Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 360 - 379)

TUESDAY 9 OCTOBER 2007

SIR CALLUM MCCARTHY AND MR HECTOR SANTS

  Q360  Chairman: Again, is this a non-answer, Sir Callum? Were they competent and capable? It is a very simple question.

  Sir Callum McCarthy: They met our authorisation criteria, including the criterion of competence.

  Q361  Chairman: So they were competent and capable?

  Sir Callum McCarthy: Under the terms of the authorisation, yes.

  Q362  Chairman: Does that mean you thought they were competent and capable and Mr Sants thought they were competent and capable. For God's sake, give us an answer.

  Sir Callum McCarthy: Sorry, neither of us was in any way involved in the individual decisions.

  Q363  Chairman: But the FSA thought they were competent and capable?

  Mr Sants: Clearly the FSA did and where we stand at the moment, just to be quite clear, in respect of the current situation that Northern Rock is in we deem that it is appropriate for them to remain in place and I think that would be a readily understood point that in these sorts of circumstances it is useful to have a management team who are fully understanding of the set of circumstances the firm is in.

  Q364  Chairman: We are pulling teeth to get the answer, Sir Callum, we are focusing on Northern Rock and we will come back to you in terms of the non-Northern Rock issues with the FSA, but maybe some of my colleagues would like to ask a quick question to you on that. I do not think we will give due justice to it given the amount of time we have spent on Northern Rock, but if I can try and sum up what you have said to us this morning you would say the lessons learned are: the FSA needs to push the extreme stress testing in banks; is that correct?

  Sir Callum McCarthy: Yes.

  Q365  Chairman: So there was an element of supervisory failure in that?

  Sir Callum McCarthy: In terms of not pushing it further than we did, we should have done more, yes.

  Q366  Chairman: So it was inadequate, that is fine. There is also low consumer confidence in the authorities; you have said that. I picked that up as I went along.

  Mr Sants: As was demonstrated by the events surrounding the announcement of the lender of last resort facility.

  Q367  Chairman: Okay. There are problems with the Financial Services Compensation Scheme deposit protection; that is correct?

  Mr Sants: Yes.

  Q368  Chairman: Okay. The three-year period between the full regulatory analysis of "high impact" firms is too short?

  Mr Sants: No, I said in specific regard to Northern Rock that period proved to be too short and we need to do a lessons learnt exercise more generally on the implications for our overall supervisory regime.

  Q369  Chairman: We are talking about Northern Rock this morning. You said it was too short for Northern Rock.

  Mr Sants: Yes.

  Q370  Chairman: So we can forget your first negative answer there; it was too short?

  Mr Sants: I thought you were asking about general supervisory lessons.

  Q371  Chairman: It is Northern Rock we are on about.

  Mr Sants: I beg your pardon. Three years should have been a shorter period.

  Q372  Chairman: That was a trick question. Thank you. Basle II liquidity requirements need modernised; is that correct?

  Mr Sants: Basle II and liquidity is a different point. The overall international liquidity regime needs modernising.

  Sir Callum McCarthy: Something which we are already working on.

  Q373  Chairman: Okay. You perhaps took a different view from the Governor on the four pieces of legislation?

  Sir Callum McCarthy: Sorry, I think the main difference which we have discussed is whether the problem of a covert lender of last resort is a legal problem or a practical problem, and we would place greater emphasis on the practical problems whilst not neglecting the legal consequences.

  Q374  Chairman: So perhaps you had a different view.

  Sir Callum McCarthy: A slight difference of emphasis.

  Q375  Chairman: That is fine. In terms of supporting the banks for more liquidity and in takeovers supporting the bidding bank and the terms of supply, that question remains unanswered here?

  Sir Callum McCarthy: Yes.

  Q376  Chairman: The Tripartite system in your opinion worked, everyone played their part?

  Sir Callum McCarthy: Yes.

  Q377  Chairman: So the question I have got then is if the first bank run for 140 years is success, what is failure?

  Sir Callum McCarthy: Sorry, Chairman, I do not think that any of us has described what has happened in terms of a success. You manifestly have not as a Committee and we manifestly have not.

  Q378  Chairman: You are telling us everything worked, the Tripartite system worked, and yet we have had the greatest cock-up for 140 years.

  Sir Callum McCarthy: We have had a problem of global lack of liquidity which has resulted in this country in one bank—a major bank—having an acute liquidity problem and there have been problems, as I have pointed out, in other countries round the world.

  Chairman: Okay, we will be coming back to these issues and we look forward to your correspondence certainly before next Tuesday. We are coming back to other non-Northern Rock issues but have any colleagues any particular questions on it just now?

  Q379  Ms Keeble: I have one and it was really about the sale and rent back schemes, which are not part of your remit currently but are becoming increasingly important. There are complaints about them but also I have had clear evidence of difficulties with them. Do you have concerns and do you foresee being able to regulate those?

  Mr Sants: As you know, I have only taken on this remit at the end of July having previously been on the wholesale side. I am fully aware of the concerns that have been raised and have seen that—


 
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