Banking Bill

No, I have made my point on that and I want to move on to bank regulation, which is really what the Bill is about and where the failures have been. The fact that the Government have had to underwrite the system in the way that they have and put in unprecedented sums of public money will, I am sure, lead to much tougher regulation. I hope that that regulation will be really intelligent, but I suspect that the Americans will make this mistake too. We do not want to put London in a position where we drive financial services business away. It is still a big industry and not everyone has been at fault here. Not everyone has been a greedy spiv. There are plenty of people in the City doing very ordinary jobs as secretaries, receptionists and computer programmers, and they will lose their jobs too. We need to protect the industry by regulating it intelligently. I do not know whether the regulation should be light touch or heavy touch, but in our search for the solution to this crisis, we should not lay up such problems. I want to identify a couple of mistakes. First, it was a mistake to downgrade the role of the Bank of England. That point has been made by Opposition Front-Bench spokesmen extremely well. It was operating in the markets the whole time. It was operating in the bond markets, the foreign currency markets and the money markets. It understands what is happening there in a way that I do not think the FSA ever has. Secondly, the FSA brought together a series of regulatory organisations with a preponderance of interest in the consumer. That is absolutely right; the retail consumer needs to be protected, but the culture of the FSA has been about protecting the retail consumer, depositor, investor or pension fund holder, and it has not concentrated sufficiently on, or understood sufficiently, the money markets in the way that the Bank of England does. I was in favour at one time of going back to where we were and giving all this power back to the Bank of England, but the difficulty of that is that the counter-party risk in securities houses now is so great that it can bring down banks as well, so it probably does require the securities regulator, the FSA, to be involved. I hope that the new system will give the Bank of England not just an additional enhanced power, but the primary role in this. The problem with tripartite regulation is that everyone thinks that somebody else is doing it. That is pretty clearly what happened here. Everyone's eye was off the ball until a few months ago. It would probably be best if the Bank of England had the lead role in this. Warren Buffett, who is my capitalist guru to put up against the interventionist guru of my right hon. Friend the shadow spokesman, said that bankers seem to have spent the last 10 years inventing a whole new series of ways of losing money, which was completely unnecessary because the old ways were working fine. We will have a credit crisis every so often. There is a credit cycle, but the important thing is that if the monetary and regulatory authorities get a grip on that and do not let the money supply get out of control and raise capital requirements as risks increase, we can ameliorate this and not end up with the crisis that we are in at the moment. The next crisis will be different. Each one is different and the next one will be caused by something else. In trying to ensure that this one does not happen again, let us not take our eye off the more general ball of what is important, which is that banks maintain adequate capital and that the authorities do not allow the money supply to grow too fast. Those points have been made by many who have spoken, but I want to make a couple of others. I have a list of culprits and first, in ascending order of culpability, I perhaps put myself and some of my colleagues, because I noticed too late that this was happening. I used to follow this subject the whole time and I like to think that if I had not moved off to worrying about foreign affairs more, I would have noticed what was happening. But the fact is that until the Northern Rock fiasco, I did not realise how bad this problem was likely to get, and I think that goes for some of us, though not others, particularly on the Treasury Committee, who have flagged up some of the dangers. Secondly, for every reckless lender, there was a reckless borrower, and people must take some responsibility for their own actions, not just in deposits but in what they borrow and being confident that they can afford to do that. They were, of course, encouraged to do so by people who were a lot more sophisticated than they were, and some innocent borrowers are paying the price for that. My third culprit in ascending order of culpability is the Bank of England for allowing broad money to grow so fast and reducing interest rates while it was doing so, and then being surprised that inflation on the retail prices index had risen to 5 per cent. I do not believe that it is all due to the oil price, because when the price of one commodity rises, people have less money to spend on something else. It may alter the index, but it does not alter inflation—if one, like me, is still a monetarist. Therefore, the Bank of England has some pretty serious questions to answer. The only role it really has at the moment is inflation and monetary policy, and its eye has been a bit off the ball there. It happened in the mid-1980s when we had an excuse, which was that the market had been deregulated at the point and the authorities thought that there was a one-off adjustment in people's willingness to carry debt, which there probably was, but it still resulted in inflation towards the end of the 1980s and partly caused the stock market crash of 1987. So the Bank has plenty of history to draw on here so that it does not make the same mistakes again. My fourth culprit—now we are getting to the serious culprits—is the FSA. It has been asleep at the wheel or on the bridge, whatever metaphor one wants to use. It is extraordinary to me that the Government have not insisted on any resignations from the FSA over this. It is a total, comprehensive and abject failure of regulation that this crisis was allowed to get as bad as it did. I am not saying that people should have spotted three or four years ago that this would happen, but should they have done so one or two years ago? Very little, if anything at all, seems to have been done during that period by the regulators. My fifth culprit—we are now getting to those who are seriously involved—is the banks themselves. What they have been up to is reckless and irresponsible, and bankers are supposed to be extraordinarily intelligent people, who are paid very large amounts of money to run our affairs. The Government seem to have had to insist upon the resignations of the three executives who announced their resignations yesterday. I notice that they did not do so voluntarily. I do not know whether anyone saw the pictures on television of the board of a Japanese insurance company that went bust about two weeks ago, but the board announced what had happened, took full blame, and bowed in sorrow, shame and apology. There seems to be no shame on the part of those who have been happy to be paid huge sums. The chairman of HBOS was paid £750,000 a year—and the same applies to the Royal Bank of Scotland—and the chief executives were paid £2 million and £4 million respectively. Is there no sense of honour any more? I know that people do not resign very often, and perhaps that goes for politicians as much as bankers. They cannot have seen that they made the most horrendous mistakes and that they owe the rest of us an apology in terms of at least resigning, and not being forced to go. However, one cannot just blame them because they have had supine boards of directors who clearly did not understand what was going on. The good and great names of the Scottish establishment are all over the Royal Bank of Scotland's board, and of the English establishment all over one or two of the others as well. Where were they, and where were the shareholders? Why were not the shareholders saying something about this? It is not just the fault of the executives; they were allowed to get away with this by their boards of directors and shareholders. However, they must bear the lion's share of the blame for this. Usually one would not worry too much if a private sector company, even a big one, got into serious difficulties. The shareholders would lose some money and it would be restructured and recapitalised. The problem with banks is that they can suck the economy down with them too. That is why they have a special responsibility to the community that they serve, not just to look after their own affairs, but when they get things wrong there should be the understanding that they endanger the whole economy as well. Now we come to the Government, and I am afraid that the bipartisan chorus of the last few weeks has been because the Government have had a huge crisis on their hands and have had to find a solution. I believe that in the circumstances they have found the right solution. We will see whether it works. I am not sure what else they could have done, except perhaps, as I said, do it a little sooner. But the Chancellor of the Exchequer has been in office for 15 months. Northern Rock was more than a year ago, and that was a year in which far more could have been done to put right some of the faults in the system. But the person who has been there for 11 years and who is really responsible for most of what has gone wrong is the Prime Minister. It was he who changed the regulatory system to put the FSA in charge with this tripartite arrangement and took the Bank of England very specifically out of it because he thought that it would be too powerful if it had monetary policy and bank oversight as well. He presided over the debt-fuelled boom of the last 11 years that has been criticised for several years. He is the person who let public spending rip in a way that fuelled that boom. He is the person who ran public sector fiscal deficits at the height of the boom at a point when we should have been running surpluses, so that now the Government would have had more room to adjust to the recession in the way that they usually would in a Keynesian sense, but now they have to do so by racking up even more borrowing on top of borrowing in good times. He is the person who, having given the Bank monetary independence and the FSA responsibility for bank regulation, failed to monitor what they were doing.