Banking (Special Provisions) Bill

My Lords, I entirely agree with the noble Lord, which is why I suggested that the Government should instruct Mr Sandler to secure the best deal possible for the taxpayer in the context provided by the competition authorities. There were two other alternatives: administration, a policy for a fire sale of assets and the ruin of depositors; or totally disproportionate subsidies to the private sector consortia. I do not think that either alternative would recommend itself to anyone who has thought through the consequences. As I said, we must consider the measures in this Bill in the context of what is happening in world financial markets. As happens in financial crises, recent events have been unprecedented and they have exposed severe deficiencies in the business models of major financial institutions throughout the world. It is interesting to note that, while there have been major losses at a number of well known international banks, as yet Northern Rock has not lost anything. Although there are major crises, in the context of the impact of the changing financial markets, Northern Rock is not unique. These events have exposed deficiencies in the legal framework that is available to Her Majesty’s Government to deal with those events and their consequences. As the Government have made clear, the measures enacted in this Bill are temporary, specifically designed to deal with the threats that the Northern Rock problem poses to the UK financial system. As we have heard from a number of speakers, the Government are consulting on what permanent changes should be made to enable the better management of financial crises, in particular how assistance should be better provided to financial institutions in distress and how institutions may be more smoothly transferred into and out of public ownership. What has been extraordinary, as I have listened to speakers opposite, has been the impression that taking Northern Rock into public ownership is a threat to our financial system and to modern capitalism as we know it. Yet this is exactly the framework that already exists in the United States, which was created following the Continental Illinois case that I referred to. A new framework for taking institutions into public ownership when they need to be, in the face of a financial crisis, and then selling them back to the private sector will need to be formulated on a European Union basis so that its provisions are consistent with competition legislation. Much has been said about the impact of this Bill on competition in UK banking and much of what has been said has been wildly exaggerated. Since all major banks and building societies in this country are too big to fail, the extra security offered to Northern Rock depositors is far less than has been suggested by many noble Lords opposite. This Bill is a vital, positive and welcome measure, because it provides a framework within which Northern Rock can be reconstructed in line with evolving market circumstances. What the business model of Northern Rock, and indeed of any other British bank or building society, will look like in two years’ time is difficult to predict. Business models are going to change because of the way in which the credit markets have changed. The environment in which current business models were developed has gone, possibly for ever, and it is therefore vital that Mr Sandler, the management team at Northern Rock and the regulatory authorities are possessed of a legal environment in which a new business model can be developed for the future and for the stability of UK financial markets. That is why this Bill must be passed quickly to provide the certainty that markets crave and the legal framework in which the new team at Northern Rock can get on with the job. It is also why new measures should, after consultation, be brought forward as soon as possible to create a more appropriate framework for the relationship of mutual dependence that always exists between the state and the banking industry.