Banking (Special Provisions) Bill

I shall be very brief; I have only a few points to make. First, I would like to reinforce what many of my colleagues have been saying about the strategic overview that this new institution should be given. It is absolutely vital, if we as taxpayers are taking on this £110 billion portfolio, that some kind of strategic overview should be given to the business on behalf of the taxpayer. The basic questions of whether the business should expand or be able to contract, whether it should continue to be a mortgage bank or something else, and whether securitisation should continue or not are vital ones that should be debated and decided here tonight. Taxpayers cannot really comfortably say that they know what they are getting into. We know virtually nothing about the assets of this bank that we are taking on. We know virtually nothing about its personnel or its procedures, especially those relating to risk management, which is a vital part of any financial institution these days. The Chief Secretary mentioned the importance of protecting taxpayers' interests, and we are talking about an enormous amount of money. The amount of money we are talking about is 12 times the Olympic budget, and three or four times the budget for the Ministry of Defence. The Chief Secretary said something extraordinary when she said that it would be a mistake to have a fire sale. I happen to agree with her about that, but she said that it would be a mistake because we are currently at the bottom of the market. That could be a huge gamble to take on the position of the housing market in this country. Effectively, we are going to take on a huge mortgage bank, and pretend that it is the bottom of the market and that things can only improve. I am not an expert on the housing market, but I very much doubt if we are at the bottom of the market, and she may well come to regret having made that call on the market's direction, especially given the amount of risk to the taxpayer she is willing to take on board. I mentioned risk management, which is absolutely vital. In the 10 years since I left the banking industry, risk management has become enormous. It has become the largest part of most banks' activities. We know virtually nothing about the risk management of Northern Rock, the current procedures or the procedures that will be in place following nationalisation. The Chief Secretary talked about a flawed business model in relation to Northern Rock. There is nothing terribly unusual about the Northern Rock business model. The problem has been its operation and the huge amount of risk and leverage that was taken on. However, the basic concept of borrowing money at indexed or variable rates and lending it in the form of a mortgage at a variable or fixed rate, possibly with securitisation, which has been with us for around 25 or 30 years, is a tried and tested business model. Two things went wrong at Northern Rock. The first is known nowadays as event risk—that is how risk managers perceive it. There was no assessment of the likely event risk of the market simply seizing up for a time. The second was the mismanagement of the interest rate risk and the credit spreads involved. The Bill gives no idea of the way in which the risk management of the current institution is carried out and how it could change under new management—public sector management in the case that we are considering. In my time in banking, I have witnessed some major financial scandals, including those concerning the bankruptcy of Orange county in California; the Ministry of Finance of the Kingdom of Belgium; Credit Lyonnais; the London borough of Hammersmith and Fulham with its swaps scandal; and the US army facilities management fund. They all have one thing in common: they are in the public sector. It is not only the private sector that has rogue traders, unauthorised transactions and breaking of credit limits and so on. Oversight and financial management of the new institution are therefore crucial. The Bill has been drafted far too widely. Although it is not the stated intention, the measure allows almost the arbitrary nationalisation of banks or building societies. [Interruption.] I hear cheers from the Labour Back Benches at the prospect. That gives the game away. We must fundamentally oppose arbitrary nationalisation, and I hope that the Bill does not get a Third Reading.