Previous Section Back to Table of Contents Lords Hansard Home Page

Noble Lords have talked about destabilising the situation if this amendment is not carried. I would have thought that there was a higher risk of an unstable situation developing if there was no legislative cover against the possibility of a bank or building society getting itself into difficulties six months down the road. In view of that, we do not support this amendment.

Lord Whitty: I oppose these amendments, particularly Amendment No. 2. I declare my interest as chair of the National Consumer Council. As the noble Lord, Lord Newby, says, we are in a period of uncertainty. None of us wanted to be here and no one on any side of the House welcomes the situation we are in, but in a time of uncertainty, what possible justification is there on the grounds of equity, morality or economic management for depositors with building societies to receive significantly less protection than those with banks?

Lord Campbell of Alloway: One great advantage of the amendment—indeed it is more than an advantage, it is a necessity—is that it will give another place the opportunity to see where we are and where we have got to so that it can rethink its approach. That is of crucial consequence because Parliament has not yet had all the relevant information put before it. It is therefore vital that, in the novel situation of Parliament passing a totally unprecedented Bill that takes control of the whole of the financial aspect of a bank for a year without a thought, as I mentioned yesterday, for what the Commission will say about state aid being given to a sector of financial activity and services, which itself has become totally disorientated by the threat of state-aided intervention—and I do not know what the European Court of Justice is going to say about it—we should help the other place to take the opportunity to think again about where it stands.

Earl Ferrers: Anyone who listened to the debate yesterday could not have failed to realise that many noble Lords are concerned about the prospect of nationalising a bank, something that has never been done before. We understand the reasons for it, even if we do not agree with them. But the Minister has

21 Feb 2008 : Column 280

brought forward a Bill which he says just provides for Northern Rock to be nationalised. If that is so, the Bill ought to refer to Northern Rock, and had that been the case, it would have been a hybrid Bill. The purpose of such a Bill, as my noble and learned friend Lord Lyell said yesterday, is for people to put their point of view—in this case, not only those being nationalised, but also those not being nationalised—in a committee with legal representation, because one party may be advantaged or disadvantaged in relation to the others. However, to avoid what is of course a lengthy process, the Government have produced this arrangement, which provides that for the next 12 months they can nationalise anything.

This Bill is not for the nationalisation of Northern Rock, it is a Bill for the nationalisation of any bank or building society within the next 12 months, as the Government think fit. I agree with my noble friend Lord De Mauley that if this is just for Northern Rock, there is no reason why it should not be curtailed to a month because as we all know, there is a rush to get this through Parliament. But if it is required for longer than a month, of course my noble friend Lord Forsyth is right to ask why, and to ask what the Government have in mind. I do not believe that the Government have anything else in mind, but if that is the case, then I do not see why they cannot approve of it lasting for a month.

With the greatest respect, I am horrified that the noble Lord, Lord Newby, thinks that it is a very good idea to keep this legislation for 12 months because the Government can nationalise anything that happens to go wrong. I do not think we are in that business.

Lord Bilimoria: I want to make a point which has been overlooked time and again: the fact that a Government have injected £25 billion to rescue any organisation is almost unprecedented in the world. The magnitude is staggering. It has never been done for any other bank, let alone for any other industry. Leaving aside the £100 billion for which, theoretically, the Government and the public are at risk, let me start with the £25 billion. This was a unique situation which required action. We realised yesterday that we are in a Hobson’s choice position and are being forced into nationalisation—which people reluctantly have to accept at this stage—but why have an open door to be able to nationalise from now onwards?

If a similar situation were to occur again tomorrow, serious alarm bells should ring that would require far more than the legislation that is being rushed through right now. I said yesterday that what is required—and I believe the Minister and the Government agree—is a complete revamp of banking regulation, supervision and governance. Whether that is to bring back what the noble Lord, Lord Lawson, referred to yesterday—the board of governance, the board of directors of the banks or whatever—we need the best for this country to ensure that we keep our openness and our standing as one of the leading global financial centres in the world. That is the important part. If it is going to take a month for such legislation to go through—I do not think we should rush it—we should not leave the door open for another Northern Rock situation to take place and have this Bill.

21 Feb 2008 : Column 281

I agree that there is no reason to discriminate between building societies and banks, but building societies require matters to be looked at slightly differently and it would be unwise to lump them in with the banks.

Lord Ryder of Wensum: When this matter was debated in the other place, the Minister, Yvette Cooper, fell back, rather half-heartedly, on the argument that the 12-month period was required because she was undertaking a consultation exercise on the potential reform of the supervision of the banking system. Why is it that she requires 12 months for consultation? She could undertake one month’s consultation and if, at the end of that consultation process, it was concluded that 12 months was preferable, it could be reinserted.

Lord Eatwell: I will send the noble Earl, Lord Ferrers, a note containing a list of all the banks that have been nationalised in this country, at the top of which will be the Bank of England in 1946.

The amendment is irresponsible for the reasons outlined by the noble Lord, Lord Bilimoria. This is an unprecedented situation because of the growth of the credit markets, their role in banking and the way they have developed over the past 10 years. Because of that, the wholesale financing of banking is today quite different from what it was when, for example, the noble Lord, Lord Lawson, was Chancellor of the Exchequer. The situation has fundamentally changed. That qualitative change has led to a massive quantitative change of the exposure in credit markets which can occur if a financial institution fails. That is why, for example, the Bank of England cannot use its own resources, as it traditionally has in the past, to take institutions into public ownership; the scale is so great. That is why this measure is necessary.

The noble Lord, Lord Forsyth, asked whether there was any other institution the Government expected to be in crisis—a very irresponsible question, I suggest. The main point is that financial crises appear out of clear blue skies; they are always unprecedented and they always have characteristics which have not been anticipated. That is why it is important that, until the legislation anticipated by the noble Lord, Lord Newby—which has been discussed by the Front Bench and is now under consultation—is available, we have these powers on the statute book to ensure that rapid action can be taken should, God forbid, there be a similar circumstance.


Lord Forsyth of Drumlean: I apologise if the noble Lord thought my question irresponsible. I am simply puzzled by the Government’s position. The Minister told us at an earlier stage that the Bill would be wider in order to avoid hybridity—that was the explanation he gave us. The Minister in the other place told us the Bill needed 12 months because they were consulting on wider measures. In the debate in this House last night, the Minister implied that the Bill might be required in order to exercise the power in respect of other institutions. One part of the Government is indicating that there is no requirement to use these

21 Feb 2008 : Column 282

powers and that it is not aware of any need to do so. I am simply bewildered as to what the explanation is for the 12 months.

Lord Marlesford: One of the points made by my noble friend Lord Forsyth was that the Minister answered virtually none of the questions that were raised at Second Reading yesterday. It is unsatisfactory in any case to be considering legislation at this pace; it is effectively an abrogation of the entire parliamentary system of legislation. To produce a Bill like this with lots of complicated issues in it and to have points raised that are then not answered is wholly unacceptable. The argument for haste has certainly not been made to overcome that point.

I wish to make a point that I made yesterday. As regards Granite, it was necessary for the Treasury to produce a quite complicated technical note explaining what it was. Granite is an important part of the structure of Northern Rock because it is the vehicle into which the mortgages are passed by the bank. It therefore contains many billions of pounds’ worth of mortgages. The Government have repeatedly made it clear that they are not nationalising Granite and say that it is all quite separate. However, the technical note says that it is a commercial decision for Northern Rock whether to provide new mortgage assets to the Granite financing vehicle or whether to allow the vehicle to run off in an orderly way. That implies to me that the future of Granite is entirely in the hands of Northern Rock, and therefore in the hands of the Government.

I asked the Minister a question during his speech because I understood that there was another special investment vehicle called Dolerite, which holds the mortgage assets for the commercial properties of Northern Rock. When I raised that issue, he said he did not have an answer but he would find out, and he hoped to have an answer by the end of his speech. Not only had he not told me about Dolerite by the end of his speech, but he did not even mention it in his wind-up. These are perfectly legitimate questions to which we are totally entitled to have replies. The idea that the Bill should go back down the Corridor with none of the points that have been raised having even been replied to is unacceptable.

Lord Desai: In answer to the noble Lord, Lord Forsyth, it is possible that all three reasons are required to explain why the Bill is the way it is. I do not believe in monocausal explanations for all phenomena. First, the Bill has to be like this to avoid hybridity. We do not want it to apply just to Northern Rock because that would be a time-consuming process and this is a better way to do it. Secondly, as my noble friend Lord Eatwell and I said yesterday and previously, this is an unprecedented financial crisis. Only yesterday, Credit Suisse declared that it had lost more money than anyone had expected—especially the Qatar Sovereign Wealth Fund, which had just bought into it, thinking that the market had bottomed out. The market has not bottomed out. As my noble friend Lord Eatwell also said, the whole essence of a financial crisis is the completely unexpected nature of what will happen next. I think it is prudent to insure yourself against

21 Feb 2008 : Column 283

this sort of problem. If you have had one crash, please change your probabilities and think, “Another may happen any time soon, so let me be insured against that”.

Secondly, within the next 12 months we will have the result of the consultation and the new banking reform legislation. One thing we have learnt is that it will be an extremely complex piece of legislation, because we are just learning about all the new problems created by securitisation and so forth. I do not know how long the consultation will take. Even if that takes a short time, I do not know how long the drafting will take. Therefore, it is entirely prudent to have 12 months on the face of this Bill. It is not going to cause a revolution. It is just a precautionary measure.

Secondly, as my noble friend Lord Whitty said, if you are going to give banks this kind of assurance that, in case anything happens, the Government are prepared with sufficient powers to do something about it, why leave the building societies out? The Opposition argue as though the fact that the Bank of England has lender-of-last-resort powers immediately implies that the Bank of England thinks that all the financial markets are going to collapse tomorrow. Of course not. Lender-of-last-resort power is an insurance, and we need that kind of insurance in these very uncertain times.

Lord Elystan-Morgan: There may be one, two or three good reasons why there should be the 12-month period, with the power of public acquisition during that period. Fundamentally, what is important is the question of hybridity. I assume in relation to the period of 12 months that the Government have received advice from their legal advisers that it is safe and copper-bottomed. What shorter period would be safe and copper-bottomed? That is where we go into the area of doubt. I do not know whether it is possible to have a definitive decision on this matter. Am I right in thinking that, in fact, the Speaker of the House of Commons certifies hybridity, in the same way as he certifies a money Bill? Has he given any indication of his attitude to a month? If a month is either impossible or dangerous, then most certainly this House should not contemplate any amendment along those lines.

Earl Ferrers: The noble Lord, Lord Desai, frightens me even more than the noble Lord, Lord Newby, because the noble Lord, Lord Desai, said that during the next few months there will be a new banking Bill. He said that we did not know what it would contain, but that it would be very complicated, and so we should keep the provisions of this Bill open for longer than a month because the new Bill might mean that something should be put in its place. I think that is an alarming prospect. I do not see any reason why it should be longer than a month.

Lord Trimble: One of the pleasures of debate in Committee is that, having looked at an amendment and having thought of a point that you wish to make,

21 Feb 2008 : Column 284

you listen to the discussion and further points arise. Listening to the discussion, a further point occurred to me. It is in response to the comments of my noble friend Lord Marlesford who referred to the special investment vehicle, Granite, on which some comments were made yesterday—indeed I made some comments myself—and in respect of which we received no reply. I appreciate the limited time that was available yesterday and the limited time we have to look into these matters. However, will the Minister, in the course of the discussion today, find a way of giving us more precise information about Granite and the other SIV which my noble friend has referred to? If there is another SIV similar to Granite, which has handled the commercial property—we saw from yesterday’s technical note that Granite has half of the notional assets; or at least half of what were Northern Rock’s assets have gone to Granite—and if another portion of those assets have gone off to Dolerite, I think this is a hugely important point with regard to the nature of the business. If he could find a way to say more about the nature of the SIVs—that may not be entirely relevant to the amendment—during the course of the day, we should all appreciate it.

The basic point that I want to make in support of the amendment moved by my noble friend is simple. With regard to it, I invite the Minister—and Members of the Committee—to leave to one side all of the technical matters that we know about and to try to put himself in the mind of the man on the street looking at this. There was a crisis five months ago. The Government stepped in, guaranteed the deposits, made an unprecedented amount of money available and said that they were going to proceed to try to find a private buyer. That would have reassured the public, who will have taken what the Government said at face value: that we now had a plan in position to try to find a private buyer. They would have heard a little about Branson and others, and various bids which the Government were considering. However, the process of considering those bids was suddenly brought to an end. We had been expecting that the consideration of those bids would take a few weeks more, but the process was suddenly brought to an end and legislation was introduced to be handled as if it were emergency legislation. If the Government had been proceeding according to the plan of considering the bids; if they had come to the view that the bids were not terribly good and that the only thing left was to proceed to nationalisation; and if everything was in order—if the deposits had been guaranteed and the money made available—and stable, there would be no need suddenly to abbreviate the bid procedure or to rush in emergency legislation.

The way in which the Government have acted in the past few days is bound to make people who are not fully informed and who do not have the background information that the Minister has concerned about whether there is some other problem. Ministers have also dropped hints that we need this legislation to deal with other problems that might arise. The noble Lord, Lord Desai, said that this is a matter of prudence and the noble Lord, Lord Eatwell, said that the whole structure of the industry has changed with regard to financing—I will not try to repeat the technical terms

21 Feb 2008 : Column 285

that he is familiar with and I am not; I quite accept what he said on this matter. All those comments will reinforce the feeling that people outside have—that there is something else involved; that there are other problems that the Government are concerned about.

There are obviously limits on what the Minister can say, but the Government need to address this issue and explain why we needed to proceed by an emergency procedure and why this has to be rushed through the House in a way that does not give Parliament the opportunity to consider it. The Prime Minister has famously said that he wishes to restore trust in politics and the effectiveness of Parliament, yet his actions point completely in the other direction. Something needs to be said. The man on the street may not be considering this in detail, but the way in which it has been handled is bound to increase the sense of unease and the sense that there are other crises waiting to happen and other matters about which the Government are seriously concerned. The Government need to address this.

The amendment gives the Government the opportunity to make it clear whether they are dealing simply with Northern Rock or with Northern Rock plus other matters about which they have concerns. I know that there is a delicacy involved, but the Minister needs to find ways to make clear precisely what this is about. The amendment focuses the legislation on Northern Rock, which the Government say is the objective of the legislation. If that is the objective of the legislation, let us have that made clear.

12.15 pm

Lord Lawson of Blaby: I support my noble friend Lord Trimble. I say at this early stage in our proceedings that it is important to get the information that is required about Granite. I want to make two points on that. First, we have not yet had a reply from the Minister giving the assurance that I asked him for yesterday that no further assets would be transferred from Northern Rock to Granite. We need that assurance. The second point involves the nature of Granite. It is all very well to say that it is much bigger in relation to Northern Rock as a whole than are the similar vehicles for other lending institutions. However, that is not the only point. The Minister is to be taken to say, and government Ministers generally say, that these offshore structured investment vehicles happen all the time, but the precise contractual relations between the offshore vehicle and the lending institution vary in each case and they have a considerable bearing on the matter. We need to know, before we agree this Bill, precisely what the contractual relationship is in this case between Northern Rock and Granite.

On the question of the month and the year, which ostensibly we are debating now, the noble Lord, Lord Eatwell, is quite right to say that the financial markets have changed both in character and in quantum but he is profoundly in error in saying that the problem now is that the scale is so large that the Bank of England does not have the resources. The Bank of England did not have the resources in my time. When an operation required greater funds than its resources

21 Feb 2008 : Column 286

permitted, it asked for a Treasury indemnity. So that argument does not hold water.

As for the question about a year, I say to the noble Lord, Lord Desai, that we certainly want to put better arrangements in place because the present arrangements have failed, but even when better arrangements are in place there will still be the possibility of a bank collapse. You can try to make it less likely to occur by having better banking supervision. You can have a better deposit protection system in place—to some extent that need has been achieved—but there will always be the possibility of a bank collapse. That suggests that this Bill would have to be in perpetuity, not just for a year, so it really has no bearing on the year/month argument at all. I suspect that the real argument is that there is a fear that, if the period of time were too short, it would be so clear that the Bill was dealing only with Northern Rock that it would be hybrid—some people consider that this Bill is hybrid anyway. We need the Minister to give us a precise account of what advice the Government have received on the hybridity question.

Lord Bilimoria: I am sorry to come in again, but the noble Lord, Lord Eatwell, mentioned the way in which things have moved so fast and changed. We were brought up with mortgages being for 25 or 30 years; I do not know how many people are aware that the average life of a mortgage today is three years. I see that the noble Lord agrees with me. Things are moving quickly, yet I cannot but reinforce what the noble Lord, Lord Lawson, has said: we do not understand what is going on with Granite. Just today we have read in the press that another major bank is walking away from its SIV and losing several billion pounds. Northern Rock has money invested in Granite; Northern Rock in effect controls Granite, because it consolidates it in its group accounts. How can one say that no money has been transferred to Granite when mortgages have been sold to Granite that have to be serviced? The money has to be passed through; otherwise, Granite collapses. I do not think that we have a full understanding of this at all. Without a full understanding of over £40 billion and something that is consolidated into the accounts of Northern Rock, I seriously do not see how we can proceed with confidence.

Lord Blackwell: Since I was not able to intervene yesterday, I should start by declaring my interest as a director of a UK financial institution.

Next Section Back to Table of Contents Lords Hansard Home Page