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Lord Mackay of Ardbrecknish: My Lords, as to my noble friend's last point, at the very end of my Statement I pointed out that in the real world no regulatory system can provide a 100 per cent. guarantee against a bank failure. Anybody who believes anything else lives in Cloud-cuckoo-land.
The lessons for the Bank, for the financial institutions and for other people involved in this issue are there in this report for them to read. The Bank certainly accepts the recommendations and has undertaken to give a report accepting their adoption by the end of the year.
As to having a debate on Friday of next week or whenever, my noble friend has asked me that question quite often. He has seemed quite keen to shorten the Recess on a number of occasions. Yesterday it was about the Consolidated Fund and probably tomorrow it will be the Consolidated Fund again. I can only repeat, much as I should love to yield to the temptation and be his hero for the day, that these matters are better dealt with by the usual channels and I shall report the matter to my noble friend after this Statement.
Baroness Seear: My Lords, before the noble Lord sits down, perhaps I may say that we on these Benches would also very much like to see an early debate. It is not good enough to leave it until early October. Nor do we accept that the Government are in a position to decide that that should be done and so on this occasion to instruct the usual channels.
Lord Mackay of Ardbrecknish: My Lords, I have nothing to add to what I said. I believe that the usual channels are the appropriate way. It is a fairly hefty report to read and your Lordships may be the better for a few days in which to digest it before we even begin to think about debating it.
However, as I am sure your Lordships generally will accept, we have heard an incredible Statement this afternoon. We have been told that there is no need for any fundamental change to the framework of regulation in the United Kingdom. That is hard to believe after just hearing the Statement, let alone reading the whole report. How can the Minister say that? He should not have repeated what the Chancellor said. He should be ashamed to repeat words of that description.
In his reply, the Minister said that there was nothing in the report which suggested that we should separate out the supervisory role from the Bank of England. Of course notthe report is from the Bank of England. Why should we expect the board to recommend that it should be separated out. He mentioned the 17 recommendations that have been accepted. I have not read the report. Does one of the recommendations cover the point made by my noble friend Lord Eatwell; namely, that the Bank would do better to understand its job? Is that one of the recommendations?
I should like answers to two basic questions. First, we have been told in the Statement this afternoon that what happened was a failure by Barings and above all by the Bank of England's lack of rigour. Despite that, it is proposed to leave the Bank of England in charge. Would the Minister kindly justify to us how he can propose to leave the Bank of England in charge when he has repeated all the criticisms made this afternoon?
Secondly, everything that the Minister said this afternoon implies alleged charges against a certain Mr. Nick Leeson. The charges imply an offence against Barings in London. Barings has lost the moneyover £800 million. Barings in London lost that amount of money, we are told, through the efforts or lack of effort of Nick Leeson. Why do the Government refuse to bring him back and charge him in this country?
Lord Mackay of Ardbrecknish: My Lords, I do not need to remind the noble Lord that the independent members of the board were the ones who looked in particular at the role of the Bank. As I explained in my original answer, that is the role placed on it by the Banking Act. It was not the Bank of England but the independent members of the board who concluded that:
There is a distinction between the fundamental arrangements and the way in which they are operated in a practical way. The one needs to be improved and not the other. As I explained to the noble Lord, Lord
The noble Lord asked me about Mr. Leeson and the fact that the board in this report certainly indicates his major role in the affair. When noble Lords have had a chance to read the report, they will see that that was indeed the trigger point. Not only according to the board did he do the trading but he went to a great deal of trouble to make sure that it was not found out by his superiors.
As for the question about him being brought to face criminal offences in Britain, that is a matter for the Serious Fraud Office. It has stated that there is presently no evidence available to it which could form the basis for an application for extradition from Germany. Mr. Leeson's activitiesit seems a statement of the obviouswere carried out in Singapore and it is in Singapore that these matters will have to be addressed.
Lord Clark of Kempston: My Lords, does my noble friend agree that my right honourable friend the Chancellor, as soon as he could possibly do so, asked the Board of Banking Supervision to make a report? The report has come out with remarkable rapidity when one considers other reports which are requested and take months and sometimes years to appear. My noble friend will no doubt agree that the report shows a chaotic state of management in Barings, and not only in Barings; there is also criticism of the auditors, Coopers & Lybrand.
Those are serious accusations against two institutions, as far as the City of London is concerned. So far as concerns the Bank of England, from my cursory scan of the report, it seems to me that the cardinal error there lay in giving a concession that meant that if 25 per cent. of its capital base were exposed, it need not report it. That is a derogation of monitoring by the Bank of England. I understand that that informal concession was not given by a top executive in the Bank. I should have thought that such a concession should only have been made by the Governor, or certainly the Deputy Governor. I am sure that my noble friend will agree.
We must be careful that we do not jeopardise the confidence of the City of London. The City of London is a major plank in our economy so far as concerns invisibles. It does not do us any good to talk down the regulatory authorities and so on. I am absolutely convinced that the 17 recommendations will be implemented and, as my noble friend said, that all the other regulatory bodies will read the report with great interest and make absolutely certain that their monitoring is good.
Lord Mackay of Ardbrecknish: My Lords, I thank my noble friend for making those points. Perhaps I may start at the end of them. As I indicated, the 17 recommendations have been accepted by the Bank of England and it has issued a press statement today on that.
In the report, the board says that it has asked the Bank to report back to it by the end of this year, saying what it has done about those recommendations. I hope that that helps my noble friend from that point of view.
My noble friend is right. One of the problems in the Bank was the matter of the advance of more than 25 per cent. of its capital to a single party. Clearly, that is a problem. It has been highlighted in the report. It is one of the issues that the Bank will have to address to ensure that there are no further breaches of the large exposures directive.
With regard to the auditors, it is fair to say that the report does not blame them for the collapse. However, it raises some significant questions about the effectiveness of their inquiries. I hope that professional bodies will pay close attention to the findings of the board in regard to auditors. It must be said that the board was not able to deal properly with issues relating to Coopers & Lybrand in Singapore because, as I said earlier, the company claimed client confidentiality and the Singapore court upheld that.
Lord Taylor of Gryfe: My Lords, first, I congratulate the Government on publishing this report in reasonable time. This is an extremely complex business. It covered international operations, which are difficult to follow. It required co-operation and information from a large number of sources and, unlike previous investigations on affairs in the City, this report was published in reasonable time. In other cases, such as those where the Serious Fraud Office were involved in City affairs, the inquiry sometimes took four or five years. The Government therefore should be congratulated on the expedition with which they have produced the report.
That is all I say in commendation of the report. I want to raise the question of the depositors and the people who lost money in this sad affair. After all, it is not a question of standing behind every bank that runs into difficulty. I would not expect the Government to assume that responsibility. But in this case, as is contained in the report, the Bank of England is responsible for a high degree of negligence and for that I assume the Government should bear some responsibility, it being their institution.
The other matter referred to is the case of the auditors. In the report the auditors are also deemed negligent. Is not there a case for a professional body to deal with auditors who are negligentreputable firms as they are, as the bank too is a reputable firm? Also, as often happens in American courts, is not there a case for the people who lost money to sue the negligent individuals in order to recover some of that money?
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