Examination of Witnesses (Questions 800
THURSDAY 25 OCTOBER 2007
MP, MR NICHOLAS
Q800 Ms Keeble: That would be helpful.
Do you have a named official who takes the lead responsibility
in relation to the Tripartite Authority, and who is that?
Mr Darling: Yes. Here he is.
Mr Maxwell: I take part in meetings
of the Tripartite Committee and Stephen Pickford, my Managing
Director, is also involved in doing that.
Q801 Ms Keeble: You have maintained
that consistently all through the crisis?
Mr Maxwell: We have cover. We
ensure we have senior staff cover involving us and Nick as well
and other senior staff whenever necessary.
Q802 Ms Keeble: One of the comments
that you made earlier, Chancellor, was that you heard about one
thing, I think it might have been the decision to go for the facility,
in the evening and you were told formally the next day. I did
wonder about the lines of communication. Presumably, they are
acted on immediately and you do not wait for a formal notification
Mr Darling: No, and in the normal
course of events, as a Minister, and particularly as the senior
Minister, your officials keep you informed as and when they hear
things. I knew from what I was picking up generally the week before;
you could see that there were problems but no-one mentioned any
specific company to me and certainly on the Tuesday when the Tripartite
committee met, they were aware of it, and the Treasury was aware
of this. What happened was the FSA actually rang upI cannot
remember whether it was you or Stephen Pickfordthe next
day and actually said, "Look, there is a problem here."
Q803 Ms Keeble: What are your relations
now with the board? Do you have a Tripartite Authority official
on the board of Northern Rock?
Mr Darling: No.
Q804 Ms Keeble: Were you consulted
about the appointment of the new chairman?
Mr Darling: In relation to your
first question, no, we most certainly do not. It is very clear
that the directors are accountable to the shareholders and neither
the Government nor the Bank of England nor the FSA are on the
board. In relation to the new Chairman, Bryan Sanderson, yes,
I knew about it but that decision was taken by the board; in particular
the senior director, Ian Gibson, was anxious that the board should
be beefed up but that was his decision. It really is most important,
as I said in the House the other day, the Government can help
but the Government does not own this company. This company has
to sort out its affairs.
Q805 Ms Keeble: But you have put
a large amount of public money at its ... You have given a large
amount of support to the institution.
Mr Darling: Yes, and therefore
we are working closely with the company but we do not have somebody
on the board. This company is owned by its shareholders and it
is the directors that are responsible for it, not the institutions
or the Government.
Q806 Ms Keeble: You also said that
there was going to be action over the credit ratings agency. I
just wondered what progress you have made on that.
Mr Darling: This is something
that has to be done internationally, as well as in Europe and
here as well. I think the questions that really need to be asked
are firstly, what precisely people believe their role to be, because
a lot of institutions give the impression that if the credit ratings
agency says something is triple A, that is fine and they do not
make any further inquiries. I am pretty clear that credit rating
agencies are there as simply one particular avenue of advice and
that first and foremost, the responsibility for maintaining the
financial security of an institution must lie with its directors.
I am very clear about that. The way in which credit agencies operate
is something that I think we need to look at because it has some
bearing on what regulators require of individual institution institutions
when they take advice and the way in which they satisfy themselves
as to whether or not they are doing the right thing.
Q807 Chairman: Chancellor, on the
issue of Treasury staffing for financial stability, following
up Sally's question, I wonder if you could send us a note on that
because that is something of interest to us?
Mr Darling: On who it is or what?
Chairman: Treasury staffing of the financial
stability department. That would be of interest.
Q808 Mr Mudie: Chancellor, when the
sub-prime issue arose in the States, the Fed and the ECB took
policy decisions on putting liquidity into the market. The Bank
of England took the opposite stance. Who took that decision? Was
it solely the Bank of England or did they consult you and did
you have a say in that policy decision?
Mr Darling: As I was saying to
Q809 Mr Mudie: No, he asked but I
hope I am not getting the same answer. I am asking you specifically
who took the policy decision not to put liquidity in the market
in early August.
Mr Darling: The decision was taken
by the Governor but having spoken to me about it. I thought that
is what I said to Mr Dunne.
Q810 Mr Mudie: When I asked you in
the House you said "I have many discussions."
Mr Darling: I do, yes.
Q811 Mr Mudie: Of course you do.
Were you asked, consulted, or was he advising you of the decision?
We just need to know who took this decision?
Mr Darling: He discussed it with
me and I said what his belief was. We had a number of discussions
about it but that was his firm view. I can be very clear about
it: he took the decision but he consulted me and I will back the
Q812 Mr Mudie: No, but he took the
decision, and you will loyally back him. That is fine.
Mr Darling: He is responsible
for maintaining the financial stability of the system but he does
need to talk to me, as he needs to talk to Callum McCarthy. I
have explained what his views were.
Q813 Mr Mudie: Your loyalty is heartening.
Let us take the one you do accept responsibility for, the chairmanship
of the Tripartite Committee. You seemed to downplay the Lloyds
TSB approach. You see, Mr Applegarth told us that they were negotiating
until 10 September but he got a final decision from the central
bank that they would not agree Lloyds' terms, which were that
the same facility of £30 billion that was going to Northern
Rock be transferred to them, plus they did not like the rate of
interest. Are Northern Rock telling us the truth?
Mr Darling: Mr Applegarth, if
he is saying that we reached... We were not at a stage where here
was a formal offer with hundreds of conditions and the only one
that could not be sorted out was this. This was a general enquiry
from an institution who were looking at possibly acquiring it.
They did not come to us and say, "Look, if we do this, we
require a loan of this and these terms and conditions."
Q814 Mr Mudie: Loyally again, we
could not get the FSA, who seemed to be the conduit to the Tripartite
Mr Darling: I think they raised
it with them.
Q815 Mr Mudie: As Mr Maxwell was
saying, who handled from the Tripartite Committee, who was the
liaison point with Northern Rock over these very sensitive negotiations
that could have given a market solution that would have saved
all this problem?
Mr Maxwell: In most cases during
that period the contact with Northern Rock was carried out by
the FSA, its supervisor, and that is where the direct line of
Q816 Mr Mudie: The FSA did say they
took a position, a request, to the Tripartite Committee. Northern
Rock say this was on the 10th and those were the terms. I notice
the Governor of the Bank of England says it was not a facility;
it was a subsidy. It was the same facility that was awarded to
Northern Rock three days later.
Mr Darling: No, it was not at
Q817 Mr Mudie: You tell me. Plus
Mr Darling: Can I deal with that,
Mr Mudie? Firstly, I noticed that Callum McCarthy said to your
Committee "I think it would be incorrect to regard the solution
as being a firm cut and dried offer. It was still at an exploratory
stage and there were a number of other issues which had to be
dealt with," which is in terms what I was saying to Mr Dunne.
What happened, as I understand itand Clive Maxwell will
add to this if he thinks it is appropriateis that the issue
was raised with the FSA when, as you would expect, they were looking
round an institution like this, they were looking at all sorts
of possibilities, they said, "What would happen if we asked
you for"it was not a firm prospect"up
to £30 billion from the Bank of England at commercial rates,
in other words, not penalty rates or anything like that?"
So in effect, the Bank of England would be providing the same
sort of help as an investment bank might do for maybe up to two
years and for quite a significant sum of money at prevailing commercial
Q818 Mr Mudie: What was the amount
they were asking for?
Mr Darling: I think it was up
to £30 billion.
Q819 Mr Mudie: What was the amount
you agreed with Northern Rock?
Mr Darling: The lender of last
3 Ev 242 Back