Banking: Financial Stability

My Lords, I am grateful to both noble Lords for their broad support for the measures taken today. I emphasise that the Government, in the arrangements that they are making to improve the capitalisation position of the banks, are seeking to ensure that the banks are on a more secure footing and have the confidence to lend to each other. They are doing so, however, against a background in which the taxpayers’ interests need to be safeguarded. That is why the issue of preference shares arises; the taxpayer will get a proper return on the investment. In the same way, with regard to the liquidity scheme, there will be proper market rates for the repayment of money borrowed. The system is currently at a standstill because of a lack of resources, and the Government’s main purpose is to make those resources available while safeguarding the interests of the taxpayer. Beyond that, it is clear that we have broader objectives which I hope the whole House shares. We never want to see this scale of calamity again. Therefore we need to put in place a structure that guarantees that banks act more responsibly. It means increasing the effectiveness of the regulatory system. It is the basis of the Banking Bill, on which the Government were criticised earlier today for taking a long time to produce. The Bill is fundamental to the future of the banking system in this country, which is why it was right to carry out the fullest consultation on it. The noble Baroness again shows her preoccupation with the problems of public debt and public finances. She will know that the Office for National Statistics will take the decisions on the nature of the categorisation of this debt. It is not an immediate issue, nor would we expect the ONS to produce a decision in a matter of weeks. It will take time, but judgments will be reached. If underlying the noble Baroness’s point is the fact that the Government are involved in committing additional resources in this time of crisis, of course the Government are doing that. What would have been the criticism from every part of the House if the Government had not seen the need to take action to safeguard the banking system? The noble Lord, Lord Newby, was slightly more generous in his welcome for the proposals. A great deal of co-ordinated activity has gone on. The Prime Minister and the Chancellor have emphasised the necessity for, in global circumstances of a global crisis, such co-ordinated action. The noble Lord is seeing the fruits of that, not only in the schemes we have produced for the British banking system, but also, as he went on to comment, on the general position of co-ordinated activity on interest rates. We all know that in these circumstances the one sure road to catastrophe is unco-ordinated action on a basic beggar-my-neighbour principle. The Prime Minister has spent more than a decade arguing that in the world of global economics such co-ordination is necessary. Therefore, we are seeing the Prime Minister and the Chancellor playing a significant role in this co-ordinated action in Europe, through the institutions of the European Community, and in transatlantic decisions. I should emphasise that I always accept the gracious way in which the noble Baroness expresses her support for those limited government measures for which she is able to show support. On this occasion, she has been less fulsome than I would hope because of this factor: it is not that I do not recognise the responsibility of the Opposition to scrutinise our proposals and our intentions. I have no doubt that the Banking Bill will undergo full scrutiny when it appears before the House. The noble Baroness will also know that confidence is of the greatest significance. We are facing a global economic crisis, which could have calamitous effects on all the people we seek to serve. The Opposition are part of that process of restoring confidence, which is why we have the right to look to them certainly to play their critical part, but also to recognise the strength of these measures as bringing forth the necessary degree of confidence in the system. I look forward to the co-operation of opposition parties.