House of Commons Hansard Debates for 4 Nov 1991

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for the time being, any insolvency or redundancy payments are not subject to set-off for loans owed to the bank.

The other matter which might interest employees involves mortgages. There was some concern that mortgages would be called in January when the preferential terms period expired, but I understand that that is not the liquidators' intention. On 2 January, when the period of the extension of the favourable terms expires, they will write to the people who have borrowed from them and say that they are free to continue those mortgages, but on commercial terms, not preferential terms.

It is not the liquidators' intention to call the mortgages. That is good news for the borrowers, because it should mean that they will not be asked to repay their loans at short notice. Those who at that time are still unemployed will probably qualify under the social security rules for the interest on those mortgages to be paid out of social security funds. For the first 16 weeks, one gets only half the interest and, after that, all of it. Many people will have gone through the 16 weeks by that time.

The hon. Gentleman again referred to the criticism of the staff. As my right hon. Friend the Chancellor and I have made clear, that criticism applies only to the senior management of the bank. On 4 October, I issued a press release in which I said :

"I hope the staff will find work again soon. In July, the Chancellor commented in the House that it would be monstrously unfair if honest, hardworking employees of BCCI were tainted by the actions of their superiors. I hope that prospective employers will not hold the fact that they worked for BCCI against them."

My right hon. Friend the Chancellor made that point strongly in the summer, and I am happy to reiterate it. We believe that the criminality in this bank was confined to very senior management. It is not suggested that those at branch level were involved, or that everyone was tainted by those actions.

The hon. Gentleman referred to the investigation into the ownership of First American bank shares and Credit and Commerce American Holdings, the BCCI subsidiary that was thought to have acquired those shares, and to the BBC 2 item on the "Money Programme". There was a little misunderstanding on this point. The American authorities were looking into the ownership of the bank to see whether BCCI had breached American law in acquiring it. They asked the Bank of England to help them to acquire some documents that might assist in those investigations, and those were the documents that were the subject of the section 39 notices issued by the Bank of England. As the hon. Gentleman knows, in effect there were three sets of documents, because some are protected by an injunction.

The reference in the official affidavit of the Bank of England to "false and fraudulent statements" said that, if what was alleged were true, it would be clear that BCCI officials would have had to make false and fraudulent statements to the American authorities. It was not saying, "We now have hard evidence that false and fraudulent statements were made." In any event, this related only to what was in effect a breach of American regulations, not British regulations. It is not the same fraud that was the subject of the removal of the $10 billion from the bank ; it was a fraud in the United States, involving lying to the authorities there, and was not the same as the fraud that resulted in the bank collapsing.

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I wish to illustrate that point. It was clear that, on their own, the papers that the Bank of England acquired and handed over to the federal authorities would not provide the Bank of England with evidence relevant to the authorisation criteria--the fit and proper people running the bank. The Federal Reserve, however, set that new evidence alongside the information that it had already gathered to try to establish what had happened and whether United States law had been breached.

Plainly, it was more sensible for the Federal Reserve rather than the Bank of England to be left to pursue the investigation. After all, it was an investigation into a possible breach of American law. The Bank was therefore content to await the Federal Reserve's conclusions and those of the Price Waterhouse investigation, which was already in train. As it happened, the Federal Reserve did not come to its conclusions on the acquisition of First American bank shares until 29 July, by which time the Bank of England had already closed BCCI. The hon. Gentleman asked me whether I thought that the Serious Fraud Office should have been involved at that stage. I do not think that it should have been. This was an American legal issue--a question whether American law had been broken. There was no suggestion in this context that British law had been broken. However, the Serious Fraud Office was told, within a few days of the receipt of the section 41 report from Price Waterhouse, of the evidence of that fraud. The hon. Member for Leicester, East also asked me whether it would be helpful if the Governor gave evidence to the Select Committee on that issue. That is a matter for the Select Committee. I am sure that, if it were to call upon the Governor and ask him to deal with that question, he would attend and answer any questions asked of him. The hon. Member asked me a series of questions about the Bingham inquiry. We shall assist in any way we can with facilitating the judge's trip to Abu Dhabi, and we have helped--we have passed on his letter to the Abu Dhabi Government through our embassy there, and the embassy will assist him in any way possible.

I have no idea when the Prime Minister and the Chancellor will give evidence to the inquiry. The answer to that question is, when they are called. The Prime Minister has made it clear that all Ministers will be available to give evidence to the inquiry, if the judge so requires. Therefore both or either of them will give evidence if called to do so, but they have not yet been called.

Mr. Vaz : Are they going to submit written evidence before the judge considers whether they should be called?

Mr. Maples : The inquiry has already had an enormous number of documents both from the Treasury and from the Bank of England. Neither the Chancellor nor the Prime Minister has been asked for a written statement, but if they are asked, I am sure that they will provide it, as the Prime Minister has said that Ministers, including himself, will co-operate in every possible way with the inquiry. I do not think that the Governor is having any difficulty in performing his normal duties as well as assisting the Bingham inquiry.

The hon. Member mentioned compensation. There has been some misunderstanding, because when we last met, we corrected a statement which he had made to the press about that. At the end of his statement, he said that all he

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got from me was "tea and sympathy", so perhaps he will agree that he did not get the offer of compensation as he is suggesting. What I said then was that we have to await the Bingham inquiry and its report. What we would do if that report says this or that is a hypothetical and academic question. It may say a lot of things about bank regulation. It would be entirely pointless for me to attempt to deal with the sort of hypothetical questions that might arise. I cannot anticipate the report or its conclusions, and, as I have told the hon. Gentleman and the House before, I have no reason to believe that the inquiry will find any fault with the Bank of England's conduct.

Mr. Vaz : I accept that, and I accept that that was what the Economic Secretary said. However, we sometimes have to deal with hypothetical situations. Is he ruling out compensation now and for ever, or is he saying that he will read the report and, even though he thinks that it will clear the Bank of England, if there is a semblance of a recommendation or a conclusion that the Bank of England was negligent, he will consider compensation then?

Mr. Maples : I do not think that it is reasonable to ask me to go any further than I went. I am not prepared to deal with hypothetical questions about what the report might or might not say. In a few months, we shall discover what it says, and then it will be perfectly proper for the hon. Gentleman to ask me to respond to any criticisms that the report makes of the Government or of the Bank of England. The hon. Member for Leicester, East asked whether I had any estimates of the likely impact upon the British economy. Clearly this affects a particular section of the business community, and it is a serious matter for them. There will undoubtedly be some lost exports and lost business as a result, but the hon. Gentleman probably overestimated that.

As we have only three minutes left, the hon. Gentleman asked me to deal with his questions fairly quickly. He asked me whether we would consider amending the law to activate the deposit protection fund on provisional rather than full liquidation. Yes, we will consider that, but we would only be prepared to consider changing it in respect of an application by the regulator. We could not be put in a position where the deposit protection fund could be activated on a frivolous or vexatious application by somebody other than the regulator, but we shall certainly consider the matter.

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Are we prepared to commit the Government to improvements in the deposit protection scheme? As I said before, the answer to that question is no. There are no immediate plans to do so, but, as the hon. Gentleman probably knows, the European Community is negotiating a directive on this issue which will establish minimum standards of compensation across the Community, and it is now generally accepted that those should be kept at modest levels. Nevertheless, that may involve some changes to the British scheme, but the present draft would not do so.

The hon. Member for Leicester, East is wrong to draw too much comfort from the United States scheme. The moral hazard created in the United States and the problems for savings and loans institutions there were an almost direct result of the very generous compensation schemes available, which remove any risk to the depositors. As far as local authorities are concerned, the Secretary of State for Scotland has given permission for Western Isles council to borrow for the time being to continue to provide services. The Department of the Environment is still considering what action would be appropriate, if any, in respect of the English authorities, which lost much less, and even less than that on a proportional basis. They should not have anything like the same difficulty in dealing with it.

Finally, the hon. Gentleman asked me about depositors who have lost money in branches in Gibraltar, Hong Kong and the Isle of Man. While one obviously feels incredibly sorry for such people, it is not the responsibility of the British Government. It was not a British bank, and the branches where those people lost money were not in the United Kingdom. In those circumstances, I do not think that there is any moral or legal responsibilty on the British Government or the Bank of England to do anything about it.

This sad and sorry saga has been at a great cost and loss to many people, and we are extremely sorry about that, especially as it has affected one group of people in our society. I hope that I have answered most of the hon. Gentleman's questions, and I am sure that we shall return to the subject again.

The motion having been made at Ten o'clock, and the debate having continued for half an hour, Mr. Speaker-- adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half past Ten o'clock.

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