Banking (Special Provisions) Bill

My Lords, it is extraordinarily difficult for me to follow the enormous quantity and quality of privy counsellors who have spoken, baying like hounds on the leash looking for a fox sitting gently on the Benches opposite. I was a banker for many years and have realised that in front of me today we have a lot of amateur bankers—by ““amateur”” I mean someone who loves their subject—trying to make political points. I will start at my beginning. I have one thing in common with the new executive chairman of Northern Rock—asbestos. Lloyd’s was bankrupted because of asbestos, but I was in the asbestos world, selling it and other materials in the north-east of England for years. It never seemed to do me any harm in the end. That was way, way back, but I wanted to be in industry. I wanted to make things. I wanted to create added value. I did not want to go into the City and be a blue button or a bell bottom, or whatever they were called in those days. My industry thought that I needed knocking down a peg or two, so I was sent to the north-east as a rep, because the rep there had had three hernia operations. In fact, he had only had two, but he had disappeared into the sunset. I was given the patch from Thirsk to Berwick. I lived for a while in Hesketh and then found that in the winter if I went to the Park Hotel in Tynemouth and offered to work in the bar, I would be given the bridal suite to keep it warm. I got to love Newcastle—I was later allowed to pronounce it with a short ““a””. I watched around me as industry collapsed. I watched those empty yards where there was no stock. I watched the cranes rusting in the shipyards and I realised that industry had gone. I managed to win an order for Blyth colliery and for the first time went down a mine. I was allowed to design a piece for the top of the eaves, called a finial—it was called the Mitchell-Thomson finial after my name, before my father died. I was proud and I loved that part of the world. I watched as suddenly industry collapsed and unemployment rose. A proud people found that they were searching for something new. That is what led me to stand on those Benches—as did the noble Earl, Lord Ferrers—when the nationalisation of shipbuilding took place. For three nights I stood there to try to prevent the Government from nationalising and destroying an industry, but that is what happened. It was not that anything had been done wrong. The second element in my life came when a committee that I served on with Lord Aldington was looking at what would happen when North Sea oil ran out. North Sea oil turned up and helped the north-east of England, not just Scotland. We said, ““Well, if we don’t make anything, we won’t have anything to sell when North Sea oil runs out””. I realised pretty quickly that nothing was going to be made and I joined the financial world as a banker for many years. There, I learnt certain things. I worked with Midland Bank, which came from the Midlands. Barclays came from East Anglia. The four great clearing banks had certain rules. They had, as the Chancellor will know, certain equity-to-debt ratios supervised scrupulously by the Bank of England. You could not lend more than 17 to 20 times more share capital than you had reserves. That meant that, if you lost £1 million, you had to reduce your lending book by £20 million. I was in the merchant banking side. I was told that our assets went up and down in the lift every day, but those of the clearing banks were undoubted. Alongside that came these institutions called the building societies or friendly societies, which started first at the Golden Cross Inn in Birmingham in 1751. By 1860 there were 750 friendly societies, or building societies, in London, and 2,000 throughout the country. In those days, people did not use banks. Even when I joined the banking world, only 30 per cent of people had bank accounts. The rest used building societies, which were often terminal societies. That meant that, when everyone had obtained a house, the society closed down. Then the problem came. In 10 years—no, even 100 years—there were eight building society Bills, but people forgot the principle of a building society, which was to help a family to get a home. People put their money in and gradually they raised money to be able to buy a home. Homes were the most important things in the land, as they still are today. But gradually mistakes were made. My bank, the Midland Bank, made a mistake by buying a bank on the west coast of America that was operating in what you might call the sub-prime market. It was accused of ““red lining””—of not lending to certain ethnic minority groups. Gradually we started to fail. At that time the building societies were regarded as competition by the clearing banks. Noble Lords will know that, after the war, possibly 20 building societies merged in one form or another and then became banks or were absorbed by banks. That was not because the banks wanted any more branches. They suddenly stopped being banks and sold products. Now they sell them by telephone. You dial and press ““1”” and you ask to speak to someone and you cannot get a name; you then find that the name is often Sharon, but it is a different Sharon every three hours, and you cannot speak to anyone. We have in some way destroyed part of our banking system. I had always liked the building societies, but gradually they, too, got caught up by the carpetbaggers—I was going to call the Government by that name. Noble Lords may remember that a carpetbagger was someone who came along and said, ““Wait a moment, I have a way of making short-term money. I will take a deposit in a building society and then get some shares, and then make them de-whatever and make a quick buck””. That is what happened. Gradually all the big building societies ended up being taken over by banks—and one of the 10 biggest was Northern Rock, which was still independent. Some 60 building societies remain, which together have an asset share of some £300 billion. However, that is only three times the level of the problem with Northern Rock. You could see it happening because people lost the idea of equity-to-debt ratios. They looked at the securitisation of debt at sub-prime levels and looked at the cash flow that came in from the poor depositor who was actually saving and who was a genuine person who may have been pushed on his house because of inflation and who then borrowed more. A mistake was made by the management, but above all the mistakes were made by the supervisory authorities. They should have known. In my day we did not dare to move without the Bank of England. You would ““walk across the road””, as was said, perhaps up to St Paul’s or down to the Bank itself, and you would sit, often with just one person—not four people sitting in a box—and you would ask for advice. It might be about exchange control; you would then get that advice and learn fairly quickly who was acceptable and who was not. The language that went around was, ““We don’t lunch with so and so any more””, which meant that they were in financial difficulties, or, ““We certainly don’t call to see them, and they should not be allowed to call to see us””. Then, one day, one of those people called to see me. He was the president of the National Bank of Cuba and the Finance Minister. I was going to say that I always got the bum end of the steer, but it was not quite that bad. Leon was a very nice man; when he came in, he said, ““I feel so sorry. You see, we defaulted once with Midland Bank—32 years ago, for half an hour””. He apologised for that because many people had never defaulted. The problem that we have today is that the building societies have tried to be banks when they were not capable of that and the banks were interested only in trying to lend as much money as possible to people who could not afford to pay for it. We are now in that crisis where our manufacturing and trading industries have been replaced by financial services. Is that the future of this country? We are relying on so much international money that it will disappear if we start to put pressure—either personal or other pressure—on people who bring their money here. What do we have left? We have one great thing: this institution has been solid and sound in this debate. I feel sorry for the Government. I know what I would do about Northern Rock, but I would not like to do it. Normally, someone would produce a prospectus, maybe in six or eight drafts. Instead of being pushed around by the Chief Whips of each party on red Benches, that prospectus would be delivered by motor-bicyclists at three or four or five o’clock in the morning—this was before we had computers. You would have checked everything out and been made to sign off every page, which other people would then sign on top of you; there would be eight signatures initialled. If you made a mistake between a comma and a full stop in a letter of credit, that letter could be rejected. That was called professional banking; today, it seems to have disappeared.