Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 800 - 819)

THURSDAY 25 OCTOBER 2007

RT HON ALISTAIR DARLING MP, MR NICHOLAS MACPHERSON, MR MARK NEALE, MR RICHARD HUGHES AND MR CLIVE MAXWELL

  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 of something.

  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 up—I cannot remember whether it was you or Stephen Pickford—the 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.[3]


  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 Mr Dunne—

  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 Governor.

  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 Committee—

  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 responsibility is.

  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 all.

  Q817  Mr Mudie: You tell me. Plus interest rates.

  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 it—and Clive Maxwell will add to this if he thinks it is appropriate—is 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 rates.

  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 resort.


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