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Dunfermline Building Society

Volume 490: debated on Monday 30 March 2009

With permission, Mr. Speaker, I would like to make a statement about the Dunfermline building society. I hope that the House will understand that an announcement had to be made as soon as possible this morning to provide certainty to the Dunfermline’s customers when branches opened this morning. I have previously disclosed to the Treasury permanent secretary, and it is appropriate that I draw to the House’s attention, the fact that I hold savings accounts on behalf of my children at the Dunfermline building society.

Most of the society’s core member business was transferred to the Nationwide building society this morning. Under the terms of the agreement, it will be business as usual for customers and Dunfermline’s deposit business will continue to operate normally. Branches and telephone banking will continue to be open and customers can access their accounts in the usual way. Savers can be assured that their money is safe. Loan and mortgage customers can continue to contact the Dunfermline in the usual way and to make repayments as normal. All the Dunfermline building society’s staff have been transferred to the Nationwide building society.

The decision to transfer the Dunfermline’s main business to Nationwide was made to protect depositors and safeguard financial stability, as well as to protect the interest of the taxpayers. I would like to set out the background to the decision and the options looked at by the Financial Services Authority, the Bank of England and the Treasury, in order to find a long-term solution to the society’s problems. The Dunfermline building society has 34 branches, employs about 500 people and has around 300,000 members, making it the 12th largest building society in Britain. The decision was necessary because of a significant deterioration in the society’s financial position in the past few months. That culminated in the decision by the FSA on Saturday that the Dunfermline building society was likely to fail to meet the FSA’s conditions to remain open for business and that it was not reasonably likely that action could be taken by the society to enable it to satisfy these conditions.

The Dunfermline’s problems were caused by a range of factors. The society has engaged in substantial commercial property lending, in excess of £650 million, making many of those loans in 2005 and 2006, when prices were at their highest. It is now losing money on many of those loans. In 2006 and 2007, the society also purchased more than £150 million of high-risk, self-certified mortgages from two American firms, GMAC and a subsidiary of Lehman Brothers, just before the global market for such loans completely collapsed. Those decisions, together with the need to write off £10 million from the purchase of a £31 million IT system, contributed to the society making an expected loss of more than £24 million last year.

The FSA has been in constant touch with the society since November, as is properly the case, as the FSA is its lead supervisor. It has been clear for some time that the society needed additional capital to continue operating. It was also clear that the society could not raise the amount of capital that it required in the markets and that it would need support from public funds. Under the Banking Act 2009, the Government have to take into account three objectives in particular when deciding whether to intervene in the financial sector: the need to protect depositors; ensuring stability and confidence in the financial system; and safeguarding the interest of the taxpayers.

To meet these objectives, the FSA, the Bank of England and the Treasury had two options. The first was for the Government to inject more capital into the society, possibly alongside the Building Societies Association and the Scottish Government. The FSA advised that a minimum of £60 million was required just to allow the society to continue trading. This, however, would not have provided the Dunfermline with a long-term solution. First, it was the judgment of the Bank of England, the FSA and the Treasury that even with an injection of £60 million, the society would have been very unlikely to have an independent long-term future, and that it would have needed to come back for more. Secondly, the society would not have been able to service or repay this amount of new capital; in the past few years it has never made an annual profit of more than £6 million. Thirdly, that course of action would not have dealt with the commercial property loans and the high-risk mortgages, totalling some £800 million, held by the society.

The second option was to find a long-term solution for the Dunfermline building society, in which it had sufficient backing from a larger society and in which the riskier assets were separated out. It was therefore decided, after the Bank of England had invited offers over the weekend, that as a result of that process, core parts of the Dunfermline would be transferred to the Nationwide building society. The Dunfermline’s retail and wholesale deposits, its 34 branches, its head office and its residential mortgages have been transferred. Savers who are retail depositors with the Dunfermline and with the Nationwide will continue to benefit from separate Financial Services Compensation Scheme limits—that is, £50,000 per person per institution.

The Nationwide already has more than 40 branches in Scotland, where it has been operating for many years. It has the strength to provide financial support for the Dunfermline building society. It has said that it will maintain the Dunfermline building society brand, and that there will be no compulsory redundancies in branches for the next three years. The social housing loans of Dunfermline’s customers have been transferred temporarily to a bridge bank owned by the Bank of England. This will continue to provide support for the Dunfermline’s social housing commitments while the Government talk to a number of other parties, including the Scottish Government, about securing a long-term future.

The remainder of the Dunfermline’s assets and liabilities—including commercial loans, high-risk mortgages and subordinated debt—have been put into administration. These assets will be managed and wound down over a period of time. In this way, the return for the taxpayer can be maximised as conditions improve. Any losses associated with these assets will be met in the first instance by the remaining capital in the society, and by the Financial Services Compensation Scheme, leaving a small residual exposure for the Government.

In line with previous resolutions of this kind—such as that involving Bradford & Bingley—because the retail deposits have been transferred in full, the assets to back them had to be provided in the short term by the Treasury. Therefore, following normal practice in such cases, the overall net financing provided by the Treasury to the Nationwide is around £1.6 billion. Included in this amount is a sum of £69 million, an amount broadly equivalent to the capital reserves belonging to the Dunfermline’s members. Again following normal practice, this is being transferred along with the rest of the business, and will support prime residential mortgage lending. The Treasury will reclaim the money from the wind-down of the assets outside the transfer and from the Financial Services Compensation Scheme.

The Dunfermline building society has provided services for many years. However, we had to find a long-term solution for it, in order to protect savers, to protect the taxpayer and to give its members a more stable future. We will continue to deal with the impact of the global banking crisis on the banking system, ensuring stability and rebuilding confidence, which is an important precondition to economic recovery. I commend this statement to the House.

I thank the Chancellor for his statement. Of course, it is sad that the 140-year history of the independent Dunfermline building society should have come to such an end. It is depressing to see yet another pillar of the Scottish banking system fall in this way. I note that the Chancellor has for the first time made use of the special resolution regime passed in the Banking Act to deal with this troubled institution. Of course we called for such a regime 18 months ago, and we now know that the Governor of the Bank of England was calling for one five years ago. However, it is good to see that it is now in place and being put to use.

The absolute priority for the Dunfermline, as the Chancellor has said, is to protect the depositors, and their transfer to the Nationwide will do that. I have spoken to my colleagues in the Scottish Parliament, and we agree that we should all be concerned about the future of the 500 staff who work in the branches and the head office. This will be an anxious time for them and their families. In his statement, the Chancellor provided some reassurance for the 245 employees in the branches, but he said nothing about the remaining 289 people who work in the head office. Perhaps he will do so when he responds to my questions.

Indeed, it would be good moment, if the Chancellor felt able, to say something about the total job losses both in Scotland and in the rest of the UK resulting from the problems at HBOS, Royal Bank of Scotland, Bradford & Bingley, Northern Rock and now Dunfermline, and to clarify whether the Government are able to provide specific help to unemployed bank staff, with their particular clerical and IT skills, in finding the new jobs they are looking for.

Specifically on Dunfermline, will the Chancellor answer these questions? First, he says that the Treasury has provided £1.6 billion of net financing to Nationwide, so what is the maximum possible loss for the taxpayer? He mentioned in his statement a small residual exposure. How small is it, and what is the maximum exposure? Can he give us the figures today? What is the risk from holding £500 million of social housing loans, and how quickly does he expect to find a buyer for them? What is the maximum loss for the Financial Services Compensation Scheme—a scheme designed, of course, to protect customer deposits, but now burdened with the liabilities of Dunfermline, and Bradford & Bingley? What will be the impact on the levy charged to other banks and building societies, and no doubt passed on to customers? Indeed, is the Chancellor confident that the additional costs can be met by the rest of the industry, given the weak state that much of it is in?

Secondly, when was the FSA first aware that Dunfermline was purchasing UK buy-to-let mortgages from the likes of Lehman Brothers and GMAC, and increasing its exposure to commercial property by £500 million—an increase of more than 400 per cent. in the last three years alone? These are British loans, to British households and British companies, that have gone bad, and they are further evidence of what we have been saying all along—that not all the banking problems have blown in from America. Did our financial regulator ever ask whether this was a sensible business model for a medium-sized building society to pursue? Were any doubts ever expressed or any questions ever raised or any warnings ever issued—and if not, why not? Will the Chancellor now instruct the FSA to publish a full account of its dealings with Dunfermline, as he did with Northern Rock, so that we know the whole truth, rather than it just dribbling out over the coming months? Of course the management at Dunfermline must bear the primary responsibility for taking a safe and—dare I say it?—quite boring building society and turning it into a high-risk property speculator, but why did the FSA let it do that?

Is the Chancellor satisfied with the way in which the Treasury has conducted itself throughout the negotiations? The Government’s decision to pull the plug on Dunfermline was, of course, never going to be popular with the management, but could not more of an effort have been made to explain that decision? The chairman of the society, Mr. Faulds, says he is “astounded” that senior Treasury officials would not speak to the society, and that the only contact with Ministers was a cup of tea with Lord Myners. Why did the Chancellor not feel it necessary to meet the management himself, and at least hear its alternatives? Is it really the case that Dunfermline staff learned of their fate only through a Treasury leak to the media, and does that not show insensitivity to bank clerks on modest incomes who now face losing their jobs?

Finally, will the Chancellor say something about his relationship and dealings with the Scottish Government? He mentioned in his statement that he was going to talk to the Scottish Government about the future of some aspects of this deal. Does not the handling of the Dunfermline building society highlight the fractious and unhelpful relationship between a Labour Government in London and a nationalist Government in Edinburgh? Given that we have a Chancellor of the Exchequer who comes from Edinburgh and a Prime Minister who used to be the MP for Dunfermline, should they not try harder at least at their side of the relationship? The financial industry is so important to Scotland, and the problems have been so great, that the Scottish people are entitled to expect a bit more co-operation and a bit less confrontation between those elected to govern them in Edinburgh and in London.

Let me answer the hon. Gentleman’s questions, and let me start by saying that I agree with him that it is a real shame that the Dunfermline building society has got into this position—and many people who have used its services over many years will be very sad about that.

The hon. Gentleman asked a number of questions, and I am going to start with the last one. I strongly believe that, no matter what the political differences may be between the Administration in Holyrood and the Government here in Westminster, we should work together. I had an extremely constructive and, in my opinion, friendly meeting with the First Minister last Wednesday. I also spoke to him on Saturday morning, shortly before the FSA contacted him in Dunfermline to explain the position to him.

I believe that the offer made by the Scottish Government in an effort to resolve the problem was made in good faith. I spoke to the First Minister about that. The problem was that, as I said in my statement, we believed—and the regulator believed—that even if we had put all that money in, it would not have been enough. Given that the society has never made more than about £6 million in any year, how would it had served us if all that additional capital had been put in? There was also the whole question of the now bad assets to which the hon. Gentleman referred.

I consider the co-operation between the Administrations north and south of the border to have been extremely constructive. Both the First Minister and I fully understood the building society’s problems, and both of us wanted to work towards a solution. The hon. Member for Tatton (Mr. Osborne) also mentioned contact between the society, the regulator and the Treasury. I understand that the Treasury first spoke to the officials in November, once it was becoming apparent that there were difficulties. The representatives of the Dunfermline have also met the Secretary of State for Scotland, and Lord Myners in my Department.

I must point out to the hon. Gentleman that it is not surprising that most of the contact—and there has been a lot of it—has been between the FSA and the Dunfermline, because the FSA is the regulator. It is the body that must decide whether, at end of the day, institutions can continue to receive deposits.

The hon. Gentleman raised a number of other points. He asked about the special resolution regime and the 2009 Act. I can confirm that this is the first time that the regime has been used. As he seemed to want to make a political point, let me also say to him that it was foreshadowed in the Banking (Special Provisions) Act 2008, which he did not support. Be that as it may, however, we both agree that the Bank, the FSA and the Treasury need powers of this sort, especially in the current environment.

The hon. Gentleman asked about jobs, which are clearly very important. I spoke to the chief executive of the Nationwide building society this morning. He said that the Nationwide would guarantee that there would be no compulsory redundancies in the branches, but he also explained to me that, over the next few weeks, it would need to meet people in the headquarters in the Dunfermline and then decide what the requirement is. As the Government have now taken over the commercial loans, that work will not need to be done. Let me also say—anticipating future questions—that it is almost certain that even had the Dunfermline carried on, with support, there would have been reductions in the number of jobs available. I think that that would have been inevitable, given the Dunfermline’s present position.

I want to make it very clear that Jobcentre Plus will be ready to help in Dunfermline, just as it has helped in the case of other banks where there have been job losses. Many people who are very skilled and dedicated have put in years of hard work, and would make first-class employees elsewhere. It is important for us to do all we can to turn such people’s lives around if they lose their jobs. That is why we put more money into Jobcentre Plus at the end of last year.

The hon. Gentleman asked about the social housing loan. I hope that the discussions about that will begin in the next few weeks, because I want to secure some certainty. The Scottish Government clearly have an interest in the issue, because much of Scotland’s housing was being financed by the Dunfermline.

The hon. Gentleman wanted to know how all this arose in the first place. I think that there are two answers to that question. The hon. Gentleman is right: I am afraid that the management in this building society, like management in other institutions that have got into difficulty, are primarily responsible. However, I have asked the chairman of the FSA to let me know what happened, and of course I will keep the House informed.

Let me begin by paying tribute to the people—particularly members of the Building Societies Association and my hon. Friend the Member for Dunfermline and West Fife (Willie Rennie)—who have tried to rescue the situation and take account of the interests of the 310,000 customers, the work force and, of course, the taxpayer.

As for the Secretary of State’s statement, I shall start with the last part of his reply to the hon. Member for Tatton (Mr. Osborne), which dealt with how this failure occurred. It is clear that there was disastrous management and a failure of oversight on the part of the directors. This morning I was sent a copy of some details of the kind of business that the building society was transacting almost two years ago. It refers to a loan of £10 million to a company based in Lancashire called In-House plc—described as a company that was loss-making and insolvent, which had never filed any properly audited accounts. Substantial numbers of loans of that kind were taking place, and I repeat the point that the Conservative shadow Chancellor has already made: is this not a gross failure of regulation by the FSA? It is very difficult to see how that could have happened under the old building society regulator, who kept a much closer eye on the conduct of societies.

As for the outcome, it is clear that there have been some positive results. It is positive that the savings and deposits business and the mortgage lending will continue within the mutual movement with the Nationwide, and there is a reasonably positive outcome for the labour force. But I would like to pursue a question that has already been raised with the Chancellor: why could the potential offer from the Building Societies Association not be taken up? Presumably, when the BSA offered to put in £30 million of its own members’ money, it made a pretty hard-headed calculation of what the Dunfermline could service and repay. It is difficult to understand why it came to a radically different conclusion from that reached by the Government. As the BSA was willing to step up to the plate itself, why did the Government not feel able to match its contribution? Is one of the reasons why the Government were not able to do so a rigid application by the FSA of its capital adequacy rules? We have heard a great deal about the future of counter-cyclical regulation, but do we not here have a case of the 8 per cent. rule for capital being so rigidly applied as to make it very difficult to deal with situations of this kind?

I have previously raised my final point not with the Chancellor, but with his Ministers. It is to do with the contributions made to the deposit protection scheme, and the fact that that weighs disproportionately heavily on the building societies, because it is based on the level of deposits, rather than loan exposure. Building societies such as the Nationwide that are very prudent in their operation and maintain a very high level of deposit savings in relation to their lending are therefore paying a much heavier contribution than the banks. Not only is that storing up trouble for the future, but it seems very unfair, and it has, of course, affected the calculations in this particular case. Will the Government take a fresh look at this matter, which all the building societies feel very strongly about?

The hon. Gentleman raised three questions. On supervision, we are both in agreement that the primary responsibility for management decisions always has to rest with management. The management in this case took the decision over a number of years to go into areas where the building society had not previously gone. The hon. Gentleman referred to the IT system. Ironically, the In-House organisation he mentioned was proposing to sell its expertise in IT, whereas in fact £10 million—I think that is the sum—had to be written off in respect of the IT system. That was clearly primarily a management decision. However, as I said to the shadow Chancellor, there are lessons to be learned here, and we need to look at them.

On the point about the Building Societies Association, we looked at the idea very seriously. If it had worked, and all that was necessary was a capital injection from either the Government or the BSA—and, possibly, the Scottish Government as well—there would have been attractions in that, such as that it would have been relatively simple to do. Our problem was that the FSA—which is, at the end of the day, the regulator—came to the view that although that might buy time, it was almost certain that, as I said in my statement, the society would have to come back for more. That was the difficulty. It also has to be said that when we spoke to the BSA, there were certainly some who were proposing to contribute to what would have been a pooled amount—it would have come from about half a dozen larger BSA members—but some of them were sceptical as to whether that would fix the problem. As the hon. Gentleman knows, one of the lessons that has to be drawn from other parts of the world—indeed, arguably, from nearer to home—is that if we are going to try to fix the problem and recapitalise banks, we need to do it properly. The Japanese experience was that if we keep coming back and back, it prolongs the problem rather than resolves it.

On the deposit protection scheme, the hon. Gentleman raises a perfectly good point and I know that it is something that the FSA will be examining; it obviously needs to consider both the distribution and the treatment of the building societies’ contributions and the banks’ contributions. I will ensure that on that, and on other matters, I will keep the House informed.

In Dunfermline this morning, the feeling was a mixture of depression, anger and confusion as to why such a fine Scottish institution had come to this. I am bitterly disappointed that more could not have been done to save such an institution, which has been a trusted friend to many people in the community in Scotland over 140 years. Could the Chancellor of the Exchequer please explain why more was not done to save this institution? I have heard many of the explanations here, but many, including the Scottish Government, the rest of the mutual sector and others, were willing to rally around to come to the rescue of the building society. What has happened will do tremendous damage to the mutual sector as a whole, which is trusted by many in the community throughout the country. The Government had a responsibility to do more to save the institution, and in Dunfermline this morning, people were feeling that it was a sad day when such a fine institution had come to this.

I am well aware of the affection that many people in Dunfermline have for the building society. The society has, over many years, enjoyed a very good reputation, not only in the town of Dunfermline but in Scotland as a whole, and I think it is a great pity that it has come to this. The hon. Gentleman asked why it had happened. As I said in my statement, the reason is that the management of the society decided to go into quite large-scale commercial lending, and they did so at the top of the market. These loans are now, in many cases, not being repaid. The management also acquired property mortgages from two American companies just before that particular market collapsed, and they also encountered the problems with the big IT project that I mentioned. We tried everything that we possibly could to reach a solution.

The hon. Gentleman rightly refers to the contribution that was considered from us, from the BSA and, possibly, from the Scottish Government. The problem was that it would not have fixed the problem; we might well have been back in a few months’ time, or in a year’s time, facing exactly the same problem. We needed to find a long-term resolution for the members of that society, and to do the best we could in relation to jobs and financial stability. I am glad that we were able to transfer the building society to another building society. He is right to say that there is a lot of affection for the building society. I, like many others, am very sorry that the decisions taken by its management meant that it got into those difficulties. We have had to do what we believe is right to secure the long-term interests of the people who have their money in that building society.

The chairman of the Dunfermline building society, Jim Faulds, has made his views known today; he has made some severely adverse comments about the decision that the Government have taken, going as far as to say that this action was not necessary. Is my right hon. Friend in a position to pass comment on some of those views that have been put into the public domain?

I know that, like many people, all of us here deeply regret that the decisions taken by the management of the Dunfermline building society have meant that we have had to intervene and take measures to make sure that it is put on a long-term stable footing within the Nationwide building society. I believe that the action that we have taken was necessary, as a result of the judgments that were made, and that it is the right thing to do, both to protect people who have money in that building society and for the long-term financial stability of the industry as a whole.

My hon. Friend the shadow Chancellor asked the Chancellor of the Exchequer a specific question about the maximum taxpayer exposure as a result of what has happened. I should be grateful if the Chancellor could either explain why he will not answer that question, or answer it now.

The answer is that it will depend over time as to what extent we are able to realise the assets that we now hold, including the commercial property. I hope that we will be able to recover all the money that we have had to put in—otherwise the Government will have a call on the capital of the building society and in relation to the FSCS—but the position is very similar to that of the Bradford & Bingley bank, where we had to step in and take similar action last year.

I very much welcome the action that has been taken by the Nationwide, part of whose headquarters is in my constituency. It has always been an important and stable financial institution. My right hon. Friend referred to some real weaknesses in the UK mortgage market, such as the self-certified mortgages, although we have always assumed that we did not have a sub-prime issue here. Is he working with the FSA to look closely at the weaknesses in the UK mortgage market and to identify any other problems that might be developing, especially in the mutual sector?

We do not have the same problems as the US market, partly because our mortgage market was much more tightly regulated. The US sub-prime problem was caused largely by people who took out loans on properties that were not worth very much, who did not have very much in the way of income, and who were never going to be able to repay when interest rates went up.

The problem that we have in this country tends to centre on self-certification and buy-to-let property. It is those mortgages that the Dunfermline bought off GMAC and a subsidiary of Lehman Brothers, and that is part of the reason for its difficulties. It all points to the need to ensure that the mortgage market, and the wider financial services industry, is properly supervised and regulated. It is worth remembering that even as late as 2007 some people were calling for the complete deregulation of the selling of mortgages, which would be absolute madness.

Is it not extraordinary that the provision of another £1.6 billion of public money to rescue another failed institution no longer seems extraordinary? Can the Chancellor explain why the regulator allowed the Dunfermline building society to over-commit itself so recklessly in 2006 and 2007 in commercial property and sub-prime?

The hon. Gentleman is right, in that the action that Governments are taking all over the world simply would not have been contemplated three or four years ago. He asks a pertinent question about supervision, and I said earlier that I want to get a report on that, because there probably are lessons to be learned. The issue comes back to a point that has come up time and again with Bradford & Bingley, HBOS and RBS: what were the management doing? What questions were being asked? When the money was coming in, surely someone was asking how and on what basis it was coming in. We have to tackle the management weaknesses, which fundamentally led to the problems, and we have to learn the lessons in relation to supervision and regulation of such institutions.

On that very point, surely the directors of the Dunfermline owed a fiduciary duty to the members of the society. If the directors behaved recklessly, as described by the hon. Member for Sevenoaks (Mr. Fallon), surely there must be some come-back against them. My Friend said that the Dunfermline is the 12th largest building society out of 55 in this country: are any of the others similarly exposed or is this a one-off?

The FSA is responsible for the conduct of directors and the supervision of all building societies and other financial institutions in this country. Part of its job is to keep a close eye on developments in every institution.

The end result is that the taxpayer will have the bad bits of the society while the Nationwide gets the residential mortgage book, the deposit-taking business and the society’s reserves. It will also get £1.6 billion of net financing. The general public will be perplexed as to why £1.6 billion of net financing represents better value for money than £60 million of recapitalisation, so may I ask the Chancellor whether, if the Dunfermline had been recapitalised to the £60 million suggested by the FSA, it would have met the capital adequacy rules and have been eligible for or entitled to other liquidity funding?

The FSA believed that even though an injection of £60 million might have bought time, it would have been necessary to return to the problems faced by the Dunfermline within a short period. In other words, that would not have provided a long-term solution. The hon. Gentleman asks about the £1.6 billion. I had the benefit, if I can put it that way, of seeing him on Sky television earlier this afternoon, so I had some inkling of what he might say. Perhaps I can explain the position. We have transferred the deposits of the Dunfermline to the Nationwide, and the Nationwide therefore has a liability to pay out those deposits. If the hon. Gentleman thinks about it, most of a deposit of £10,000 with the Dunfermline or any other building society would be lent out in order to get a return, but the liability for the full amount remains. Therefore, the Government have to provide financing—that is the £1.6 billion; it is different from providing working capital. With respect, the hon. Gentleman is not comparing like with like.

Let me make it clear that I understand fully that it does not matter where Members represent: all of us will be sorry that a building society that has done well over many years has got itself into such a position, through judgments that clearly went wrong. We have had to step in to try to resolve that, to provide security for depositors and to provide a long-term future. What we have done is absolutely right and I am afraid that it was unavoidable.

Why have the loans to housing associations, which are a good credit risk, not been transferred over to the Nationwide along with all the other residential mortgages, some of which will be a lot riskier? How confident is the Chancellor that this is the last time that he will need to make a statement of this nature?

When we looked at what the Nationwide was proposing, we felt that on balance the better value for money would be to see whether there was another way of dealing with the housing loans. They are important. The Dunfermline provided a lot of money for social housing in Scotland and it is important that whatever we do we provide the best value for money.

More generally, I think that over the past two years I have made more statements than any other Chancellor of the Exchequer, by a long chalk. At the moment, I cannot tell the right hon. Gentleman that I expect that situation to change.

I think that the Chancellor will agree that the Nationwide building society is increasingly proving to be a life-saver. I say that because I have a constituency interest. My own Cheshire building society, as well as the Derbyshire building society, is now under the safety of the umbrella of the Nationwide, because the Cheshire indulged in issuing highly speculative commercial property loans, which it should not have done. Will the regulatory body take control, at last, and prevent building societies from indulging in such activities and involving themselves in matters about which they know too little?

There is some force in what the hon. Gentleman says. As Adair Turner, the chairman of the FSA, has said, lessons need to be learned not just from this case but from other cases too, and supervision and regulation need to be far more intrusive than they were in the past. We had a similar problem with Northern Rock when that bank became over-exposed and reliant on one source of funding. When that funding dried up, the bank had nowhere else to go. The hon. Gentleman is right that it is very important that we learn those lessons, but I must tell him that it was not so long ago that people were calling for not more regulation but less regulation, even in respect of the selling of mortgages. I think that that would have been the wrong way to go.

May I forecast that this will not be the last time that the Chancellor of the Exchequer comes to the House to make a statement of this nature? Can we be absolutely clear that this crisis is not a failure of capitalism or markets? It is a failure of governmental regulation. It is a failure to control profligate borrowing and profligate lending. Markets are punishing Governments, regulators and countries for failing to supervise the capitalist system properly.

I assure the hon. Gentleman that this is not the last occasion that I will come to the House. I proposed to come to the House tomorrow afternoon to take part in the economic debate, which, I am sure, we are absolutely looking forward to.

On the hon. Gentleman’s wider point, this is not the occasion to dwell on the future of capitalism, but the one thing that I would say is that he cannot leave out the conduct of the boards of management of some of those institutions, where there is no doubt that huge mistakes were made. Yes, there are lessons for the regulators, for Government and for everyone else, but we also need to ask ourselves, as should the people who are charged with running those financial institutions, whether they did the right thing. I am afraid that the answer in too many cases is no they did not.

Further to the Chancellor’s last comments, yesterday on BBC radio the chairman of Dunfermline building society was very scathing of both the Chancellor and the Secretary of State for Scotland, accusing them of misleading the country about the mortgages that were bought and suggesting that the Chancellor had said that they were sub-prime American mortgages, when, in fact, all the mortgages were British. Can the Chancellor confirm that it is true that they were British mortgages? Were those mortgages transferred to the Nationwide?

I have just said in my statement that the Dunfermline had bought those mortgages from two American companies—GMAC and a subsidiary of Lehman Brothers—and that is precisely what I have been saying since the problem first became apparent.