City of London

I accept that point absolutely. The problem will not go away. I was referring to whether we should divide the banking system so that the public are less at risk from failures in investment banking, essentially, and so that there are fewer links into the retail banking sector. Let us consider, for example, the failure of the big insurance firm AIG in the United States. Basically, most people in that firm were involved in conventional insurance. It was perhaps 100 people in one unit, involved in more speculative activity, who brought down the whole firm and put at risk the world economy. In fact, I shall give one lesson from God's own county, if I may—there will be only one mention of Yorkshire in the entire debate, Mr. Fraser. The Yorkshire bank has adopted a simple banking strategy down the years. Rather than a pro-business cycle strategy, it uses a through-the-cycle business model. It says that it has stuck to its knitting in recent years. It never became involved in sub-prime lending and self-certification for 100 per cent. mortgages. Indeed, it was criticised, as many traditional or more conservative banks were, for not being innovative enough. Therefore banking structures such as Yorkshire bank do have a future. The Chairman of the Treasury Committee, my right hon. Friend the Member for West Dunbartonshire (John McFall), has tabled an early-day motion on separating retail and casino banking, and that debate will be part of our economic debate for some years to come. Some commentators say that things cannot be done in an individual country; they have to be done around the world. I wish that we had made some banking rules like those in Canada or Spain, for example, before the banking crash, because even though the rules were not universal, their banks have benefited from the fact that they had a more conservative approach. The third point is that there should be consideration by the authorities when making regulations of the impact on smaller banks such as Yorkshire bank. Clearly, if there are flat-rate costs, smaller banks will be affected more than larger ones. We must remember that smaller banks often have to use the clearing systems of larger banks. Although the Government have, naturally, been distracted in recent times by the affairs of bigger banks, they should also be interested in the smaller banks. I will move on to the mutual sector which, looking back, has been a success. It is interesting that our current biggest building society, the Nationwide, was perhaps the least-favoured building society when it came to demutualisation. It was not seen as the most likely candidate and was not demutualised, but it is now a successful mortgage lender. Our building societies have obviously struggled as a result of the financial turmoil, but in many ways they have weathered the storm better than their banking counterparts. A focus on the protection of their members, and lending that is based strongly on money deposited by their customers, has meant that they have been far less exposed than most of the banks. Building societies have raised a couple of technical points about the Financial Services Compensation Scheme. That is a vital safety net, but it impacts on building societies in an adverse way compared with banks, and the financial regulators need to consider that. For example, Nationwide was hit with a bill of £241 million at a cost of £17 per member as a result of some of the regulation. There must be a case for returning Northern Rock to the mutual sector when it goes back to the private sector. The fifth point is a suggestion that has been made by commentators far more eminent than myself. There is nothing wrong with securitisation of loans and so on, but in many ways, the shorter the chain, the better and more transparent it is. Various people, including Dominique Strauss-Khan from the IMF and Lord Turner, have revived the idea of having some sort of tax. The Tobin tax was thought up a generation ago as a tax on foreign exchange. I do not think that that would work in today's circumstances, but some sort of tax on financial transactions would reduce liquidity but also reduce that chain. The sixth point is about bonuses, which have already been mentioned.