Banking (Special Provisions) Bill

My Lords, it is a great pleasure to follow the noble Lord, Lord Higgins. I start by pointing out that when we debated the gracious Speech, I said then that we were in the middle of one of the most serious financial crises we have had for a long time and that it was not over. No one should presume that in the next 12 months, while this Bill lasts, there will not be any more bank failures. I certainly would not put money on that, so I will keep an open mind on whether a 12 months’ limit on the Bill is a good thing. I have been struck by the great wisdom of hindsight in the debate, as well as a bit of rewriting of history. When a bank fails under a Conservative Government, it is just a debacle; when one fails under a Labour Government, it is a shambles. I like that because if we are ever in opposition, which I doubt, I shall use the same expressions all over again. We have also been mixing up the faults of the management of Northern Rock and treating them as if they were the Government’s fault. We have been mixing up the fact that there are bound to be delays in considering offers to buy the bank, as pointed out by my noble friend Lady Kingsmill. Five months is a short period in which to sell a bank like this, and that too is seen as the Government’s fault. Finally, the fact is that the tripartite arrangement has been operating for nearly 10 years and this is the first and only failure. Suddenly, everyone says the whole thing has broken down. I submit that one great thing about financial markets is that they change so rapidly that any legislation passed or arrangements made in one year are obsolete within the next two or three years. A major aspect of the current financial crisis, which I also pointed out in the debate on the gracious Speech, is that the people in charge of big banks have themselves not been aware of the business they are conducting. They too have been surprised by the level of losses. That is true of Citibank, Merrill Lynch, Bear Stearns and others like them. This is a business in which the rocket scientists get younger and younger and understand what is going on, while the bosses get older and older, are given large compensation, and do not understand the business they are in. Moreover, as has been pointed out, financial markets normally run according to people’s expectations. We know the strategies to follow, which business plans work and so on, but occasionally there is what they call a black swan. When a black swan hits the markets even a genius fails, as we remember with long-term capital management. Northern Rock has failed through no fault of the Government or any member thereof. When Northern Rock failed, we were told that there were offers by Lloyds TSB. I do not know how concrete those offers were; as I read it, even if there had been a concrete offer, Lloyds taking over Northern Rock would have raised issues of competition so severe that the European Commission would not have allowed it beyond first base. I doubt that it was as easy as people pretend with hindsight—that all that we had to do was sell it to Lloyds with no questions asked and that would have been the end of it. Once you did not do that, you had to protect depositors, you had to come out openly and give a guarantee, and that triggers a process under which the Government say, ““We nationalise on day one””. Had we done that, the storm would—believe you me—have been much bigger than it is now. So, we waited patiently and saw whether the market would turn up with a reasonable offer, but it did not. That is the nature of the market and we have to respect it. If people cannot give us an offer that will take the business off the Government’s hands and guarantee taxpayers’ money, the only alternative is nationalisation. Had we given it to Branson or the management and the consequence had been that we were subsidising a huge bonanza for private sector buyers the storm would again have been fantastic. By not agreeing to a private sector bid we were being prudent and cautious. We were looking after the taxpayers’ interest and depositors’ interest. On that ground a lot of the criticisms and the moralising that has been going on from the Opposition are completely beside the point. This has been an open process—everybody has known that the Government were seeking private buyers and that there had been discussions; finally, when it turned out that the Government could see that neither of the two offers were viable, they nationalised. Once you nationalise, speed is of essence. I do not criticise the Government for giving the Bill a very short time in Parliament. Although it is a technical Bill, there is nothing in it which requires detailed revision or amendment. The amendment proposed by the noble Lord, Lord De Mauley, about removing hybridity is important; that has been reflected in the report of the Delegated Powers and Regulatory Reform Committee. Once we have fixed that and changed from the negative to the affirmative procedure, there is nothing else that needs to be amended in the Bill and we can all go home. The sooner we can do that the better. There is no virtue in spending a lot of time on a Bill that is short and technical and needs a quick response. I commend my noble friend, who has been much sympathised with. I think that he did a good job; he explained the Granite problem to us in words of one syllable, but people still insisted on having it all written down; that has now been done. I suspect—I have only read the documentation as recently as other noble Lords have done—that the reason why Granite is not part of the nationalisation plan is that we do not want to be liable for its bonds. That seems to be the way to do it. I am guessing; I have only had a short time to read the document. Some of our laws are not sufficiently tight to be able to place the blame on the people who got into the mess in the first place. We ought to have laws sufficiently strong to haul the management and directors of Northern Rock before some court—and perhaps the auditors, whose duty it was to point out that the business model was failing. Perhaps somebody will tell me that we already have such laws on our books; if so, let us use them and let us get a few more people into jail. If this had happened in America, the entire management would have been in jail long ago. Our laws are too lackadaisical in our laws and in allowing this sort of behaviour to go on. It is time to put a stop to that.