Banking (Special Provisions) Bill

The Government spent five months or more in prevarication before putting a Bill before the House. In so doing, they were primarily driven by political considerations. They were determined to avoid the current outcome if possible—and not simply because they thought that it would be bad as far as managing Northern Rock was concerned. Above all, they thought that it would be bad for the Labour party's image to be associated with nationalisation, hence the fact that even now they try not to use the word. That is a bad reason for long delay, but the Government are making a virtue of the delay, saying that it was good to consider all options, and that essentially there was no hurry. There was no hurry until Sunday. Suddenly, on Sunday, it was essential to do everything in a day. Why? Again, I suspect, it was not because of any need on the part of the company. No detailed indications have been given by Ministers as to why the rush is necessary. The real reason is political. Because of the huge embarrassment of a Labour Government—a supposedly new Labour Government—reverting to the mechanism of nationalisation, they have decided to ram the Bill through in a day and minimise any discussion that we can have and the ensuing publicity in the press. Was that necessary? No, as we know from the experience of Rolls-Royce. The Rolls-Royce Bill was more specific, and although it did not take a hugely long time to complete its passage through Parliament, it took longer than the Banking (Special Provisions) Bill will take. It was not necessary for the then Government to dress it up as a Bill to take over the whole of the aerospace industry; they made it a two-clause Bill to take over Rolls-Royce. There has been no explanation from Ministers about why a similar procedure has not been followed today. Those were five wasted months because all that time Ministers could and should have been planning the tentative business model that would be adopted under nationalisation, administration or a Bank of England-led reconstruction. We are not told what the business model will be, not even in the broadest outline—whether it is one of growth or contraction, consolidation or business as normal. Nor have the Government spelled out how they will deal with the problems of competition and competition law. So we have had five wasted months, then suddenly one shameful undemocratic day of ramming the Bill through Parliament. I shall say a little about the lessons in prevention and regulation that emerge from the issue. The problem arose because of the marketing of sub-prime mortgages through special investment vehicles. That triggered the closing of the market on which Northern Rock relied, and raised fears about Northern Rock itself because it was thought to be involved to some degree in that business. When such problems arise, we ought always to look elsewhere and see where they have not arisen and why. Spain is a notable exception. No Spanish banks have any of the problems that I described. No Spanish banks have reported losses from sub-prime loans. Despite the fact that the Spanish property market is overheated and will probably cause problems of its own, Spanish banks did not suffer from the problem. Why? It is because Spanish banking law, as a consequence of past problems of failure to consolidate off-balance sheet debt, insists that all such debts and obligations are consolidated and revealed. There is a lesson for us there, but nothing in the Bill learns from that and makes sure that we do not suffer from those problems in the future. The regulatory approach adopted by the FSA appears to need to change. There are two possible approaches for a regulatory body. One is to be essentially routine—to consider every case in the same way and adopt a box-ticking approach to regulation. That is what regulators will do if they are left to their own devices. What they ought to be doing, however, is focusing the bulk of their effort on areas where there is some reason for concern. There was some reason for concern in Northern Rock. It was pursuing a very unusual policy. It increased its loan book by 50 per cent. in a year at the peak of the market. It offered the lowest mortgage rates and some of the highest interest rates. It offered 125 per cent. mortgages. It has, I believe, £1 billion of unsecured debt on its balance sheet. We are assured none the less, on the say-so of the FSA, but with the endorsement of the Chancellor, that it has a fine, high-quality loan book. I wonder whether he stands by that. In response to my question yesterday about why, if Northern Rock has a high-quality loan book, it is the most active in the field of repossessions, he failed to restate his assurance that Northern Rock has a high-quality loan book. We ought to be examining the regulatory procedures and learning from abroad. One of the lessons from the Continental Illinois problem was the diagnosis that the regulator had relied on the information and procedures supplied by the bank for auditing its loans. I rather suspect that the FSA did much the same and the Chancellor no better, but we ought to establish procedures that look for a problem, rather than ask for reassurance from the management.