Banking: Financial Stability

My Lords, I am grateful to my noble friend for introducing a rather more positive response to the Statement than we have had hitherto. The Government have opted for the preference shares for the obvious reason: they offer a degree of security to the taxpayer for the investment that would not be the case with the straightforward taking up of equity. But my noble friend is right that this will be the subject of negotiation between the authorities and a bank applying for these resources. We are, at this stage, able only to adumbrate the principles that we want security for the taxpayer as well as a proper return for the public investment. Different positions will obtain in different circumstances, but the principles are quite clear. The reason for opting for preference shares is because of the crucial issue of security for the taxpayer’s investment. I agree with my noble friend on his second point. We are making this facility available because we are conscious of the extent to which banks are worried about their capital base at present, and that degree of insecurity is blocking the system. The underwriting of the position by the Government should instil that degree of confidence which frees the system and may mean, therefore, quite limited take-up of the substantial sum of money which the Government have indicated could be made available.