Eatwell, will remember, in the Banking Act 1987 following the Johnson Matthey debacle. I reflected long and hard and brought forward that Act, which considerably strengthened banking supervision. What has happened since then? This Government, notably in the person of the then Chancellor of the Exchequer, Mr Gordon Brown, have successively weakened banking supervision in this country. The first thing he did was to take the responsibility for banking supervision from the Bank of England and give it to the Financial Services Authority. I suppose he must have thought that financial regulation and bank supervision are the same. They could not be more different. That has been a disaster. We know now—it has been established—that the FSA was asleep on the job; moreover—certainly until a few days ago—if you go to the Financial Services Authority’s website and click on ““What we do””, you will see not a single mention of banking supervision. It is scarcely aware that it is doing it. It is certainly very low down its priorities. That is not the way to enhance banking supervision. In addition, in the 1987 Act, because banking supervision needed to be strengthened, I set up the Board of Banking Supervision, statutorily, and imposed it on the Bank of England. Initially, the Bank of England was not terribly happy about that, but the noble Lord, Lord Kingsdown, who was the Governor of the Bank of England at the time, accepted that banking supervision needed to be enhanced and that it would be helped by the injection of real expertise. When I set up the Board of Banking Supervision, it was chaired by the governor and had two other senior Bank of England representatives on it. But I also put on it the most experienced, most respected and most market-savvy former bankers—from both commercial and investment banking, that I could find—and they did a very good job. What did Mr Brown do about the Board of Banking Supervision? He did two things. In 1998, he removed the Governor of the Bank of England and the other Bank of England representatives, which did not seem to be very sensible. But that was not enough for him. In 2001, he abolished the Board of Banking Supervision altogether. That is not how to have effective banking supervision in this country. This Government have set up more boards, committees and commissions on this, that and the other than any previous Government. It has abolished just one board—the Board of Banking Supervision. No wonder we are in the mess that we are in now. The reputation of this country as a financial centre has been gravely damaged by this situation, which the Minister would do well to admit. Perhaps I may put two questions to him, and I hope that he will pay attention to this. First, what were the auditors of Northern Rock up to? After all, it is about to be owned by we the people and, very shortly, we will have a right to know what the auditors were up to. Did the auditors warn Northern Rock of the irresponsible policy and irresponsible business strategy that it was pursuing? Did they warn Northern Rock that it should at least—if it was to be funded 80 per cent from the wholesale markets—insure that risk, as Countrywide did in the United States? Did the board reject that? Because I was very concerned about auditors and regulators, in the 1987 Act, I gave auditors an indemnification from any claim for damages if they gave information to the bank supervisors which the supervisors required. Did that happen? There would have been no problem, because I had given them that indemnity. Did they do that? If the auditors did not do that, were they negligent? If they were negligent, perhaps they should be sued. In the case of Johnson Matthey, the Bank of England sued their auditors for a substantial sum of money and won. Perhaps the taxpayer could get at least a little bit back that way. I would like to know what the Minister has to say about that. My second and final question concerns the shareholders. Will the Minister give an undertaking—despite what he says, it is not at all clear—that the assets will prove sufficient to allow the taxpayer to get his or her money back? Whatever independent valuation is put on the shares now, will he give a firm undertaking that the shareholders, who must be at the end of the queue, will not receive a penny until the taxpayers have received everything due to them? If not, that would be the greatest imaginable scandal. The reputation of the financial services sector, this country’s biggest industry, has been gravely damaged by what has been done, but it is so strong that its reputation will recover. The Government’s reputation has also suffered gravely; I do not believe that it will recover.