Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009

Section 75 was a very important provision in the Act. I hope that the noble Baroness will rightly identify that a mistake has been made, which we clearly need to take lessons from—I emphasise that point—and recognise the wisdom of the Act being presented in such a way that we are able to make up for weaknesses, particularly against a background where we all recognise that work is done under considerable pressure. We all know that things have to be done with such dramatic suddenness, given their impact on creditors and depositors of banks and building societies: hence the necessity for prompt action. I accept what the noble Baroness has indicated, which was reinforced by the noble Lord, Lord Oakeshott, that this error should not happen at all, and certainly not often. I reassure them that the Bank and the Treasury fully discussed the causes of the error before agreeing to lay this Section 75 order. As I indicated in my opening speech, other possible commercial solutions were canvassed but were decided against. In any future resolutions the tripartite authorities will continue to work together to ensure that all possible risks to the progress of these transactions are managed as effectively as possible. However, none of us should underestimate the challenge this work presents when one is operating under such time constraints. Of course, I accept, and recognised in my opening comments, that there is justifiable criticism when things go wrong. However, we made provision for that in Section 75. I even said at the time that parties might all have intended to achieve a particular effect, and proceeded on the basis of that intention, but an examination of the instrument may reveal that the text itself was ambiguous or even wrong. In such cases it may be entirely appropriate to correct the drafting with retrospective effect to ensure that the parties who signed up to the resolution are indeed in the position—we all recognise that this is the important point—they intended to be in when they gave their agreement. We were wise enough to appreciate that when people are working under pressure, problems—it might even be a minute technical problem—may arise, and that therefore it was necessary to have a fallback position as far as the Act was concerned. The noble Baroness is right that no Minister wants to be in this position so soon after the passing of the Act. It is important that the authorities can give assurances that lessons have been learnt, and I convey those assurances today. I will come on to the points made by my noble friend Lord Kirkhill in a moment. I am all too well aware of the significance of the Dunfermline Building Society to Scotland, but I hope it will be accepted, in the terms that I have outlined, that it was necessary to take this action which was available under the Act. We hope that that action will not need to be repeated, but we are relieved that we have a framework and that the Act is constructed in such a way that we can address ourselves to problems that we become aware of subsequently. The noble Baroness asked me a number of questions about the independence of the account. It needs to be held in the name of an independent person because both the Treasury and the Bank of England have some interest in the money, in so far as they are entitled to deduct costs. They are therefore a party to the position, so it is proper that it should be handled by an independent valuer rather than in the organisation. The noble Baroness asked me about the proceeds from the sale of the social housing book. Consideration is to be paid by Nationwide on completion of the transaction, so it is, I am afraid, subject to commercial confidentiality at this stage. I do not ordinarily shy away from trying to answer her questions to me, but in this particular area I think she will accept my answer. How is the sale of the bridge bank progressing? The Bank of England announced that it has selected the Nationwide Building Society as the third bidder for the social housing loans and related deposits from housing associations that are held by the bridge bank. This followed a competitive process that was conducted by the Bank of England in accordance with the code of practice issued by Her Majesty’s Treasury under the Banking Act 2009. That is the progress that is being made. The noble Baroness asked me about valuation principles under Article 11. These are difficult areas for me to respond to immediately at this point. If she will forgive me, I will write to her on this point, not least because the degree of complexity that appears to have been identified in the notes passed to me are such that I do not trust myself to deliver them with the clarity and accuracy that she deserves. What is happening to the Dunfermline Building Society? As my noble friend Lord Kirkhill indicated, he has a close interest in Scotland—