Banking Bill

The hon. Gentleman is right. In normal times it would have been extraordinary and inexplicable to protect the Icelandic investments without limit. The only reason why the Government did that was the general worry about the banking system and the systemic risk involved. He is quite right about the basic academic principles, but these are indeed extraordinary times and the response was extraordinary. The shadow Chancellor was right to make the point that while we are discussing special resolutions, special regimes and the like, we need to think ahead to the regulatory system for banking that will evolve in due course. At the moment, it is clear that banking cannot just return to the habits of the pre-crisis period. If somebody has had a massive heart attack and a triple bypass, they cannot just go back to their former lifestyle; they have to adapt. Part of the adaptation will take the form of stricter capital adequacy rules of the kind that we have discussed. In the meantime, half of British banking is now nationalised and may well be for some years. A whole series of policy questions has been thrown up, such as how a semi-nationalised banking system should operate and how to ensure fair competition between institutions. We had that debate when discussing Northern Rock. That was a manageable situation, but now that half the banking system is nationalised, there are severe difficulties. Questions will arise such as how far nationalised banks should get involved in social policy. The issue of repossession will loom large this winter, and we will have to say that it must be dealt with on a non-discriminatory basis, through the court system, not by requiring certain banks to offer different principles simply because they happen to be publicly owned. A big issue arising from the points that we raised with the Chancellor yesterday is the commitment to maintaining credit at 2007 levels. I got the sense that he was backing away from that slightly, but if it means anything, it might well mean the Government being directly or indirectly involved in the business of trying to manipulate house prices through mortgage lending. That would potentially be a very dangerous departure. Consequent on this debate, we must have a proper discussion about how a semi-nationalised banking system will operate before it reverts to a more commercial basis with a regulatory system operated through the FSA.