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Ms. Abbott : Will the Economic Secretary give way?
Mr. Maples : This is an important point. If the hon. Lady will allow me to deal with it, I will give way later.
I have made it clear to the Bank of England that the utmost priority should be given to dealing with the claims as soon as possible and that the bank should have the necessary temporary staff to deal with the applications. I am confident that the bank will do that, and I will stay in touch with the operation to ensure that everything is being done as fast and as efficiently as possible. However one looks at it, it will be difficult to process 100,000 applications and it will take a little time.
There will also be some difficult cases. The vast majority of the cases will be simple. People will have one account at one branch, that person's identity will be clear, that person will not have other borrowings or dealings with the bank and the account will not be held in trust for someone else.
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That kind of person can be dealt with quickly. As we found with the British Commonwealth merchant bank case, in other cases there will be complications. We do not expect more than a minority of the depositors to be involved in such cases, but there will have to be investigations in some cases.With regard to small businesses, I outlined on Monday a scheme which the Bank of England was trying to establish. Considerable progress has been made with that and at least one clearing bank has nominated several of its branches specifically to help former customers of BCCI, to deal with their applications, to process with the liquidator the status of accounts, how they had been run and whether it is possible to release security. The best way to deal with the problem is to arrange for other banks to step into the breach. So far as I am aware, the attitude of the other big clearing banks is positive. Undoubtedly some extremely good businesses banked with BCCI and they offer good business opportunities for the other banks. As I have said, the Bank of England is actively helping to establish those arrangements.
Ms. Abbott : The Economic Secretary has spent considerable time answering arguments that Opposition Members have not put to him. Does he have any intention of answering our specific questions, particularly about the auditors? Why is the 1990 Price Waterhouse report not to be published? Did the Bank of England ask Ernst and Young why it gave up the lucrative BCCI account of its own volition?
Mr. Maples : If the hon. Lady would allow me to make my speech in my own way, she will discover that I have a raft of answers for the points that were raised. If I may say so, the hon. Lady made an intemperate intervention. Most of the points that I have answered were raised, if not in this debate today, then in the newspapers. There was considerable discussion on the Opposition Benches about whether the deposit protection scheme was adequate and whether the Government should stand behind local authorities.
Mr. Gerald Howarth (Cannock and Burntwood) : Will my hon. Friend acknowledge that there will be a widespread welcome in the country for the restatement of the Government's resolve not to bail out BCCI's creditors in any other way than is already provided for by statute? Does he accept that local authorities, such as Lichfield district council, which have been prudent and have forgone the extra one eighth of 1 per cent. in order to ensure that they are investing in proper institutions understand that if the Government were to follow the Opposition's advice that would simply encourage imprudence on a wide scale and penalise the authorities that have looked after their charge payers' money?
Mr. Maples : I agree with my hon. Friend. I tried to make that point earlier.
I want now to deal with some of the specific points that were raised. The compensation scheme under the Financial Services Act 1986 is more generous because, in general, ordinary investors tend to have larger sums invested in unit trusts, investment trusts or pension funds than in bank deposits. Paying a percentage of £20,000 is probably the right way to deal with bank deposits with its slightly more generous scheme for investors.
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I was asked about the 1990 Price Waterhouse report. I understand that there have been a number of reports in recent years relating to the financial condition of BCCI. The response to those reports was a need for additional capital, usually at the prompting of the supervisory authorities, and that capital was always forthcoming and the bank was always adequately capitalised. At least, when a request for additional capital was made, it was forthcoming. Those previous reports related to financial controls, bad debt, and the bank's operating losses. They stated that in all cases the problems could be corrected through the bank being adequately capitalised and additional capital was forthcoming.None of the earlier reports contained evidence of fraud or other wrongdoing of the kind that prompted the action which the regulators took earlier this month. That was the first occasion when there was hard evidence on which the Bank of England could act.
Mr. McCartney : What about the soft evidence?
Mr. Maples : I explained earlier the need for hard evidence. If there is no hard evidence, the Bank of England would lose the case on appeal and would essentially have ruined the bank because it would not be able to continue to operate.
Mr. Wallace : The Economic Secretary has been very good at giving way. I understand what he said about hard evidence and the difficulties about rumours of fraud. However, how did the Bank of England react to the guilty plea in the American courts in connection with serious charges involving drug trafficking? When the matter was raised in another place, we could get no answers from Ministers.
Mr. Maples : I dealt with that issue last Monday. The bank pleaded guilty in the United States because in America companies can be vicariously liable for the criminal acts of their employees. It was thought at the time --it may be true, and I do not know that any evidence to the contrary has since come to light--that those activities were confined to the Tampa branch of the bank and that the people concerned were not associated with the senior management of the bank in London. There was no evidence of fraud. There was evidence of illegal activities in laundering drug money, but there was not evidence of what has given rise to the revocation of the bank's licence, namely, that the bank was being systematically defrauded of funds by its senior executives. No evidence of that was contained in those matters in the United States.
I was asked some specific questions by the hon. Members for Workington and for Redcar. Mortgagees have a liability to continue to pay, but they will be entitled to have their property back once the deed has been paid off. They are simply debtors of the bank, and part of the liquidators' task will be to collect the assets of the bank--of which mortgages will be one.
I was asked why Ernst and Whinney gave up the audit. I do not know and I cannot speculate about that. I know that the regulators in various countries wanted one company--in this case Price Waterhouse--to take on the whole audit. They were worried that there were two separate auditors--a situation that was deliberately created and perpetuated by the bank itself. The fact that there were two separate auditors must have made it far
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easier to conceal the frauds because money could be moved from one section of the group to another when an audit or inspection was taking place.I was asked about the insurance company CCL. I am told that, although BCCI acted as one of the company's principal bankers and as one of its appointed representatives for the sale of life policies, CCL held no shares in BCCI and is not a subsidiary of BCCI. I cannot give the hon. Member for Workington any further information about the connection. Neither is a subsidiary of or a shareholder in the other. The regulation of insurance companies is a matter for the Department of Trade and Industry, which is fully aware of all that we know about the problems surrounding the bank and is looking into the matter. As the hon. Gentleman knows, under the Policyholders Protection Act 1975, policyholders would get compensation up to a high level of any liabilities of a failed insurance company. There is no evidence that it will be necessary to invoke that Act.
I was asked why Chancery and Edington remained on the list. Whether that was unfortunate and misled anyone or not, there was no way in which either bank could have taken deposits. Both were in administration at the time and had had their licences suspended. I understand that they were not removed from the list because their licences had not been cancelled and, at some stage in the future, they could have been reauthorised or had their licences reactivated. That could not have endangered any depositor's money because the banks could not have taken deposits at that stage.
It was a most peculiar suggestion and I cannot understand why I was asked whether the Foreign Office tried to stop the Bank of England launching a section 41 inquiry earlier. I am told that the answer is categorically no. I was asked about the investigation of money brokers and their commissions.
Mr. Campbell-Savours : The Pakistani insurers.
Mr. Maples : I do not know the answer to whether the insurers of the bank's liabilities are active. The liquidators will look into that. If those insurers are active, that will be a source of some protection for the depositors. I am afraid that I have no knowledge of that.
The hon. Gentleman raised the question of the money brokers. Money broking is a deregulated area of the market, so people are entitled to negotiate their own commissions. If money brokers pushed depositors, especially local authorities, towards the bank because they were being paid over-the-odds commissions and were not disclosing that to the local authorities, and if the local authorities had reason to think of the money brokers as their advisers, local authorities may have some recourse against their money brokers. I do not know. I am, on the whole, in favour of the disclosure of commissions. That makes for a much cleaner market and cleaner arrangements between people. However, local authorities could have asked the money brokers to disclose their commissions. If they had refused to do so, the local authorities would have had some cause for complaint.
I was asked about the college of regulators. It was not really set up under the formal Basle procedure. It was the first example of an international college of regulators being put together, and it was put together by the Bank of England. Whether it could have been put together earlier or whether it could have waited slightly longer are difficult
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questions. I do not know the answer. The bank would say that it was put together as soon as it thought that it was appropriate to do so. I have dealt with most of the points that were raised in debate. If any hon. Member feels that there are points with which I have not dealt--Ms. Mowlam : The Minister did not answer one important point. When the bank was closed on 5 July, the local authorities were in and the small investors were in. However, there seems to be no sign that the clearers had any exchange trading going on. Why did the clearers seemingly not get caught too?
7.45 pm
Mr. Maples : It has been commented that anybody would realise that people paying slightly over the odds were incurring a higher risk. The other clearers may have been a more sophisticated group of counter parties. The premise of the hon. Lady's question is not necessarily true. It is not the case that there were no outstanding transactions with the clearers. There must have been many outstanding transactions in the market because the bank was closed in the middle of the day. Some of the clearers may have been on the other end of the transactions. It is clear that people could assess the risks of dealing with different counter parties. I know that large banks and large financial institutions, as my hon. Friend said, have rules about the exposure that they may have to particular institutions. I expect that their permitted exposure to BCCI was fairly small.
Mr. Campbell-Savours : The Minister said that he would answer all outstanding questions. May I remind him of what they were? We asked him about the £2.3 billion offered to the bank by Ghanem Al Mazrui from Abu Dhabi in the hours immediately before the closure. Is that correct? We also asked about the £375 million which was sent to the bank by Sheikh Zayed Bin Sultan al-Nahayan two weeks before the closure of the bank. We also asked about--[ Hon. Members :-- "Come on."] These are very important matters. The Minister asked us to set out our position. I also asked about the distinction being drawn by Westminster city council between lending and deposit making. I asked about the statement made by Ian Brindle of Price Waterhouse. He said that Price Waterhouse repeatedly informed the Bank of England of irregularities.
Mr. Maples : I have already dealt with the question of irregularities. I said that they were all related to loan losses, lack of financial controls, and the need for additional equity capital which was injected on every occasion on which it was required. The first hard evidence of fraud emerged in the Price Waterhouse inquiry, the report of which was delivered to the Bank of England on 27 June.
In my own mind, I am aware of no distinction between lending to a bank and making a deposit with it. I do not know what the treasurer of Westminster city council had in mind. I am responsible for many things, but not for what he says.
There were certainly additional injections of equity capital. I am not sure whether the hon. Gentleman's figures are right. There were several occasions on which additional injections of capital were requested and made.
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It is not for me to comment on what the shareholders might have done if the restructuring had gone ahead. Additional injections of capital might have been made. However, the evidence of fraud was so pervasive and involved the senior management of the bank to such an extent that the regulators came to the conclusion that there was no way in which the management could be allowed to operate, whether additional capital was injected or not.If there are points with which hon. Members think I have not dealt, I hope that they will write to me and I will seek to answer them. In the circumstances, I hope that they will feel that at this stage it is not in the interests of banking regulation to pass new clause 37.
Mr. Paul Boateng (Brent, South) : This has been a good debate, although it is a pity that the response from the Economic Secretary was so very inadequate. He gave few answers to the many Opposition questions. It is clear from the response of Conservative Members to those answers that they are only too anxious to mull over them in the course of a good supper.
The Opposition, however, recognise only too clearly that the Minister's responses provide particularly thin gruel for the many deposit holders who are concerned about interest rates and about bank charges. We believe that the answers provide very thin gruel indeed for those who have suffered as a result of the collapse of BCCI. We want our questions to be answered.
It was instructive to hear the Economic Secretary's response to the important points that were raised by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). It revealed the arrogance and, I am bound to say, the complacency--I use those words with a degree of sadness--that have characterised the Government's response throughout the BCCI farrago. The response from the Economic Secretary was that my right hon. Friend did not know what the Bank of England had been doing since the 1970s. That is precisely our point. This House does not know what the Bank of England has been doing since the 1970s, although we have a pretty strong suspicion about what BCCI has been doing since the 1970s.
We ask--we reiterate our demand tonight--that in the interests not only of the many small business men throughout the country who have suffered as a result of the collapse and whose lives are in ruins, not only in the interests of the people who have been put out of work and whose homes and security have been threatened by the collapse of the bank, but on behalf of all those who are concerned about the probity of our banking sector, the way in which it is regulated and the way in which our supervisory system works, that there should be a full inquiry into the collapse of BCCI. Nothing less will satisfy the House or the people of this country. Then, perhaps, we shall have the answers to the questions that my hon. Friend the Member for Workington (Mr. Campbell-Savours) so eloquently asked when speaking to his new clause 37. They are important questions that need to be answered. We intend to continue to ask them day in, day out in the House until they are answered to the satisfaction of the House and the country as a whole.
I turn now to an examination of the important new clause 3, which, unfortunately, has not received the attention that it might have, for understandable reasons. There is a crisis of confidence among the customers and consumers of the banking sector about bank charges and the transparency of the market in banking services. That
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crisis is due to the banks' failure to come clean about the impact of their charges and costs on the ordinary consumer. Our mailbags provide evidence of that, as do the columns of both popular and serious newspapers. Again, the public are entitled to reassurance. Having set the hare running and sought to obtain a scapegoat for their own abysmal economic performance and the impact of high interest rates, the Government have sought to blame the banks for the suffering of the many small businesses that have gone under during the past six months. Small businesses failures are at a record level and are more than 50 per cent. higher than the level at this time last year.The Government's response has been to set in train a Treasury study, of which they have leaked the conclusion without making the body of its findings available to the public or the House. We want those findings to be made public and to be the subject of a debate in the House. It is interesting that, as our proceedings draw to a close and we look forward to the recess, we are told that we shall have the report "some time". Why can we not have it now? Why can we not have a clear undertaking from the Economic Secretary that we shall have the report before the end of the Session? If we had it, we could ensure that it receives the full glare of public scrutiny that it deserves. What have the Government got to hide? Why are they not prepared to have an open debate? They do not like it, do they? -- [Hon. Members :-- "No."] No, they do not like it, but by jove we shall make sure that this one does not get away. We want a clear and unequivocal undertaking tonight that there will be a debate on this issue. Is that too much to ask?-- [Hon. Members :-- "No."] No, and that is what we are asking for, and we shall ask again and again.
One important point to which all those outside the House will want to hear a response is the issue of the new banking code. It was put out in draft form by the banks and received a unanimous thumbs down from consumer groups. The National Consumer Council described it as wholly inadequate. A whole range--a "raft" to use the Economic Secretary's word--of consumer- oriented bodies is seeking amendments and changes to it. When will the code be published? If we do not have a clear undertaking from the banks that it will be published before the end of the summer, let me make one thing crystal clear : after the next general election, a Labour Government will introduce a statutory banking code to protect the interests of consumers--
Mr. Boateng : The Financial Secretary says, "More regulations." Yes, we shall regulate when it is necessary to protect consumers. It is the absence of proper, prudent regulation which has led to the current abuses. Yes, we shall regulate to ensure that there is full consultation on any change in the terms of an overdraft facility or account. Customers should not have to discover by accident that their margins or charges have been raised. If that requires regulation, we shall introduce such regulation. Any change in the terms that customers are obliged to endure should be fully justified. They should not have to pay higher margins because of an increase in risks across the bank's loan book, and we shall introduce regulations to ensure that they do not. There should be a reasonable time for the repayment of an overdraft or loan. How many of us, of all parties, have received letters from small business men
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protesting about the way in which they have suffered at the banks' hands in this regard? How many small businesses have been brought to an end needlessly because the business man has not been given an opportunity to deal with the problem of the overdraft or loan? If the banks do not put their own house in order, we shall put it in order for them--no one should be under any illusions about that--and the sooner, the better.Question put, That the clause be read a Second time :
The House divided : Ayes 213, Noes 316.
Division No. 209] [7.58 pm
AYES
Abbott, Ms Diane
Adams, Mrs Irene (Paisley, N.)
Allen, Graham
Anderson, Donald
Archer, Rt Hon Peter
Armstrong, Hilary
Ashley, Rt Hon Jack
Ashton, Joe
Banks, Tony (Newham NW)
Barnes, Harry (Derbyshire NE)
Barnes, Mrs Rosie (Greenwich)
Barron, Kevin
Battle, John
Beckett, Margaret
Bell, Stuart
Bellotti, David
Benn, Rt Hon Tony
Bennett, A. F. (D'nt'n & R'dish)
Benton, Joseph
Bermingham, Gerald
Blair, Tony
Blunkett, David
Boateng, Paul
Boyes, Roland
Bradley, Keith
Bray, Dr Jeremy
Brown, Gordon (D'mline E)
Brown, Nicholas (Newcastle E)
Brown, Ron (Edinburgh Leith)
Buckley, George J.
Caborn, Richard
Callaghan, Jim
Campbell, Menzies (Fife NE)
Campbell, Ron (Blyth Valley)
Campbell-Savours, D. N.
Canavan, Dennis
Carr, Michael
Cartwright, John
Clark, Dr David (S Shields)
Clarke, Tom (Monklands W)
Clelland, David
Clwyd, Mrs Ann
Cohen, Harry
Cook, Frank (Stockton N)
Corbett, Robin
Corbyn, Jeremy
Cousins, Jim
Cox, Tom
Crowther, Stan
Cryer, Bob
Cummings, John
Cunliffe, Lawrence
Dalyell, Tam
Darling, Alistair
Davies, Rt Hon Denzil (Llanelli)
Davies, Ron (Caerphilly)
Davis, Terry (B'ham Hodge H'l)
Dewar, Donald
Dixon, Don
Doran, Frank
Douglas, Dick
Dunnachie, Jimmy
Eadie, Alexander
Eastham, Ken
Edwards, Huw
Evans, John (St Helens N)
Ewing, Harry (Falkirk E)
Ewing, Mrs Margaret (Moray)
Fatchett, Derek
Fearn, Ronald
Field, Frank (Birkenhead)
Fisher, Mark
Flannery, Martin
Flynn, Paul
Foot, Rt Hon Michael
Foster, Derek
Foulkes, George
Fraser, John
Fyfe, Maria
Galloway, George
Garrett, Ted (Wallsend)
George, Bruce
Gilbert, Rt Hon Dr John
Godman, Dr Norman A.
Golding, Mrs Llin
Gordon, Mildred
Gould, Bryan
Graham, Thomas
Grant, Bernie (Tottenham)
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Grocott, Bruce
Hain, Peter
Hardy, Peter
Hattersley, Rt Hon Roy
Heal, Mrs Sylvia
Henderson, Doug
Hinchliffe, David
Hogg, N. (C'nauld & Kilsyth)
Hood, Jimmy
Howarth, George (Knowsley N)
Howell, Rt Hon D. (S'heath)
Howells, Geraint
Howells, Dr. Kim (Pontypridd)
Hoyle, Doug
Hughes, John (Coventry NE)
Hughes, Robert (Aberdeen N)
Hughes, Roy (Newport E)
Illsley, Eric
Ingram, Adam
Janner, Greville
Jones, Barry (Alyn & Deeside)
Kaufman, Rt Hon Gerald
Kilfoyle, Peter
Kinnock, Rt Hon Neil
Lambie, David
Lamond, James
Leadbitter, Ted
Leighton, Ron
Lestor, Joan (Eccles)
Lewis, Terry
Loyden, Eddie
McAllion, John
McCartney, Ian
Macdonald, Calum A.
McFall, John
McKay, Allen (Barnsley West)
McKelvey, William
McLeish, Henry
McMaster, Gordon
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