Banking (Special Provisions) Bill

My Lords, it might be appropriate at this stage to have a little context on why we are here. We have heard a lot about Northern Rock and its difficulties. But not so very long ago Northern Rock was a beacon of competitiveness and its business model was envied by other financial institutions. It was also a time when it provided a great service for consumers; hence 20 per cent of people took out mortgages with it and it had a substantial mortgage book. However, we have to remember that that was the sunny uplands. Thereafter, there was an overambitious business plan where success went to its head and it started to do things that were perhaps a little overextravagant. As previous speakers have said, borrowing short and lending long is very dangerous, particularly when interest rates may be volatile. It was a risky and unsustainable business plan at one stage. But we have to remind ourselves that the favours of the market place, the City, are easily won and easily lost. Something we need to think about in relation to Northern Rock is the lack of oversight from the non-executive directors, which has not been mentioned by previous speakers. Certainly, they were highly experienced non-executive directors and one might have expected them to show a greater degree of oversight. In the first place, this was a failure of management. In the second place, it was a failure of governance. I hope that the Minister will give me assurance that none of those non-executive directors on the board when Northern Rock got into the troubles that it did will continue to be on the board in the new nationalised version. It seems to me that all the actions the Government took were entirely appropriate in all the circumstances. It was entirely appropriate that they should take five months to look for a private-sector solution. I think we would all have preferred that to have taken place. However, the circumstances in which Northern Rock found itself, and to protect the interests of the taxpayers in relation to the guarantee of deposits, which in itself was an entirely reasonable to prevent further instability in the financial sector, made it impossible to do so. As I have said, it is very important to say that the risk of financial instability was brought about by a failure of management and a failure of governance. It is now very appropriate that Northern Rock should be taken temporarily into national ownership. That is the best way to ensure the money expended on behalf of the taxpayer already will be returned. Ron Sandler is an extremely good choice of executive chairman. I am sure that he will not wish to remain as executive chairman any longer than he has to and that a proper management board will be in place in the not-so-distant future. It is important to look at the competition aspects of this. At one point, Northern Rock was a force for good in competition within financial services. It certainly was a price setter and a number of organisations felt the competitive pinch when it was in its ascendant. Now, there is absolutely no chance that it will be a competitive force, as such. It will be subject to enormous scrutiny, not only from the EU to ensure that none of the provisions of state aid will be breached, but also from other members of the financial services industry; that is, banks which will be looking out for any unfair competition that could arise as a result of the arrangements with the Government.