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On the breaking up of banks, the hon. Gentleman asked the wider question of whether we should divide retail banks and investment banks, which we have discussed before. The best illustration of the difficulties in that is this. For obvious reasons, we had to step in and save Northern Rock, which was a very narrow, conventional retail bank that lost money in pretty conventional ways. However, let us take Lehman Brothers, on the other hand, which was at the more exotic end of the market
and had no retail depositors. The then American Government tried out what the hon. Gentleman suggests and let it go down, and look what happened: the entire world's financial system almost followed it down the same hole, which is what led to the action now being taken by Governments.
That split does not work in practice. However, the legislation that we are going to introduce to require larger banks to make what are colloquially referred to as "living wills", whereby the banks look at their businesses and see how they could separate them out in a crisis, so that regulators and Governments can decide what to do if they got into trouble, is a much more productive way forward.
I hope that I have answered all the hon. Gentleman's questions, because they are perfectly sensible questions to ask, but I think that we have taken the right decision.
Mr. Speaker: Order. Twenty-three Members are seeking to catch my eye, and we have another statement after this, followed by the Committee stage of an important constitutional Bill, so, as always, I am looking for single, short supplementary questions and for economical replies.
John McFall (West Dunbartonshire) (Lab/Co-op): Is not the story here that RBS is in a worse state than everyone thought last February, and that the Bank of Scotland aspect of HBOS was a basket case? The message is that capital injection is necessary in order to stabilise the banks and to ensure potential returns for the taxpayer, but the Chancellor will be aware that lending is still a problem. I get hosts of e-mails and messages from people saying that the demand is there, but the banks are holding on to the capital. Does my right hon. Friend agree that the lending agreements should be made transparent, so that we can monitor and track the lending in this country?
Mr. Darling: I agree with my right hon. Friend on that point. It is important that we get to the bottom of all these lending problems, and I am sure that he, like me, will know from constituency cases that it is helpful to understand the difference between what a bank is saying and what a customer is saying. The more openness there is, the better, and I have already referred to the charter that the banks have signed up to.
My right hon. Friend's general point is also a perfectly good one. For all the bluster on the other side, this is a necessary step. There are huge lessons to be learned, on the part not only of Governments and regulators but of bank boards. The boards really must understand what they are doing, and it is manifestly obvious, certainly in relation to HBOS and RBS, that rather too few questions were asked in those boardrooms.
Mr. John Redwood (Wokingham) (Con): Why have the authorities lurched from boom regulation, involving too little cash and capital for excessive lending, to bust regulation, which wants too much cash and capital for too little lending?
Mr. Darling: I hope that we can avoid that sort of thing. We have to ensure that there is adequate capital, and it is the FSA that has to assess the adequacy of capital in each case.
John Reid (Airdrie and Shotts) (Lab): I think that there will be a broad welcome for the restructuring of the individual deals and of the banks themselves, because this will benefit consumers and taxpayers, but is the question of lending not absolutely crucial? Will my right hon. Friend assure me that, when the banks are restructured, the retail side that is set up anew will have the capacity to lend to small and medium-sized enterprises? If that is not to be the case, what measures will he take-including introducing transparency-to ensure the continuity of lending and open commitment implications that have already been agreed? Perestroika is all very well, but we need a bit of glasnost too.
Mr. Darling: My right hon. Friend is right. It is important that new entrants to the market lend not just to the mortgage market but to the SME sector. That sector is critical to the future of this country: it employs the most people, we are likely to see a lot of growth in that area, and we must ensure that credit is flowing there.
Mr. Michael Fallon (Sevenoaks) (Con): Does not the new contingent capital guarantee provided to RBS show that the Governor's concern about the amount of moral hazard remaining in the system is still unanswered?
Mr. Darling: What it shows is that, given the nature of RBS and the fact that it may need more capital, we and the FSA believe that the £25.5 billion-worth of capital that we are putting in is the right thing to do. On the more general point, we are trying to get a safer, more stable banking system, because that is the only way in the long run to get back to a situation in which people realise that there is inevitably a degree of hazard in the industry. What we want to avoid is taxpayers being stuck with the downside when things go wrong.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): Will the Chancellor confirm, on the question of lending, that the banks' commitments are in respect of net lending only? Will he also confirm that a condition of the bankers' bonuses is that they will be tied to their banks achieving those levels of lending?
Mr. Darling: I think that we need to develop this further. In my statement, I said that the lending commitments will continue. Net lending is a measure of how much additional lending is going on, but it does not give us the whole picture, particularly during a recession when firms that can afford to do so are inevitably paying down their money. The key point will be when the economy begins to recover. When firms start to grow, and to go to the banks for money, we must ensure that there is credit for creditworthy customers.
Sir Peter Tapsell (Louth and Horncastle) (Con): Why cannot the Chancellor see the looming spectre of mass unemployment in the next banking crisis, which will be even greater than that of 2008 unless he moves to prohibit the commercial banks from indulging in investment banking? His repeated references to Lehman and Northern Rock are completely irrelevant, as various commentators have pointed out.
Mr. Darling:
Actually, I thought that quite a few commentators had pointed out that the comparison was relevant; as the hon. Gentleman knows, there has been quite a lot of debate about this over the past three
or four weeks. On unemployment-I think that the hon. Gentleman, given his Keynesian background, would support me on this-I believe that it is up to the Government to do everything they can to try to get people back into work as soon as they lose their jobs. That is particularly relevant to quite a lot of the banking redundancies that have been announced in the past 24 hours.
Our objective must be to try to prevent such a crisis in the banking system from arising again, and I do not think that the split that the hon. Gentleman and the hon. Member for Twickenham (Dr. Cable) referred to would avoid the problem. When confronted with a Lehman or an AIG-the insurance company in America-I cannot see how a Government could simply walk away from the consequences of such a situation.
Mr. Mark Todd (South Derbyshire) (Lab): We can assess the value of the asset protection scheme as applied to RBS only if we know a little more about the due diligence that has been conducted and the sensitivities that have been applied to that exercise. Will that be published together with the other details of the scheme when it is made available to the House?
Mr. Darling: The due diligence was conducted by the regulator-the FSA-and we will publish the details once they are finalised. As the House will know, we have set up an agency to run the asset protection scheme, which will of course be subject to audit by the National Audit Office.
Stewart Hosie (Dundee, East) (SNP): The original decision to merge the banks certainly reduced competition on the high street; I hope that today's announcement on the disposal of parts of the banks' retail networks will help return competition to the high street. However, the statement also referred to the disposal, for example, of Intelligent Finance from Lloyds and of the insurance division of RBS, which are both important employers in Scotland. May I ask the Chancellor to confirm that no disposal or sell-off of those divisions or business arms will take place without the strongest possible guarantees about employment and decision making in Scotland?
Mr. Darling: I agree with the hon. Gentleman that employment and jobs are very important. As he rightly says, there are many employees working for parts of the Lloyds Banking Group and RBS in Scotland, as I know very well. It is important to do everything that we can to protect jobs. It is worth bearing in mind that, had we done nothing 12 months ago, those two banks would have gone absolutely and there would have been huge job losses as a consequence.
When it comes to disposals, I hope that we will do everything that we can to ensure that employment is maintained in Scotland-and, indeed, in other parts of the country. The hon. Gentleman will be aware that RBS has, from time to time, said that it wanted to sell Direct Line and Churchill in particular, but for various reasons it did not do so. Inevitably, there will be restructuring from time to time, but the jobs issue is very important.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): The Chancellor is asking the British taxpayer to guarantee £280 billion-worth of RBS loans. How much of that is outside Britain?
Mr. Darling: When the details are finalised, I intend to publish-I will lay a copy in the Library-the breakdown of where the loans are. My hon. Friend will then be able to see for himself. Let me make this general point. Understandably, hon. Members will be concerned about loans that are outside this country. The difficulty we have is that, as I said, RBS is one of the largest banks in the world and a lot of what it did was overseas. Unfortunately, when it comes to the stability of the bank and therefore of the rest of the system, it is not possible to make the intellectual distinction between what is here and what might be overseas. I confirm to my hon. Friend that I will publish those details.
Mr. Douglas Hogg (Sleaford and North Hykeham) (Con): The Chancellor has made it plain in respect of the restructuring of Lloyds and RBS that bids will be confined to the smaller competitor or new entrants to the market. Does not that mean that a lower price will be obtained than would have been the case if the ability to bid were more widespread, so this approach will involve a loss to existing shareholders and, surely, to the taxpayer?
Mr. Darling: As I have said before, it is important that we get money back for the taxpayers. However, if all the parts of the banks that were divested by RBS and Lloyds were swallowed up by Barclays or Santander or HSBC, we should end up with only half a dozen people in the business of lending. That is not enough. We already have too few loan providers in this country. Of course, potentially, we have the building societies and some of the smaller banks, but at present, for obvious reasons, they are fairly quiet on the lending front.
Simply letting the bits be swapped from one bank to another would be wrong. Besides-this is relevant to what was said by the hon. Member for Dundee, East (Stewart Hosie)-questions would be raised over employment. I think that we are pursuing the right course, because it must be right for us to get new entrants into the market: that must be good for the whole economy.
Mr. Michael Meacher (Oldham, West and Royton) (Lab): Given that this latest danegeld to the banks will cost an extra £40 billion-in addition to the £50 billion already spent on bailing them out-why is my right hon. Friend so enamoured of this busted, out-of-control, casino-market model of banking which costs the taxpayer such gargantuan sums? Why does he not instead remutualise the three spin-offs, especially Northern Rock? That would be infinitely less costly for the taxpayer and infinitely more secure for the depositor.
Mr. Darling: I am not sure whether my right hon. Friend was in the House during Question Time, when I was asked about Northern Rock on two occasions. Let me briefly repeat what I said then. I should be very happy to see a mutual option, but whoever came in would have to come in with sufficient capital to ensure that that was possible, because Northern Rock still owes quite a lot of money to the taxpayer.
As for my right hon. Friend's point about banking generally, he and I may disagree on this-as we have from time to time-but I think that a properly functioning commercial banking system is quite a good thing. What I want to do, though, is ensure that it is properly supervised, regulated and capitalised, and operating in a way that suits the interests of people in this country.
Mr. Rob Wilson (Reading, East) (Con): Does the Chancellor wish to pass on the Prime Minister's personal apology to taxpayers for arranging the shotgun wedding between Lloyds and HBOS?
Mr. Darling: If I were the hon. Gentleman, I should be very careful before saying such a thing. He may wish to have a word with the hon. Member for Tatton (Mr. Osborne), the shadow Chancellor, who made a point of telling the country that on the day in question he spoke to those involved on both sides, and said that the Conservatives fully supported that particular merger.
Malcolm Wicks (Croydon, North) (Lab): Given the proud and honest record of the mutual building societies, in contrast to what has happened in the commercial sector, why are the Government not more enthusiastic about options to enable and facilitate the remutualisation of parts of the banking sector, perhaps starting with the decent part of Northern Rock?
Mr. Darling: As I said to my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher), I would certainly not be opposed to a proposal in relation to mutuality if one came along, but it would have to come with sufficient funds. The other point is that, as my right hon. Friend will recall, while it is true that most of the trouble has been visited on the non-mutual sector, one or two mutuals did get into trouble. A lot of that has to do with the management rather than the structure. I am not against mutuality-far from it. I should like to see more of it, but it does need to be funded.
Mr. Julian Brazier (Canterbury) (Con): Does not yet another expensive restructuring announcement highlight the weaknesses in the tripartite system for supervising banking and, indeed, monetary policy?
Mr. Darling: No, it does not. I think that the hon. Gentleman is rather missing the point. The reason RBS got into trouble was that the regulatory system needed to be tougher. It is clear that its then board did not know what it was doing.
Chris McCafferty (Calder Valley) (Lab): Does my right hon. Friend agree that today's statement from Lloyds represents significant progress towards its operation as a fully commercial enterprise? Does he agree that the payment of a £2.5 billion fee to the Treasury for trading benefits of the asset protection scheme last year represents a good deal for the taxpayer?
Mr. Darling: It represents the start of the process of ensuring that we get money back for everything that we have done. That is one of the objectives that I believe to be very important.
Mr. John Greenway (Ryedale) (Con): Does the Chancellor agree that many home owners have no choice about their mortgage providers because they have no equity, and therefore cannot switch to a more competitive marketplace? Will he ensure that if institutions such as Cheltenham & Gloucester and, perhaps, TSB in Scotland are sold to other lenders, their standard variable rates will not increase, given that there is every prospect of their being bought by an institution with a higher SVR?
Mr. Darling: It is important that when the disposals take place and new companies come in, there is as much communication as possible with people who have mortgages, so that they can see what the position is and what choices are available to them. For example, I know that Northern Rock is about to write to all its savers and mortgage holders explaining what is happening and people's options. To some extent it is inevitable in any competitive market that different providers offer different rates. As we go through this process, people need to be told that they have a choice. Equally, if somebody does not want to go to a new bank, they always have the option of staying with the bank they came from. As much as is possible, people must be able to make those choices.
Tony Lloyd (Manchester, Central) (Lab): The country will be grateful that we have a Chancellor who puts the national interest ahead of tomorrow's press release. Companies involved in high science and high technology are finding it difficult to obtain money from the current banking system. Will the Chancellor look into whether we need either banks devoted to that or special instruments within the banking system to guarantee access to finance?
Mr. Darling: My hon. Friend is absolutely right about a lot of high-tech investment and the need to encourage it. That is one of the reasons why I announced measures in the Budget and the Prime Minister has announced measures through the innovation investment fund to try to help to fill the gap where the commercial banks are not operating. It is very important that we support that. Regardless of whether it is done through the commercial banks or through Government help, I want to keep the issue at the forefront of what we are doing because our future depends on it.
Philip Davies (Shipley) (Con): The Chancellor did not mention Bradford & Bingley, which might indicate his lack of interest in it, but he did mention Northern Rock and measures to keep it lending and to facilitate its return to the private sector. Will he explain the following to people in my part of the world? Whereas Northern Rock was a basket-case organisation that had been taking emergency funding for months and months and is still a going concern, Bradford & Bingley, which he must admit was not in any way in as bad a shape as Northern Rock at the time, was dismantled and is being wound down.
Mr. Darling: The hon. Gentleman is not quite right about that. If Bradford & Bingley had been doing all right, it would not have reached the situation where its directors believed that it was no longer a going concern. The Financial Services Authority had to step in because Bradford & Bingley got into difficulties; I am afraid that that fact is incontrovertible. We took prompt action to ensure that the part of the bank that was viable-the front end of it-was transferred to Santander. The rest of it and the management of the mortgages is something that we will have to handle in the longer term. How the hon. Gentleman can claim that there was no need for the bank to have any assistance whatever is very difficult to fathom.
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