Skip to main content

Banking Supervision (Review Committee's Report)

Volume 81: debated on Thursday 20 June 1985

The text on this page has been created from Hansard archive content, it may contain typographical errors.

4.23 pm

With permission, I should like to make a statement.

In my statement on 17 December, I told the House that the Johnson Matthey Bankers affair raised important issues about our present procedures of banking supervision, and the legislative framework within which it is conducted. I announced a full review, which would consider whether any early changes in present supervisory procedures were called for in the light of the problems that had arisen in Johnson Matthey Bankers, and whether there was a need to review or amend the Banking Act 1979.

The review committee has now presented its report, which I have arranged to be published as a Command Paper and have laid before the House. I shall be considering the committee's proposals carefully. In the meantime, I have accepted the report as a basis for immediate consultation. Many of the recommendations do not require legislation. Some are already being implemented. But some of the committee's proposals do require fresh legislation. I therefore propose to publish a White Paper later this year, with the intention of bringing a Banking Bill before the House as soon as possible. The group of Treasury and bank officials which I set up under the review committee's terms of reference is continuing its detailed examination of the Banking Act 1979.

I am most grateful to the Governor of the Bank of England, who has chaired the review committee, and to its members, who comprised senior officials of the Bank of England and the Treasury, and a distinguished commercial banker, Mr. Deryk Vander Weyer.

A note by the Bank of England on events leading to the failure of JMB, the subsequent rescue by the bank, and its conduct of JMB's affairs is annexed to the bank's annual report and accounts, which have been laid before the House today.

The bank's account makes it clear that serious shortcomings in the management of JMB led to its collapse — over-rapid expansion of the loan book, heavy concentration of exposures, and lack of adequate control systems. JMB was also guilty of serious misreporting to the supervisory authority.

The circumstances described in the bank's report must inevitably raise questions about the role of the auditors, Arthur Young. The board of JMB, which is a wholly-owned subsidiary of the Bank of England, has today announced that it will be initiating legal action against Arthur Young.

The bank's account also explains its reasons for rescuing JMB. In mounting the rescue, I am satisfied that the Governor was acting properly within his discretion.

The board of JMB now estimates the company's losses at £248 million. Of this, £130 million has been met by JMB's original capital, reserves and provisions, and £50 million by a cash injection from Johnson Matthey plc, the former parent company. The rest of the losses are to be met from the indemnity of £150 million, split pound for pound between the Bank of England and a group of private sector banks and members of the London gold market. Potential claims on the indemnity to date thus amount to £68 million, of which £34 million falls to the bank. Though in many instances recoveries will be only over the long term, JMB's present board of directors is satisfied that the total eventual calls on the indemnity will fall comfortably within the £150 million ceiling.

Since JMB is now its wholly-owned subsidiary, the Bank of England stands fully behind it. On 22 November the bank placed a deposit of £100 million with JMB, which has since been converted into £100 million of additional capital to strengthen JMB's balance sheet. This will, of course, be fully reflected in the price the Bank of England receives for the sale of JMB back to the private sector, which it plans to conclude as soon as practicable.

The review committee has made 34 specific recommendations. Their implementation will require action by the Bank of England, by supervised institutions, by their auditors and by the Government. The committee proposes two fundamental changes in the present arrangements, and several important modifications. It has taken the view, which I share, that the JMB case exposes major shortcomings in the present legislative framework and supervisory procedures. I shall, in my statement, outline only the committee's main proposals. A full summary of its recommendations is annexed to its report.

The Banking Act 1979 — which was Labour legislation — draws a distinction between recognised banks and licensed deposit-takers. JMB was, and still is, a recognised bank.

Most of the Act's provisions, and of the bank's powers set out in it, relate to licensed deposit-takers. A dual system of supervision has resulted. Licensed deposit-takers have been subject to a more rigorous regime of supervision, whereas the supervisors have relied heavily on the integrity and co-operation of the management of recognised banks. With most banks, this confidence has not been misplaced. But the banking industry has expanded rapidly, and its activities have diversified. Recognised bank status—as we have seen with JMB—has not always guaranteed prudence and responsibility.

The committee recommends that the two-tier system be abolished and that the powers given to the bank under the Act should apply to all authorised institutions. I accept this recommendation. The committee recommends that all authorised institutions should, in consequence, be entitled to use banking names.

I also intend to tighten the criteria for authorisation, including the minimum net assets required.

The second fundamental change recommended by the review committee concerns bank auditors. In this context, I am grateful to the Institutes of Chartered Accountants of England and Wales and of Scotland for the co-operation that they have afforded the committee.

The committee recommends that there should in future be a regular dialogue between the supervisors and banks' auditors. I strongly endorse this proposal.

A bank's auditors are uniquely placed to monitor its control systems and assess its financial prudence. The accountancy profession at present considers itself prevented by a duty of confidentiality to the client from passing information to the supervisors. At the same time, the supervisors are themselves inhibited by the Banking Act from communicating supervisory information to third parties without the institution's consent.

This is clearly an unsatisfactory state of affairs. It is in cases where consent is not forthcoming that dialogue might be most necessary. That is why I accept the committee's recommendation that the constraints on contact between auditors and supervisors be removed.

I emphasise, however, that it is the directors and senior managers of banks who are responsible for the conduct of their business. They have duties both to depositors and to shareholders. This responsibility cannot be shuffled off to auditors or supervisors. The lesson of the JMB collapse is that banks must have in place adequate management and control systems. I therefore endorse the committee's suggestion that banks should appoint an audit committee and finance director where they do not already have them.

The committee has also made important recommendations on the staffing and organisation of the banking supervision division of the Bank of England.

The work of the supervision division has increased greatly in both complexity and volume in recent years, and the Bank of England now supervises more than 600 institutions. In general, it does a difficult job diligently and well. But in the case of JMB, the supervisors cannot escape criticism for failing to respond more quickly to the danger signals.

The committee has recommended that the staff of the division would benefit from wider commercial experience; that there should be more secondments in both directions between the division and commercial banks; that a significant cadre of experienced long-term banking supervisors must be built up; and that there should be more professionally qualified accountants in the division. It has also been suggested that more staff are needed.

The bank has already begun to implement these recommendations. The division is being strengthened both in numbers and in the range of expertise available. Some rearrangement of responsibilities has taken place within the division and further secondments to and from commercial banks have been arranged. To provide advice at a senior level, Mr. Sidney Proctor, chief executive of the Royal Bank of Scotland group, who retires from that position on 30 September, has accepted the Governor's invitation to serve on a part-time basis as an adviser on banking supervisory issues.

JMB's failure stemmed directly from a number of large, related exposures. The committee recommends—and the Bank of England has accepted — that in future no exposure to a borrower, or to closely related borrowers, should exceed 25 per cent. of the lender's capital base, other than in the most exceptional circumstances.

An effective system of banking supervision is essential, not merely for the protection of depositors but for the financial health of the economy as a whole.

The review committee's report brings out very clearly the lessons to be learnt from the collapse of Johnson Matthey Bankers. But, more than that, it proposes a number of important changes to banking supervision in this country, which I am confident will greatly strengthen the system and make a repetition of the JMB affair very much less likely to occur. I commend it to the House.

I wish at the outset to make it absolutely clear to the Government that the Opposition expect an early debate on this subject, for it raises the most serious questions about the relationship between the banks and the Bank of England, the Bank of England and the Treasury, and the Treasury and the House of Commons.

The Chancellor now proposes a Banking Bill to review the system of statutory regulation. I welcome that, and the Opposition will help its passage—that is, the passage of a Bill which offers adequate safeguards and supervision. I hope, however, that the Chancellor is aware that our co-operation depends on the inclusion of three essential ingredients.

The first is the abolition of the two-tier system of supervision and the extension to the banks of the information requirement now placed on licensed deposit-takers. The second is the power of the Bank of England, when it fears a bank collapse, to provide relevant information to other Government Departments. The third is the duty — not the right, as recommended by the working party — of auditors to warn the Bank of England if they have information about impending collapse.

However, the Chancellor will be aware that that is all in the future. Opposition Members will not agree that the history of this matter can be swept under the Bank of England's carpet. Indeed, unless we fully understand and learn the lessons of this unhappy affair, new legislation will be no more successful than the old; for under present powers, the Bank of England should have detected, and prevented, the JMB collapse.

Why did the Bank of England not appoint an investigator under section 17 of the Banking Act in the autumn of 1983 or in early 1984, when it certainly knew that JMB was moving into desperate difficulties? Indeed, why did the Bank of England not know of the danger earlier? Is it not a fact that every bank must submit Q7 forms to the supervising authority listing the largest depositors, the amount of the loan book and the geographical spread of loans? Does the Chancellor agree that that information gave the Bank of England a most serious warning signal and that the Bank of England did not act on it?

It is not only the Bank of England that has such questions to answer. The Chancellor tells us that when he made his statement to the House on 17 December he did not know of the £100 million loan to JMB. Does he now accept that he should have known and that the Bank of England should have told him? Perhaps more important, does he accept that when he found out he should have corrected the mistaken impression that he inadvertently gave to the House?

The Chancellor cannot hide behind the fiction that the behaviour of the Bank of England is not a matter for him; nor can he take refuge in the pretence that public money was not involved. No one now accepts the arbitrary and artificial distinction which he chooses to make, since the Bank of England dividend is payable to the Treasury, and Bank of England money is, in a real and practical sense, within the public weal.

That raises the fundamental question which I hope the Chancellor will answer. Why, of all the companies that the Government and their agencies might have rescued, has this incompetent bank been singled out for special treatment? In short, why Johnson Matthey and not Cortonwood? Why JMB and not Stone Platt, the textile machinery company which the Bank of England ditched in 1982?

With such a sorry tale of incompetence and concealment before the Chancellor, does he still retain any confidence in the Governor of the Bank of England, and does he expect us to retain any confidence in him?

The right hon. Gentleman first asked for a debate. That is a matter which, as he knows, can be pursued through the usual channels.

Secondly, the right hon. Gentleman welcomed the proposed Banking Bill, and I am glad of that. He asked for an assurance that it would include the abolition of the two-tier system. I have already indicated in my statement that that will be a most important part of the Bill. I do not think that the right hon. Gentleman was concerned with financial matters at the time, but when the then Labour Government put forward the Banking Bill with the two-tier system that system was opposed by the then Conservative Opposition, particularly by my hon. Friend the Economic Secretary. The two-tier system was put in place by the then Labour Government against the wishes of the Conservative Opposition. It has proved to be a mistake, and we shall certainly be changing it.

The right hon. Gentleman then asked why the Bank of England did not get on to the situation of Johnson Matthey Bankers at an earlier date. I have already made it clear that the Bank of England, despite its excellent record in general of carrying out its supervisory duties, did not on this occasion act as promptly as it should have done. It did, to some extent, fall down on the job. I must say, however, that there was persistent late reporting and misreporting by JMB, so the Bank of England was provided with wholly inadequate information.

The right hon. Gentleman asked if I did not feel that I should have been told at the time about the £100 million loan. Yes, I do think that I should have been told at the time; and that is accepted by the Governor of the Bank of England and, indeed, by the bank generally. I think, however, that the point that the right hon. Gentleman went on to make is false—that I should have revealed this to the House as an additional exposure. It is important to distinguish between loans made by JMB prior to 30 September 1984—which included, as we now know, a large number of very bad and doubtful loans—and the £150 million indemnity to cover them, and the £100 million which was to provide JMB with effective working capital to continue after 30 September 1984 and stands to be recovered in full when JMB is sold back to the private sector.

The right hon. Gentleman then asked why JMB was rescued. I have already indicated quite clearly why the Governor, exercising his responsibilities, decided that, because of the combination of the risk to the London gold market—which is a very important market—and the effect on the banking system, it was right to rescue JMB.

In reply to the question whether I now have confidence in the Governor, I must tell the right hon. Gentleman and the House that I have the fullest confidence in the Governor of the Bank of England.

This is not the first occasion on which a bank has collapsed and a rescue operation has been mounted. Right hon. and hon. Gentlemen on the Opposition Benches and, indeed, the whole House will recall very clearly the secondary banking crisis some 10 years ago and the rescue operations that were mounted by the the then Governor of the Bank of England, backed by the then Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey). No information of the kind in the Governor's report to the House and in the report that I have given to the House today and no action to tighten up on banking supervision was offered to the House at that time.

Is my right hon. Friend aware that when an event of this size and seriousness occurs it is very important that it should be fully investigated so that the House can take a view on the reforms that need to be made? Therefore, we obviously need to study in detail the information now before us, and it is very important that the lessons should be learned. We are now in a position to do this as a result of the action that my right hon. Friend has taken. His proposals and the other remedies which he may feel to be appropriate are being implemented against the background of a situation in the City of London which is nothing short of a revolution. Therefore, it is important to ensure that we take an overall view of the problems which may arise in that context.

Is my right hon. Friend satisfied that there is sufficient co-ordination between the Treasury and the Department of Trade and Industry, which is responsible for many other aspects of the City's operations? There is some danger, I fear, if there is not sufficient co-ordination and if the interrelationship of the various financial institutions is not taken fully into account when we carry out the reforms which are undoubtedly necessary in the light of this event.

I am grateful to my right hon. Friend for his initial remarks about the particular case which is the subject of my statement today and about the action that the Government have taken.

On the wider issue of the City revolution, I welcome his statement that these reforms are essential if the City of London is to remain a world financial centre, particulrly as far as the securities industry is concerned. It is obviously important that there are adequate regulatory systems and financial protection in place. He will know that the Government will be bringing forward, before very long, I hope, a financial services Bill, when these matters can and should be very fully and rigorously debated.

I am satisfied that there is full co-operation between my Department and the Department of Trade and Industry, as indeed there must be, and not only between those two Departments, but between them and the Bank of England.

Will the Chancellor bear in mind the clear danger of rushing in with public money before the extent of the problem is realised—and, of course, this should have been realised much earlier? Will he contrast the treatment given to Johnson Matthey Bankers with the failure by a previous Conservative Government to come to the rescue of Rolls-Royce—the most important industrial company in this country, probably in Europe, and even conceivably in the world? They let that company go for sums of money rather less than this. Does that not show the bias of this Conservative Administration towards services in the City of London and away from industrial expenditure, which should be one of our highest priorities?

That is a most extraordinary statement, because, as the right hon. Gentleman should recall, Rolls-Royce was indeed rescued by the previous Conservative Government. It is a thriving business. I hope that during the course of this Parliament we shall be able to return it successfully to the private sector.

I am sure that everybody in the City and in financial circles generally will appreciate the fact that the Government are going to introduce a new Banking Bill. When will this legislation be brought forward? I have one caveat about such a Bill. In his statement, the Chancellor said that the lending authority—that is, a bank—should not expose itself to a borrower, or a series of borrowers who are connected, to the extent of more than 25 per cent. of its capital. Surely that is far too high a proportion, because a lending authority, such as Johnson Matthey Bankers, for example, could, with four borrowers, commit the whole of its capital. Would my right hon. Friend think again about the recommendations of the review committee and consider whether 25 per cent. is perhaps too high?

On the second point, my hon. Friend has to bear in mind that we have a very flexible discretionary system of banking supervision in this country. I am not proposing, nor is the review committee, that it should be replaced by a system of rigid rules. It is possible to have a system of rigid rules. The United States has such a system, but that does not prevent banks occasionally collapsing in the United States — for example, Continental Illinois, which was, of course, rescued. If there were to be rigid rules, the sort of matters to which my hon. Friend referred would have to be covered by them. This 25 per cent. rule is a general upper limit guideline. It does not mean that circumstances might not arise of the kind that my hon. Friend suggested, in which case, long before that, the supervisory authority would say that that was not in keeping with the supervision rules that it imposed informally and it would require the lending authority to reduce its exposures.

As to my hon. Friend's first question, we hope that we shall be able to bring forward legislation during the 1986–87 Session.

For the benefit of those members of the public who are not well versed in matters of high finance, will the Chancellor of the Exchequer distinguish between stupidity, incompetence and greed and fraudulent trading, fraudulent accounting and fraud? Bearing in mind the fact that in any language, other than Tory language, the conduct of Johnson Matthey Bankers, the auditors and the Governor of the Bank of England has coalesced into a fraud on the public, should not the Governor of the Bank of England resign under this Government before he gets the sack under the next Labour Government?

That question is hardly worthy of any answer, although it is worthy of the hon. Gentleman. No prima facie evidence of fraud has so far been uncovered. The Price Waterhouse report turned up no prima facie evidence of fraud. However, if any prima facie evidence of fraud were to be turned up in further investigations, of course the appropriate action would be taken.

Will my right hon. Friend confirm that the strictures, rightly levelled at the banking side of Johnson Matthey plc, do not apply to the industrial subsidiary located in my constituency which does some excellent work and gives valuable employment to my constituents? Is not the saving of that employment and the industrial side of Johnson Matthey plc a justification of the rescue operation?

My hon. Friend is right in a number of respects. First, the parent company, Johnson Matthey plc, conducts industrial operations successfully and well in a number of constituencies, not just his. It would have been brought down completely had that rescue not been mounted. However, that was not the prime reason for mounting the rescue operation. It was for the reasons that I gave in my statement. The same goes for the bullion business of Johnson Matthey plc, which is a sound business, contrary to the impression given by a long and completely misguided campaign by the right hon. Member for Plymouth, Devonport (Dr. Owen), who is not in his place.

In view of the comment that the Chancellor of the Exchequer has just made, will he explain why it was necessary to give a massive £150 million indemnity involving substantial public funds to keep the whole of that operation going? If the future of the gold market were not going to be rocked, because the bullion side of the business was viable, why was it necessary to save the whole of the institution?

When he considers future banking supervision, will he take into account the views put forward by a number of people, when the subject was discussed previously? It was then said that the Bank of England is the wrong body to be responsible for the supervision of the banking system, as it is acting as an advocate for and a supervisor of the banking system, and that it should be contained in its role as a central bank and not carry out that supervisory role. Will the Chancellor of the Exchequer also explain why no charges are being brought and the fraud squad is not pursuing the matter further, when there has been such massive misreporting and misleading of the supervisory body by the bank's management?

The answers to the hon. Gentleman's three questions are as follows. First, whether the Bank of England should continue to be the supervisory body was one of the matters considered by the review committee, which unanimously reached the conclusion that it should remain as the supervisory authority.

As to whether there was any danger to the gold market, I hardly think that the members of the gold market would have contributed to the indemnity, as they did, had they not thought that it was important to the London gold market that the bank should be rescued. That was the view of the Governor of the Bank of England and of those from the private sector who contributed to the indemnity.

Misreporting, even on the appalling scale that occurred in this case, does not constitute a fraud. That is a point of law.

Although this affair is a most bizarre Alice-in-Cityland fable of unbelievable incompetence by the management of Johnson Matthey Bankers, does my right hon. Friend agree that considerable good may yet come out of it, because of the important reforms and changes to banking supervision in the legislation that he has announced in his statement? Does he further agree that, far from sweeping matters under the carpet, as the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) appeared to be claiming, the Governor of the Bank of England deserves some credit for setting new standards of openness in this matter with the full record which has been published today in the Bank of England's annual report? Does not that candour compare favourably with the cover-up operation which the Labour Government carried out throughout the secondary banking crisis when details of the many bank rescues and lifeboat operations were completely concealed from the House of Commons by the then Ministers?

My hon. Friend is correct on each of his points. I hope that good will come from, as he said, the appalling and bizarre record of incompetence and mismanagement by Johnson Matthey Bankers and the collapse. I believe that it will. I believe that we shall have a much better banking supervisory system than we have had hitherto.

Is not the truth that there has been far too much socialising between JMB and Bank of England personnel and far too little supervising? If everything is being revealed, why does the Chancellor not publish the Price Waterhouse report? What is in it? Why cannot the public know its contents? Will it reveal the extent of the Bank of England's negligence? Why does everyone resist publishing that crucial document, which would enlighten the British public and reveal the full nature of the negligence of the Government, the Bank of England and JMB?

I recommend to the hon. Gentleman that he reads the account given in the annual report of the Governor of the Bank of England, which was published today. As my hon. Friend the Member for Thanet, South (Mr. Aitken) said, he will see a great deal of information. It contains far more information than was ever provided by the Labour Government. The Price Waterhouse report was commissioned by the Bank of England to assist it in assessing the position in JMB. It contains details of the accounts of the customers of JMB, which, of course, cannot by law be published. To publish it would also undermine to some extent the suit—

No, the legal action—that the Bank of England, through Johnson Matthey Bankers, proposes to take against the auditors, Arthur Young McClelland Moores and Co.

My right hon. Friend mentioned the tough recommendations made in March to the Governor's committee by the English and Scottish Institutes of Chartered Accountants. Many of those have been incorporated in the committee's report. Does my right hon. Friend agree that the opening up of the relationship between the Bank of England and individual banks' auditors lies at the heart of any improvement in banking supervision? Will he ensure that those recommendations are implemented as soon as possible — even ahead of any legislation — if necessary, voluntarily?

I agree with my hon. Friend. Those points are at the heart of the matter. Some require legislation, because at the moment there is an iron curtain both ways between auditors and supervisors. The auditors, by their code of professional confidentiality, feel that they cannot reveal to the supervisors what they learn about a bank. Equally, under the Banking Act 1979, supervisors are not empowered to reveal what they discover to a bank's auditors. The iron curtain must be removed in both ways.

Will the Chancellor tell the House whether the Governor of the Bank of England was aware of his intention to make a statement to this House on 17 December at any time before he made that statement?

Will my right hon. Friend confirm that those who made the ill-judged banking decisions have now been dismissed from Johnson Matthey and have nothing further to do with it?

Does my right hon. Friend agree with the report's assertions that it is the flexible nature of the supervisory regime in London that has made it the centre of the financial world, with the Bank of England now supervising more than 600 institutions, most of which are not British? Will he ensure that nothing is done to imperil the City's standing in that respect?

I agree with my hon. Friend. The chairman, deputy chairman, managing director, deputy managing director and two other directors who had responsibility for the banking operations have resigned. I am, of course, referring to the old board.

Will the Chancellor answer a question which, rather surprisingly, has not been asked by his hon. Friends who allege that they are very interested in the taxpayers of this country? Will he tell me—in round figures, if necessary—exactly how much my constituents, as taxpayers, will have to find to meet the provisions in this statement?

Is my right hon. Friend aware that I support the package that he has put before the House to deal with this matter? However, I have a feeling that if this company had been wholly industrial and approached its bankers, they would have said that it was lost and, therefore, should get lost. The company would not have received support. It is a privileged community.

Will my right hon. Friend say to the banks generally that it would be a good thing if they could support industry in return for the support that they obviously receive?

If my hon. Friend is under the impression that any bank that gets into difficulties will automatically be rescued, I am happy to take this opportunity to say that that is certainly not the case. The banking community should be well aware of that. In this particular case, for the reasons that I have already given, the Governor felt that it was right to mount a rescue.

The Chancellor appears to be unduly nervous today about his statement, which may in part be due to his anxiety about the whereabouts of my hon. Friend the Member for Bolsover (Mr. Skinner), who has taken a great interest in these matters. I can tell him that, like so many other hon. Members, he is campaigning in the Brecon and Radnor by-election. I am sure that the right hon. Gentleman's statement will do nothing to answer the very serious questions that my hon. Friend and others have been asking.

Are we not told that people like the Chancellor take the view that all uneconomic units should die—that that which cannot create a profit should die? In view of that, why on earth was this bank propped up with public money? Will the Chancellor give a clear assurance that not a single penny piece of public money has been used to shore up that uneconomic bank?

I have already made the position on public money very clear—not only on this occasion, but on a previous occasion. Currently, the exposure of the Bank of the England in terms of money that may be lost looks like being £34 million. However, we must take into account what the bank will receive when it sells Johnson Matthey Bankers back to the private sector. There is also the question of what it might receive as a result of the legal action it proposes to take against the auditors Arthur Young.

On the hon. Gentleman's first point, I think that he is confusing my demeanour. It is not nervousness, but deep disappointment at the absence of the hon. Member for Bolsover (Mr. Skinner) from our proceedings.

Does my right hon. Friend accept that his remarks about fraud will be widely welcomed, especially in view of recent events at Lloyds and in other parts of the City, which have far too often led to the clear indication in certain parts of the press that people who perpetrate white-collar fraud get away with it while blue-collar fraudsters and criminals do not?

I have considerable sympathy with my hon. Friend's sentiments. I hope that nothing that is said in this House will give the impression outside that the appalling conduct of those responsible for the happenings at Johnson Matthey Bankers is in any way typical of British banking.

In response to the question asked by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) on 17 December, the right hon. Gentleman said that only £1 was invested in Johnson Matthey by the banking department of the Bank of England together with an indemnity of £75 million from the banking sector. He told my hon. Friend the Member for Sedgefield (Mr. Blair) that he was informed the following day that there was a £100 million deposit with Johnson Matthey. Why has he waited six months to give the House that information? Does he agree that he should have given a full personal statement to rectify that error once it had been brought to his attention? Does he not owe the House an apology?

I do not accept any of that. I have been open with the House since December last year when I made a statement, although I was under no pressure to do so. There was certainly no request for a statement from the Opposition. Opposition Members have not asked a single question about Johnson Matthey or banking supervision—

I accept that there were one or two questions from the hon. Member for Bolsover, but there has been no question from the Labour Front Bench. As for the hon. Member for Bolsover, he is not even here.

I made that statement and also set in motion the review of the supervisory system. As a result, we shall get a better supervisory system—not only through legislation, but because of the changes that the Bank of England is introducing. I should have thought that the hon. Gentleman would welcome that.

Is the Chancellor satisfied that resignation is a suitable punishment for directors responsible for such financial mismanagement and incompetence? What sort of example will that set for people in the rest of the economy?

It is not just a matter of resignation. The shareholders in the Johnson Matthey parent company have lost 70 per cent. of their money — well over £200 million. Of all the money that has been put behind the staggering losses of bad debts, 86 per cent. is private sector money.

Just who was the Chancellor trying to kid when he told my hon. Friend the Member for Oldham, Central and Royton (Mr. Lamond) that not a penny piece was at risk for the taxpayer? On our reading of his statement, it is likely to cost up to £134 million from the public purse. That is the extent of the risk. It is well over half the amount of money that was taken from beneficiaries of child benefit. If no public money is at risk, why is the Chancellor making this statement in his capacity as Chancellor, and where will the £134 million come from?

The hon. Gentleman has got his figures completely wrong. The £34 million is indeed money that is lost in the sense of recovering bad debts; but, as I said earlier, against that must be set the money that will be recovered when Johnson Matthey is sold. The money that is then recovered will, as I said in my statement, include the £100 million additional capital that has been put in. That will be paid first. Therefore, currently £34 million is the risk, but money will be recovered from the sale of Johnson Matthey Bankers, and money may also be recovered from the legal action against the auditors.