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example of other countries where deposit protection schemes are more generous than those available here. For example, the Canadian scheme offers 100 per cent. compensation up to Canadian $60,000. That is substantially more generous than the scheme that is in place here. The first issue is whether the deposit protection scheme is adequate and, if not, why not. Many small businesses, especially in the Asian community, have been badly hit by the closure of BCCI. The relief offered by the scheme, much delayed as I fear it will be, seems to be inadequate.The second question raised by the affairs of BCCI and to which new clause 37 refers is perhaps even more fundamental. It is when the Bank of England and the Government knew that the affairs of BCCI required investigation and why they did not carry out such an investigation at an earlier stage. If the investigation that was clearly necessary had taken place earlier, much of the pain caused to depositors and employees of BCCI could have been avoided. We know that doubts were expressed by Ernst and Young when they were BCCI's auditors some two or three years ago. We know that considerable doubts were raised in the marketplace for months before the Bank of England acted. We also know that doubts arose as a result of the prosecutions in Florida last year and that the present auditors, Price Waterhouse, delivered a report to the Bank of England in March 1990 which raised serious questions about the way in which BCCI was operating.
If reports in The Sunday Times yesterday are correct, the question of what information was provided to the Bank of England and the Treasury and why they failed to act upon it becomes urgent.
Mr. Campbell-Savours : Does my hon. Friend accept that the statement by Lord Henley in April last year in the other place is significant? When he made that statement, what did the noble Lord know that was not revealed to the other place in the debate?
Mr. Smith : I cannot answer that question, which is an important one. I hope that we shall get an answer from the Government. If we do not get a satisfactory answer I am sure that my hon. Friend will wish to press the matter if he speaks in the debate. My hon. Friend will be aware that whatever the noble Lord may have said at that time was said after the Price Waterhouse report of March 1990 was delivered to the Bank of England. The Sunday Times tells us that that report, "had already revealed that BCCI was in serious financial trouble, with major gaps in its accounts raising the possibility of misuse of funds, a large number of questionable loans outstanding and lax internal controls."
If that catalogue of impropriety was suspected at that stage, why did the Economic Secretary tell us last week that the Bank of England had sufficient information to act only 10 days before last Monday? Why was it that, in March 1990, the Bank of England did not commence serious investigations? That is a most important point. It is not only a question whether there is misuse of funds or potential fraud, or whether the Bank of England has powers to take action if it suspects fraud. The Bank of England is also supposed to reassure itself about whether someone running a bank is a "fit and proper person" to do so. Under that provision, there must have been scope for
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questions to be raised, for investigations to be started and for the Bank of England to begin to take action earlier than it did. 4.30 pmMr. Gerald Bermingham (St. Helens, South) : Is not one of the duties of the Bank of England to reassure itself about the liquidity of banks? In other words, it has to be sure that, if there is a run, each bank can meet its obligations. Bearing in mind the Price Waterhouse report of March 1990, was not it clear that the Bank of England could not properly have reached that conclusion?
Mr. Smith : My hon. Friend raises an important point. It seems that BCCI was adept at shuffling funds around among its various national identities to disguise the true position of its liquidity. Only a thorough investigation could have shown the true position. That is why a thorough investigation should have taken place sooner than it did.
Mr. Anthony Nelson (Chichester) : I am obliged to the hon. Member for Workington (Mr. Campbell-Savours) both for his remarks and for new clause 37, which raise reasonable questions that should be addressed. I have a question for the hon. Member for Islington, South and Finsbury (Mr. Smith), which must be addressed, as his party has pretensions to government. Is not it important for any Government, and the Bank of England, to ensure that there is neither a run on a bank nor a lack of confidence in the banking system? An extremely difficult balance must be struck between precipitating a run on a bank, and thus closing it peremptorily, and leaving it too long and allowing people to be defrauded. In that difficult balance of judgment, where does the hon. Gentleman stand? The Bank of England instituted inquiries properly, dealt with the matter exemplarily and, when it had clear evidence, closed the bank.
Mr. Smith : The hon. Gentleman is right to identify the difficult balance which the banking regulatory authorities have to undertake. It is a balance between raising too many public questions too early, and therefore undermining confidence in part of the banking system, and ensuring that, where bad practice is taking place, it is immediately investigated. Although we have our suspicions, we do not yet have enough information to answer our question about whether the Bank of England got the balance right with respect to BCCI. The reports of the past week leave us with no certainty that it did. If the hon. Member for Chichester (Mr. Nelson) has read new clause 37 closely, he will know that it addresses this point. It requires that if a bank has been cleared of any wrong doing, the Chancellor of the Exchequer can require the report of the investigations to be made to him rather than be made public. That is a substantial protection against the confidence problems that the hon. Gentleman has identified. It is our belief that my hon. Friend the Member for Workington has addressed precisely that issue in his carefully worded new clause.
I shall draw my remarks to a close, because I know that many hon. Members wish to contribute to this important debate. It seems to us that we have still to hear a satisfactory response from the Government to the two overwhelming questions that must be directed to the
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tragedy of the BCCI closure, which has caused so much difficulty for so many in this country. First, why is the deposit protection scheme so inadequate? Secondly, what did the Bank of England know, when did it know, how soon did it know and how rapidly or slowly did it seek to investigate? It is our impression from the information that is available to us that there are serious question marks about the way in which the Bank of England, the regulatory authorities and the Government have acted.Mr. James Wallace (Orkney and Shetland) : It is obvious that new clause 35, in the names of my right hon. and hon. Friends, is linked with new clauses 3 and 37. I shall take up later the final comments of the hon. Member for Islington, South and Finsbury (Mr. Smith), but first I shall direct my remarks to the nub of the original problem, to the publicity that that has been given in recent weeks to exceptionally high interest rates allegedly being charged by several clearing banks, including Scottish banks, and to the damage that those rates have done, especially to small businesses.
As the hon. Member for Islington, South and Finsbury has reminded us, the high interest rates that are being charged are a regrettable and damaging symptom of the general regime of high interest rates that we have suffered for a long time. Life has not been made any easier for small businesses by the Government opting for the highest charge available to them for this year's uniform business rate in England and Wales. The Government are taking more from the business sector, particularly from small businesses, than they are putting back into it by means of the measures in this Bill.
There has been a dramatic and record increase in the failure of small businesses in recent times. Nine out of 10 of the businesses that have gone under employed fewer than 100 people. The major redundancies that are announced by household-name companies tend to attract news headlines, but the cumulative effect of small businesses going under is one of the principal causes of an increasing rate of unemployment. It is important, therefore, that we examine the implications of the Government's high- interest-rate policy and the way in which the banks have dealt with small businesses.
The main criticism and focus of attention has been on the rates of interest that are charged by banks to small businesses, but that is not the sole problem that small businesses face in their relationships with banks. I have heard complaints about the fact that a bank can increase the interest rate that is paid by a small business when the owner of the business reaches his current overdraft limit and has to negotiate an increase. That is often taken as an opportunity to increase the lending rate.
Another factor is the deduction of bank charges at source, invariably without notification to the business concerned. As that happens when it is least expected, or even when it is unexpected, the business can find that it has exceeded its overdraft limit and that charges are being applied at punitive rates.
Some bank managers restrict borrowing to bring discipline to bear upon a business if it is not going about its business in the way that the bank would like. There are banks that charge an arrangement fee if a business takes the bank's advice and reduces its level of borrowing. Non-negotiable charges are imposed unilaterally by the bank and the unfortunate customer becomes aware of them only when he is told to pay up.
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Another problem is that of the collateral demanded from small businesses which seek to take out loans. If one studied law, as I did, one worked out the respective advantages of limited liability companies or of unincorporated firms. We were told that one of the advantages of a limited liability company was that if the business went under, the authorities could not come after one's home or other assets. However, the truth is that many limited liability companies are family firms and they are asked to put their homes on the line as collateral. There are many examples of banks asking for homes as collateral as a sign that the person involved is committed to the business although that person has already put on the line his savings, his way of life and his energy. I fear that the use of such collateral may have a damaging effect in the long term because, if so much personal risk is involved, it may inhibit a business's growth, or make it think twice about diversifying or taking up new ideas. Those are examples of the banking sector not necessarily being in harmony with the small business sector. However, there are also problems with the small businesses themselves. Some go over their overdraft limit and some are not especially good at keeping the bank provided with information. Some perhaps use overdraft expenditure for capital investment when it might be much better to examine other ways of raising capital. Perhaps the recent furore over interest rate charges has given some focus to the search for a way in which the relationship between banks and small businesses can be improved. In some respects, that is a matter not for the House or for the Government but for good practice, and that can often be achieved without regulation.New clause 35 proposes that, when making interest rate charges, the banks would be obliged to stipulate the rates at which the charges are made and the period of the loan or overdraft in respect of which they have been made. The same would apply to bank service charges : the bank would be obliged to stipulate the various component parts of the bank charges. I should not assume that you pay bank charges on your account, Madam Deputy Speaker, but I am sure that many hon. Members do and that they sometimes merely accept them without bothering to find out the precise detail of those charges. 4.45 pm
Mr. Kenneth Hind (Lancashire, West) : Has the hon. Gentleman also considered the penalties that are paid? I am sure that many hon. Members know of businesses which have exceeded their overdraft limits and whose interest rates have shot into the sky. In those circumstances, the proprietor of a small business had not anticipated what would happen and yet he automatically faces the bill. It is important that the public are made aware of that.
Mr. Wallace : I agree with the hon. Gentleman. One of the complaints made by small businesses is that the charges are often applied without notification and can, as a result, push the business above its overdraft limit and into the realm of punitive interest rates.
We must seek a contract between small businesses and the banks, but the uneven negotiating position of the banks and small businesses often stands in the way of such a contract.
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Mr. Bermingham : Does the hon. Gentleman agree that another danger is what is known as uncleared effects? The small business man pays into the bank a cheque that he has been given by his supplier--
Mr. Bermingham : Yes, uncleared funds, or whatever they may be called. The cheque is as safe as houses because it is often drawn on state bodies and will not bounce. However, cheques take three to five days to clear and a business must pay a penalty during that time. That can materially affect a business's cash flow and ultimately its solvency.
Mr. Wallace : I could not agree more with the hon. Gentleman. That applies to my account and my salary cheque from the Paymaster General. One hopes that such cheques would not bounce and, if they did, we would have worse problems than those relating to small businesses and banks. As the hon. Gentleman says, when cheques are drawn, often on public bodies, and therefore will not be dishonoured, we must seek a way of speeding up the clearing process, especially as the company may draw on the strength of that cheque.
The relationship between small businesses and the banks is skewed because of the difference in their bargaining positions. If competition could encourage good practice, I am sure that it would benefit not only small businesses but the banks. Banks will do what they can to win the account of a large business and there are no doubt ways of offering an attractive package. The same can apply to individual customers. Loyalty to a particular bank is probably not such that if one did not receive a good service one would not switch to another bank or to a building society. If in future building societies and foreign banks were encouraged to enter the business loans market, the clearing banks and their Scottish counterparts might do much more to provide a better service for their small business customers. The Government, who are committed to competition, might wish not only to call in the banks and ask them about their policy with regard to small businesses, but to investigate how banking services for small businesses might be opened up to more competition which would, I believe, be for the greater benefit of all.
Although I believe that much should be done by good practice instigated by the banks themselves and by some contractual understanding and negotiation with the small business sector, if the banks were not prepared to take the initiative, the two modest proposals contained in new clause 35, which provide for the stipulation of a breakdown of bank and interest charges, would perhaps encourage them along the way. There would be resistance from the banks, but every other business is expected to give details when invoicing customers, so it is not unreasonable to expect banks to do the same.
Another issue raised by the hon. Member for Islington, South and Finsbury, and which is the subject of a new clause tabled by the hon. Member for Workington (Mr. Campbell-Savours), is the Bank of Credit and Commerce International. The hon. Member for Islington, South and Finsbury was right to focus his attention on why rumblings and suspicions were allowed to fester for so long before the Bank of England finally pulled the plug at the expense of many people in the business community--especially the Asian business community--of individual
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investors and of a number of local authorities, not least that of the Western Isles which had invested perhaps more than any other authority in BCCI.The House will be aware that my noble Friend Lord Harris of Greenwich raised the matter in another place in April last year. If one reads the report of that debate, one can say only that the Government's response was stonewalling as a refined art. It was clear that the Government were unwilling to give away what the Bank of England might have made of convictions across the Atlantic, but we can conclude that the Government must have been on notice--the Bank of England was certainly on notice. One wonders why such a state of affairs was allowed to continue for so long before the failure occurred and the plug was pulled, with the consequences of which hon. Members have been given examples over the past week to 10 days. What sort of help will it be possible to provide to depositors? One amendment that has not been selected argued for an increase in the safety net incorporated in the Banking Act 1987. However, even an increase in that figure from £20,000 to £50,000 would have gone only a small way. It might have been a saving grace for some businesses, but it would have been of only minor assistance to the worst affected.
There is a prima facie case for protection to meet lost deposits. If the Government can say, even at this stage, that they are prepared to raise the compensation ceiling, that would come as welcome news to many.
Ms. Marjorie Mowlam (Redcar) : Is the hon. Gentleman suggesting that increased compensation should be paid by the Government or by the banks?
Mr. Wallace : If there is to be immediate help, I suspect that it would have to come from the Government rather than from the banking sector.
One must consider the effect of those losses on not only the firms immediately involved but the entire small business sector. The initial outlay could well be recouped because of the difficulties that would be prevented from occurring further down the line. Last Thursday, the Prime Minister said during Question Time : "Local authorities have a duty of care over the funds entrusted to them".--[ Official Report, 11 July 1991 ; Vol, 194, column 1082.] The Prime Minister is not a lawyer, but the phrase "a duty of care" implies a certain relationship. One wonders whether local authorities have a duty of care to their poll tax payers. If no Government assistance is forthcoming, poll tax payers may have grounds for legal action against their local authorities, and have a right to pursue through the courts the argument that they are not obliged to pay any increase in poll tax that is a consequence of local authority financial negligence. The phrase "a duty of care" was an interesting one for the Prime Minister to use, and perhaps the Economic Secretary can enlighten the House as to what was in the Prime Minister's mind when he uttered it.
Returning to new clause 35, let me say that the small business sector has a tremendous contribution to make to the economy. Over the past two or three years, it has been prevented from doing so by high interest rates, and for even longer by a banking sector that is not particularly
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well attuned to the needs and expectations of small firms. If the Government would make a positive response to some of the suggestions that are made today--many of which would not require legislation--that would show the way forward, and would be of considerable encouragement to small businesses.Mr. Nigel Forman (Carshalton and Wallington) : The hon. Members for Islington, South and Finsbury (Mr. Smith) and for Orkney and Shetland (Mr. Wallace) make a sympathetic argument. Hon. Members in all parts of the House are concerned about the current plight of small businesses and have considerable sympathy with them--so one starts with a favourable disposition towards the proposed new clauses. However, on closer examination one discovers that new clause 3 in particular contains much that is not sensible--which leads one to believe that the amendments ought not to be supported in the Lobby. New clause 3 makes at least two references to
"the average interest rate charged"
in respect of various categories of borrowing, which is not a sensible concept. That would give the House and the country only a rough idea of what was happening, and would be comparatively meaningless information in trying to monitor the terms and conditions of such loans.
The range of obligations imposed by new clause 3 implies a considerable burden of compliance costs on banks and other lenders in providing such information, and that would be at the expense of shareholders or customers, or both.
Subsection (1)(v) introduces a provision which a future Government of a different disposition and attitude towards banks and other financial institutions could use as a trojan horse in placing on banks and other financial institutions burdens far greater than could legitimately be justified. For those technical reasons, I find myself unable to support the new clause.
That does not take away from the concern that lies behind the arguments made by the hon. Members for Islington, South and Finsbury and for Orkney and Shetland, which is common to both sides of the House. There can be no doubting that the interest rates recently charged on loans, especially to small businesses, have been penal. Some might describe them almost as usury. The banks argue, justifiably, that the interest charged must relate to the risk involved in each case. However, it is not always easy for small businesses to understand or to accept that rationale.
One must acknowledge also that the banks themselves have been in some difficulty. That is recognised by the media and by the public. Banks have been understandably anxious to restore their balance sheets, and that has often been done at the expense of their clients--notably, their small business clients. The wide spread of interest rates charged to different borrowers should be more fully explained. To that extent, I have considerable sympathy with the argument of the hon. Member for Orkney and Shetland, that more timely information on the charges levied, and on the other terms and conditions insisted upon, would be useful. The best way to achieve that is, as the hon. Gentleman said, by good banking practice-- spurred on by the power of publicity, which is to some extent enhanced by debates in the House.
When my hon. Friend the Economic Secretary replies, I hope that he will be able to tell the House the outcome of the discussions between my right hon. Friend the
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Chancellor of the Exchequer and the managements of our leading banks, which I hope will serve to point the way to better and more responsible banking practices.According to many small firms in my constituency, almost a greater problem than varying interest rates and the other terms and conditions on which loans are made is the late payment of large bills by major customers--which is sometimes deliberate, but often accidental. Delayed settlement and a change of policy in respect of payments to small firms can completely ruin their cash flow. I hope that my hon. Friend the Economic Secretary and his Treasury colleagues will reconsider adopting some of the measures used in other countries to encourage the earlier payment of bills to small businesses.
Mr. Nelson : My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) may be aware that our hon. Friend the Member for East Hampshire, (Mr. Mates) introduced some time ago a private Member's Bill that sought to overcome the problem of overdue settlement, but that it received precious little support from the Department of Trade and Industry- -despite the fact that many of us emphasised, long before delayed payment became a real problem, that something ought to be done. Ministers appeared reluctant to do anything at that time, but I urge them to reconsider that aspect, and I ask my hon. Friend the Economic Secretary to answer that point when he winds up.
Mr. Forman : I would expect my hon. Friend to endorse the thrust of my argument. It is time that Ministers gave us a full explanation of why they do not think it appropriate to act now.
I have much less sympathy with new clause 37. The hon. Member for Islington, South and Finsbury said that the depositors' protection scheme was markedly less generous than the investors' protection scheme, and that it should therefore be made more generous. Surely, however, the extra money could come only from either the banks or the taxpayer. I was interested by the challenge offered to the hon. Member for Orkney and Shetland ; I do not believe that any more should be taken from the taxpayer. It has been asked why the Bank of England did not intervene earlier. The critical point is, in my view, the problem of balance alluded to by my hon. Friend the Member for Chichester (Mr. Nelson).
5 pm
Ministers should consider two other points. First, those who deposit their funds with such institutions as BCCI and Barlow Clowes should realise that a greater return probably implies a greater risk. That should be stamped on every such venture. Secondly, depositors should be wary of advice that comes not independently, from people who charge a straightforward fee, but from people who are on commission. It is well known that larger-than- average commissions were earned by those whose advice favoured BCCI. Advice that comes on commission should be regarded with some suspicion.
Mr. Latham : Will my hon. Friend give way?
Mr. Forman : I hope that my hon. Friend will forgive me if I do not. I want to be brief.
Obviously, much more will be said about the auditors, and I shall not say much about them now. At present, auditors have the right to draw the attention of the supervisors and regulatory agencies to any shortcomings
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that could amount to fraud in certain circumstances, but no duty is imposed on them to do so. Ministers should take that into account when considering any changes in the law.I appreciate the problems of small businesses, but I do not think that new clause 3 would solve them. Everyone should be extremely careful not to become involved in circumstances such as those that gave rise to the tragedy of BCCI.
Mr. Campbell-Savours : New clause 37 combines self-regulation with political accountability, and establishes an early-warning system to operate when banks are experiencing difficulties. Its objective is to construct a balance between the need for investors to be given some information about the nature and development of inquiries into the affairs of banks, and the need to avoid unforeseeable outflows of capital-- otherwise known as "runs on the bank".
The idea was prompted by the comments of Ian Brindle, a senior partner at Price Waterhouse, in the Financial Times last week. When asked why BCCI accounts had not been qualified more promptly, Mr. Brindle replied :
"You simply cannot go round qualifying the accounts of a bank without creating all sorts of problems and without the whole thing collapsing."
Unpalatable though they may appear at first glimpse, Mr. Brindle's remarks contain a grain of truth. What action can we take? We have a duty to maintain confidence in the banking system, as it oils the wheels of industry ; but we must have a well-supervised banking system. I appeal to treasurers and institutional depositors who are considering pulling out of the secondary and fringe banking sectors to think twice before they do so. A quick pull-out could wipe out a sizeable part of Britain's small-business industrial base, doing immeasurable harm in regions such as mine.
Responsible institutional investors should do their homework before taking any precipitate action. They should check with their financial advisers and with sectoral advisory bodies, and perhaps collectively approach the Bank of England. They must not aggravate the current difficult situation.
Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : Is there not a paradox in what the hon. Gentleman is saying? Local authorities' money should never be put at risk in any way : it is not their own money to invest in schemes that will earn interest. Some extra risk must be incurred by those who invest in the smaller, marginal banks, rather than in A or B banks. Why should community charge payers' money be endangered? The hon. Gentleman cannot have it both ways ; either local authorities take a risk, or they do not.
Mr. Campbell-Savours : The small banking sector plays an important part in the funding of British industry, and it cannot be written off. The question is, what constitutes a risk? I shall deal with that later.
Pending reform of the Bank of England's supervisory arrangements, which should follow any inquiry such as that called for by my hon. Friends the Members for Dunfermline, East (Mr. Brown) and for Derby, South (Mrs. Beckett), we must maintain confidence in the banking system as it exists today, warts and all. My new clause would establish an early-warning system : it would require a bank to publish, within one month of its
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accounting period, information about inquiries that have been, or are being, made into its affairs or those of an associate by the relevant supervisory or regulatory authorities.Such a disclosure could be avoided only if the bank could convince the supervisory authority that, for whatever reason, it should not be made--or that a full disclosure should not be made. If it succeeded in persuading the authority that no disclosure should be made, the authority would have to inform the Chancellor of the Exchequer of its decision.
In the spirit of self-regulation, banks would have a real incentive to keep their affairs squeaky-clean. Not to do so would invite inquiry on the part of the relevant supervisory authority, and possibly require a public statement. The supervisory authority, recognising the critical nature of its decision to approve--or not approve--publication, would have to balance the need-to-know requirements of the discerning investor with the publicity that such a disclosure might engender. Furthermore, the authority, aware of the procedure triggering notification of the Chancellor, would be extremely sensitive to the political embarrassment that would arise if a decision to approve non-disclosure was followed by a collapse, as happened with BCCI.
The Chancellor would not be empowered to instruct the supervisory authority about disclosure or non-disclosure decisions. Nevertheless, he would be able to exert considerable pressure beyond assuming a supervisory responsibility himself. The fact that a Chancellor might at some stage have to stand at the Dispatch Box, held accountable to Parliament and the country, would certainly concentrate his or her mind on the decision being taken by the supervisory authority. I believe that the Chancellor would demand assurances that the most detailed inquiries were being undertaken into a bank's affairs before he would be prepared to sit back and let matters take their course under the cloak of confidentiality.
I want now to consider the question of adverse publicity that would arise where a bank had been obliged to issue a statement. The supervisory authorities are frequently called in to query the affairs of the banking community. To some extent, that frequency would insulate banks from the danger of a precipitate run and collapse. Rumours surrounding BCCI seem to have contributed little to undermining the credibility of and confidence in that bank. That is why the treasurers of local authorities continued to invest in it. The heavy hand of the Bank of England announcement triggered the bank's closure and, in other conditions, that could have led to a run on the bank.
Ms. Mowlam : My hon. Friend has referred to the attitude of local authorities and I invite him to comment on the minutes of a Treasury meeting of the committee of local authority borrowing. Back on 10 May, before BCCI issues were raised, the local authorities raised three points with the Treasury in which they were particularly interested. Their first point related to Chancery which was still on the Bank of England's authorised list. The local authorities raised the issue of the list of approved bodies on which Chancery still appeared. They said :
"If authorised banks were unsound, the list should carry a health warning."
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The local authorities asked for that back in May. In addition--Madam Deputy Speaker (Miss Betty Boothroyd) : Order. The hon. Lady is making an intervention, not a speech.
Mr. Campbell-Savours : The health warning to which my hon. Friend refers is embodied in my new clause in so far as I provide for an early- warning system.
I believe that the disclosure procedure that I have outlined, in so far as a number of banks might be required to use it and where such inquiries are under way, would act as no more than a signal to depositors that they should be alert and sensitive to a bank's affairs. The effects would be no more undermining than the rumouring in the City in recent months about BCCI's affairs. However, it would enable institutional depositors such as local authorities to enjoy the benefits of what has hitherto been insider information available only to those who are more informed in the City.
Mr. Dick Douglas (Dunfermline, West) : The House is indebted to the hon. Member for Workington (Mr. Campbell-Savours) for proposing his new clause. Why should local authorities be in a privileged position over and above other investors in the hon. Gentleman's scheme of things?
Mr. Campbell-Savours : Local authorities would not be in a privileged position. When the bank made a statement one month after the end of its accounting period, that would be a public statement to which anyone would have access.
I want now to consider BCCI's affairs and my knowledge of the events and to pose a number of questions which the Government should answer. My authority of Allerdale was the first authority in the United Kingdom to reveal that it had lost £1 million. That arose as a result of a policy decision taken by the Labour-controlled council when it was elected in May this year. It decided that at every stage, and whatever the matter, it would pursue a policy of full disclosure in the spirit of freedom of information legislation at local authority level. I pay tribute to my local authority for deciding to announce what happened in the way that it did.
5.15 pm
The Government claim that the list of which I have a copy is not an authorised list. Hon. Members should note the size of the list which contains the names of all the banks that are authorised deposit-taking institutions and banks within the United Kingdom under the terms of the Banking Act 1987. The banks says that the list is only a list of authorised institutions. If that is the case, why are Chancery and Edington on that list when one of them went into liquidation earlier this year and the other is the subject of an administration order? Why were they on that list when my authority received a copy of that list on 28 June this year, two days after the Government had been informed in the Price Waterhouse report--
Mr. Sumberg : Will the hon. Gentleman give way?
Mr. Campbell-Savours : No, I do not intend to give way again. Why did my authority receive a copy of that list two days after the Government had been informed formally of fraud in the bank?
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I want the Government also to comment on a statutory instrument which I managed to dig out last week entitled the Local Authorities (Capital Finance) (Approved Investments) Regulations 1990. I draw those regulations to the attention of the House because the Department of the Environment has insisted repeatedly in press briefings that in no way was it approving the investments of local authorities. According to the explanatory note,"These regulations contain a list of investments which are approved by the Secretary of State".
Under 2 it states
"the following investments are approved".
Under 2(b) it states
"any deposit made with an authorised institution or Bank of England"
and it defines deposit as having
"the same meaning as in the Banking Act 1987."
Having received a letter a week and a half ago which referred to a revised list, having received the list to which I have just referred, and knowing of the existence of the regulations to which I have just referred, local authorities believed that they were acting with the approval of the Bank of England and with the approval
Mr. Sumberg : Will the hon. Gentleman give way now?
Mr. Campbell-Savours : I have no intention of giving way to the hon. Gentleman. Judging from his ill-conceived comments at the beginning of this debate when the revelations were first made public and his comments about Bury metropolitan district council, comments of which he should be deeply ashamed, he should make a point later of apologising to his local authority.
Mr. Sumberg : On a point of order, Madam Deputy Speaker.
Madam Deputy Speaker : I have the impression that the hon. Gentleman's point of order is not a point of order for me but a point of frustration. I will try to call him later.
Mr. Sumberg rose --
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