My Lords, I confess that I find that an extraordinarily disappointing reply. I have to say that I think that we deserve better. Is it not true that the Government have, perhaps unwittingly, created the landscape in which a financial crisis could arise and has done? Is it not also true that while in the years 1997 to 2004, it might have been sensible to create a Financial Services Authority that first took over banking supervision and then added the regulation of general insurance and mortgage companies, that is not sensible today? Times are very different. Surely it would be right at the moment for the Bank of England to have clear over-riding responsibility for the health of the system while the Financial Services Authority acts as a junior partner looking after the liabilities and the balance sheet of financial companies. That must be the way to go at the moment. Please would the Minister take steps in that direction towards the Chancellor?
My Lords, I am sorry the noble Lord was disappointed by my initial reply, but he will recognise that the Chancellor of the Exchequer was explicit about the way in which the tripartite system works. It has been tried and tested on a number of occasions. Of course, this is a very serious test indeed, and there are lessons to be learnt from the developments with regard to Northern Rock, but the noble Lord will recognise that the Chancellor has made it clear that each of the institutions involved will evaluate its work over this period. He expects the Financial Services Agency to produce its report on its work by the end of the year. Of course, evaluation is going on on the operation of the system, but it should be recognised that it has stood this country and its economy in good stead. It should also be recognised that it is much admired elsewhere in the world and others are eager to follow a similar strategy to tackle what we all recognise is a very difficult situation.
My Lords, how can the Minister stand there and say that this system has been tried and tested? At its first trial, it failed dismally. How can the Minister stand there and say that in the six weeks since 11 October he has nothing to add on how the tripartite arrangements need to be changed for the future? It is clear that the Government have to take some action. When are they going to share that with the House?
My Lords, the Government could be criticised if the component parts of the tripartite system were not devoting all their energies to solving the problem of the distressed bank. Whether action could have been taken at a different time in a different way by any of the principals and whether procedures need to be improved needs to be evaluated over time and needs full consideration, but the priority is to solve the problem.
My Lords, Britain's regulatory system has long been admired, but under the tripartite arrangement between the Bank of England, the FSA and the Treasury, when times have been good, it has been a happy merry-go-round but, now that times are bad, it has become a miserable blame-go-round. Will the Minister please clarify who is responsible for what?
My Lords, as I said, the Chancellor of the Exchequer made absolutely explicit in his Statement who is responsible for what. Of course I can reply directly to the noble Lord in the Chancellor's terms. Unfortunately, as is to be expected, the Chancellor's terms occupy two paragraphs or more, which is well beyond the scope that I have for answering an individual question today. I emphasise to the noble Lord that the Government have been entirely explicit about the roles of the three members of the tripartite system. They have, of course, been questioned: there have been not only general questions here and in the other place, but the Treasury Select Committee has examined each of the principals and listened to their responses. We are quite clear on how they work.
My Lords, does my noble friend agree that the recent problems of Northern Rock have resulted far more from a failure of management than from a failure of regulation; that regulations that exist are robust and sensible; and that no one would want them to be any stronger than they already are? It has been a failure of management that has caused the recent problems.
My Lords, I am grateful to my noble friend. There is a danger from the interesting questions that emerge, primarily from the Opposition, that anyone would think that the Government had conjured up this problem out of thin air, when the bank is failing—admittedly, as we all recognise, in difficult international financial circumstances, which began in the United States of America—as my noble friend so accurately identified, through deficiencies of management.
My Lords, does the Minister accept that the principal failure in this case was not one of the tripartite system but a failure, first, of the FSA, by being far too dilatory in taking action to review what Northern Rock was up to and, secondly, of the Bank of England, for not moving more quickly in August; thirdly, that has now been compounded by the Chancellor not moving more quickly to bring Northern Rock into public ownership and bring some certainty to the situation?
My Lords, the virtue of public ownership, as the noble Lord continually emphasises to the House, is that it brings an element of certainty to the position. Of course, it also produces very great dangers for the public purse and the money that has been invested in Northern Rock and rules out any other solution when, at present, alternatives continue to exist.
On the other points that the noble Lord made about the failures of the Financial Services Authority and the Bank of England, all I can say is that he has only the same access to information as everyone else. That is his interpretation of the position, which scarcely squares with the facts of the way in which the Bank, the Financial Services Authority and the Chancellor have responded to questions from the Select Committee in another place.
My Lords, despite what my noble friend and others have said, does not my noble friend accept that the FSA did not exactly do very well in its monitoring of the bank? Was it not rather surprising that, in that monitoring, it did not note the aggressive nature of the bank's behaviour and did nothing whatever about it?