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Financial Markets

Volume 704: debated on Monday 6 October 2008

My Lords, with permission, I shall repeat a Statement made in the other place. The Statement is as follows:

“With your permission, Mr Speaker, I would like to make a Statement regarding developments in financial markets. The events in America over the past few weeks, and in Europe over the past few days, have again demonstrated the global nature and sheer scale of the problems affecting the global financial system.

“What started in America last year has now spread to every part of the world and the disruption in global financial markets has intensified, especially over the past few weeks. People are rightly concerned about what is happening and I have made it clear that we will do whatever is necessary to maintain stability.

“Along with Governments across the world, I have a responsibility to support a stable and well-functioning banking system. Financial transactions are at the heart of everything we do. They allow people to buy goods, pay for services, buy homes, save for pensions, and invest. So it is essential that we take action both to support the banking system as a whole as well as being ready to intervene in particular cases when it is necessary to do so. It is not a case of doing either one or the other. Both general support and individual intervention are necessary. And we need to work with other countries to tackle the causes of these problems as well as dealing with their consequences.

“Let me briefly remind the House what we have done to stabilise the banking system as a whole. Since April, the Bank of England, with support from the Government, has introduced the special liquidity scheme providing funding to the banks. The Government have made available in excess of £100 billion of long-term funding to be lent through the scheme, and the Bank of England has extended it until January. I am willing to make further resources available as necessary. The governor has made it clear that:

‘In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity’.

“The Bank of England has also continued to inject substantial funds into the markets through its normal operations, and it will continue to do so. Tomorrow it will put in another £40 billion, taking a wider range of security, and these operations will continue into November. We also need to deal with specific problems as they arise to maintain stability. In February, we took special powers to bring Northern Rock into public ownership, now seen by most people as the right thing to do. I can tell the House that Northern Rock has now paid back more than half of the taxpayers’ money that was lent to it, and continues to repay its loan ahead of schedule. In August, I announced that the Government would swap up to £3 billion of outstanding debt for equity, if required, to strengthen Northern Rock’s capital position.

“In September, we amended the competition regime to allow the interests of financial stability to be considered in the merger between Lloyds TSB and HBOS. We took this exceptional measure because financial stability had to come before normal competition concerns. And 10 days ago, we had to deal with the problems at Bradford and Bingley. We transferred the savings business, the branches and the related jobs to Abbey Santander, thus protecting savers, and took the rest of the company into public ownership. We acted decisively to protect savers and also to protect the interest of taxpayers, ensuring that the financial sector bears its share of the costs.

“I have made it clear on many occasions that our priority is to maintain stability, protect the interests of depositors, and safeguard the interests of the taxpayer. I want to set out what we have done so far here at home and to deal with the developments in Europe over the weekend. The Financial Services Authority has announced a further increase from tomorrow to the compensation limit for retail bank deposits to £50,000 per depositor, which means £100,000 for joint accounts. This measure will ensure that 98 per cent of accounts are fully covered, and the FSA is consulting on whether to increase this limit further to ensure that arrangements here continue to be comparable with international best practice.

“I have always been clear that each country needs to do whatever is needed to deal with its own particular circumstances. However, I also believe that wherever it is possible to do so, countries should work and act together to maintain stability. This afternoon the European Union member states have reaffirmed the need to take whatever measures are necessary to maintain the stability of the financial system, whether through liquidity support, action to deal with individual banks or enhanced depositor protection schemes. In light of what has happened over the weekend, it is especially important that EU member states work far more closely together, so tomorrow I will meet European finance Ministers in Luxembourg to further discuss how we bring stability to the system and protect depositors. This further demonstrates that every country in the world, Europe included, is being affected by these problems.

“In the United States, Congress has now approved measures to support the banking system, which we welcome. Our approach has been different, but what has happened in America emphasises yet again the need for countries to take whatever action they believe is necessary and also to work closely together, not just to resolve these problems but also to try to prevent them happening again.

“Later this week I will attend the G7 and IMF meetings in Washington. Our aim is to reduce uncertainty and improve confidence in financial markets by increasing the openness of financial institutions' exposures. We also want to change to improve the effectiveness of credit rating agencies. These measures are now being implemented but we must move far more quickly.

“Here at home, there are a number of specific steps that are necessary. First, the Bank of England will continue to do whatever it takes to make cash available for banks to lend. Secondly, the banking Bill will be introduced tomorrow, building on the special powers we took in February to allow us to intervene quickly and decisively. It will also give the Bank of England a statutory role to maintain financial stability to complement the role of the FSA. Thirdly, just as at the international level lessons need to be learnt, we need to ensure our regulatory system here is up to the mark. It is not about light-touch against heavy-handed regulation; it is about making sure that we have the necessary rules in place and that these rules are enforced effectively. I have asked Adair Turner, the chairman of the FSA, to make recommendations for reforms.

“And as recent events in financial markets have shown us, regulation should be about liquidity as well as capital. That is why the FSA is considering changes to liquidity requirements. It is also looking at remuneration structures in the institutions it regulates.

“Fourthly, we must do everything we can to ensure that not only do banks have the confidence to lend to each other but also that lending is maintained to the mortgage market, businesses and individuals. I shall publish shortly Sir James Crosby’s recommendations on options for improving the functioning of mortgage finance markets.

“These are exceptional times. I am in no doubt as to the size of the task facing us and Governments around the world in bringing order to the financial system. The process of change will necessarily take some time to work through, and because we are dealing with international institutions and international markets it will require action not only at a national level but also concerted international action.

“It is right that we look at every aspect—liquidity, capital and regulation—with other countries and of course with the financial sector itself. But it would also be irresponsible to speculate on the specifics of future responses. Indeed, providing a running commentary could add to uncertainty in the already febrile market conditions. But all practical options must remain open to us and I have made it very clear that the Government stand ready—with the resources and the commitment—to do whatever is necessary. And I will keep the House informed.

“Mr Speaker, our priority, at home and abroad, is to bring stability to the financial system, ensure depositors and savers are protected and defend the interest of the taxpayer. I commend the Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I thank the Minister for repeating the Statement made by the Chancellor in another place.

When we departed for the Recess in late July, none of us could have foreseen the turmoil in the financial markets that has occurred. I do not think that we were alone in hoping that financial life would gradually get better and that confidence would creep back into financial markets. We would not have predicted the virtual elimination of the investment banking sector in the US, the nationalisation of the major US insurer and mortgage lenders and a US$700 billion rescue plan. Having lived through the ignominy of Northern Rock, we would not have foreseen the suspension of ordinary competition principles as a dowry for the forced marriage of one major UK bank or the nationalisation of another. There have been financial shocks to the system almost everywhere. Indeed, so momentous have been the events of the past couple of months that the biggest surprise is that the Government did not see fit to recall Parliament. Will the Minister explain why that did not occur?

We believe that there needs to be action to deal with three areas: liquidity, asset quality and bank capitalisation. I listened hard to the Chancellor’s Statement. I heard a bit about liquidity but not much else. On liquidity, we support the Bank of England’s extension of the Special Liquidity Scheme. We hope that it will be sufficient but, if not, we will continue to support the Bank’s taking the action that it deems appropriate. We support the FSA’s decision to increase the bank deposit protection to £50,000; indeed, we have been arguing for that for some time.

We are now in a wholly different ballpark, with the consequences, intended or not, of the unilateral action taken by other countries to protect their own liquidity. The Irish, the Danes and the Greeks have given complete guarantees and the Swedes have massively increased their guarantees. We do not yet know what Chancellor Merkel has actually agreed to do in Germany. Latest reports indicate that there will be no new legislative backing for the apparently open-ended guarantees that were first reported. Does the Minister have any definitive information on what is happening in Germany? Anecdotally, money started to shift to Ireland last week. The position in Germany may cause even bigger flows. Do the Government have a response to such developments?

The last few days have shown what the European project is worth when national issues come to the fore. Just when we thought that we might see some benefit from the EU in co-ordinated action to respond to the turmoil in financial markets, we got the most telling unilateral demonstrations of how the EU is not a coherent whole. Do the Government expect tangible benefit to come from EU action? If so, how will that be achieved against the overriding interests of nation states, which have been so clearly expressed in recent days?

Secondly, on asset quality, the Chancellor said that he wanted to improve the effectiveness of the credit rating agencies. The Prime Minister threatened to sort them out some six months ago and I asked the Minister then what that meant. We have no more substance today, so I repeat: what does this mean in practice?

The Government’s Statement is silent on a matter that is much discussed in the US and in Europe: the impact of mark-to-market accounting on valuing banks’ assets. I know that the Chancellor has expressed some scepticism about that and, as an accountant, I have some sympathy from a technical perspective. But in the real world, where markets are not working efficiently, there are questions about the relevance of financial measurements, based on imperfect markets, that then feed through to the calculation of regulatory capital and tighten the squeeze on banks. The International Accounting Standards Board, which is based in London, is meeting this week to discuss the issue. What are the Government saying to the IASB, or are they simply ignoring the issue?

Thirdly, on bank capitalisation, the Minister will be aware of the intense press speculation about the Government injecting capital into banks and taking minority stakes in return. The Chancellor’s Statement was silent on that. Can the Minister give us any more information about the circumstances in which the Government might consider that course of action, how much might be involved and on what terms?

Our preferred position is for shareholders to shoulder the burden of mending weak balance sheets, whether through dividend policy or share issues. We would not rule out government participation as a last resort because we recognise that the health of the UK economy depends on a stable banking system, but if the Government decide to go down that route we shall want to see taxpayers protected, as well as effective measures to constrain any excesses in the system.

The Prime Minister has described the preceding decade as the age of irresponsibility. We completely agree. The Government, in particular the economic stewardship under the Prime Minister, have been irresponsible bordering on reckless. The Prime Minister built an economy on excessive debt, both personal and national. He created the financial supervision architecture that manifestly failed and presided over the massive leveraging of the banking system that is now unwinding.

The measures needed to deal with the age of irresponsibility go beyond the technical banking issues that we are dealing with today. The people of our country will have the last word at the next election but, in the short term, my party stands ready to provide constructive support to the Government in order to get the financial system back to some form of health. That includes working constructively, although not necessarily uncritically, on the banking reform Bill. We care about the businesses, large and especially small, that need access to capital, which has virtually dried up. Without that, our economy will surely do even worse than it is currently doing. Families, too, need mortgage markets to resume ordinary business, which is not the same thing as the business that they were doing before the problems arose. These factors drive our stance.

We welcome the morsels of policy in today’s Statement, but these are no substitute for a full debate in your Lordships’ House on the financial crisis. Will the Minister commit to the Government finding time for a proper debate on these issues?

My Lords, like the noble Baroness, Lady Noakes, I thank the Minister for repeating the Statement. It is very nice to see him still in his place; we are sorry that he may not be there for much longer, although I suspect that our sorrow is not matched by his.

The Government have repeatedly said that they will do whatever they have to do to deal with this crisis. Can the Minister clarify one area in which they have already taken action? I refer to depositor protection, where the limit has been effectively doubled. But there remain a number of secondary issues that are very important to individuals where further clarity is still needed, such as accounts in merged banks, small private businesses and large sums temporarily on deposit during a house sale. The FSA has been unclear about these matters. If the FSA does not feel that these matters are its direct responsibility, can the Government put pressure on it to provide clarity on these secondary issues that, for the individuals involved, are very important?

In his Statement, the Chancellor said that the FSA is consulting on whether to increase the £50,000 limit to ensure that arrangements in the UK continue to be comparable with international best practice. Is not this a complete euphemism? It is not a question of international best practice; the problem is that we now have a free-for-all internationally, started by the Irish, now taken up by other small countries in Europe, with complete ambiguity regarding the situation in Germany. It may be a bit much to expect the Minister to explain Angela Merkel to us to a greater extent than she has so far been able to do to the German population. Nevertheless, we should accept that it is not a question of international best practice being universally, or nearly universally, adopted; instead, we are searching for such international best practice.

Here I completely take issue with the noble Baroness, who uses this as another occasion on which to say that Europe is inevitably a failure and that, by implication, the UK should be setting a standard that other grateful nations might follow. The truth is that, if we are to deal with a major crisis such as this, with international flows of capital, there will need to be much greater international co-operation. The place to start is Europe. I therefore urge the Minister and his colleague in another place, when they meet tomorrow, to have a sense of urgency about the importance of European co-ordination and to go beyond the photo opportunity of Saturday and make a commitment to long-term working together to put new rules in place at a European level.

The noble Baroness went on to talk about bank capitalisation. We agree with her reluctant acquiescence to the concept of recapitalising the banks based on government support and part-nationalisation. There are other ways of doing it, which she described, but the scale of the emergency and the need for speed suggest that this will be the most effective way of getting the banks back into some kind of order.

Before I move on to my last major point, I must again take issue with the noble Baroness, who gave us a lecture on the evils of credit and bank excesses. We on these Benches have talked about the likely problems of excess borrowing for a very long time. We have done so as a lonely voice for much of that time, so it is interesting and strange to hear the noble Baroness take that line of argument today.

We have necessarily concentrated today on the availability of credit rather than its cost, but it is clear that we now face not just a financial crisis but a crisis that will hit the whole of the real economy. It is now a question not of whether we are in recession but of how deep it will be and how long it will last.

In getting out of a recession or reducing its severity, interest rates will play a major part. Although we on these Benches have been strong supporters of the independence of the Bank of England, my colleague in another place, Vince Cable, has suggested that, given the emergency in which we now find ourselves, the Chancellor should make it clear to the Bank that its remit, possibly under the “subject to that” clause in the Bank Act, should enable it to take decisive action to cut interest rates at this point to reduce the chance in this country of a major recession. Deflation, not inflation, is the risk; those in the MPC and elsewhere who argue otherwise are surely living on a different planet.

As I said at the start of my comments, the Government have regularly used the mantra that they will do whatever they have to do. When the Chancellor first said a few weeks ago that we were facing the worst economic crisis for 60 years, I think that many thought that it was a bit of an exaggeration. It is now clear that it was not. The Government are committed to doing everything that needs to be done and it is clear that bold action is required. The Government must now take it.

My Lords, I am grateful to both noble Lords for their contributions to this short debate on the Statement. I think that the House will appreciate the offers of support for those strategies which prove necessary for the Government to pursue. I hope and anticipate that that will extend to the banking Bill, which is critical to the future of banking in this country and which is subject to time constraints. I am grateful for indications of support in those terms despite the fact that the tone of the contribution of the noble Baroness, Lady Noakes, was at times excessively critical. It was critical in hindsight: I cannot recall any of the prescriptions advanced from the opposition Benches today having been advanced during the past few months or years. If ever there were a case of being wise after the event, it is in some of her comments today.

One of the noble Baroness’s big charges was on the consequences of unilateral action. The Government, of course, took early unilateral action on Northern Rock last year. I was able to report, as the Chancellor has in today’s Statement, the progress made in that area. But it is clear that we have moved beyond the immediate issues that confront the British economy to a worldwide tsunami. The crisis that has hit the American banking and mortgage industry dwarfs that of all other parts of the world and is bound to have the most profound implications for our banking sector and financial sector and create very real worries about the real economy. That is why the Chancellor has included in his Statement a clear recognition that there has to be international action. The international financial system requires a number of quite significant reforms, and the Chancellor in his Statement—which I had the privilege of repeating a little earlier—itemises the areas in which reform is necessary.

In addition to that, the charge is being made that the European position is fragmented. There is clearly a danger in that; if it were every country for itself in this situation, there could be the most deleterious effects across the economies of all. That is why it is necessary that discussions take place in Europe on the illustration offered by the Irish action at the weekend, possibly followed in one or two other instances. I have been asked whether I can give further details on the major economy that is Germany. I cannot—but then, as I understand the situation at present, neither can the German Government. Why can they not give an answer at this stage? Let us give them credit for recognising that they have a role to play in relation to the significance of the economy and European economies as a whole. That is the basis on which we need to discuss with the Germans and all other partners in Europe how we can make progress to ensure that we do not get unilateral action, which could so easily be detrimental.

My right honourable friend in the other place clearly indicated why he puts such an emphasis on international action. However, that does not alter the fact that, as each individual issue arose, starting with Northern Rock last year and going on in more recent weeks to the Bradford and Bingley and HBOS issues, the Government dealt with those issues expeditiously and effectively. We recognise that there are exceptional aspects to these arrangements, but they have helped to stabilise the position of these very significant institutions, inhibit the possibility of a chain reaction that would be so damaging to us all and, at the same time, give some security to these institutions while protecting depositors and the interests of taxpayers.

We have taken action in the particular. We recognise the necessary action in the general, both in Europe and in relationship to the wider economy in which the United States is bound to feature so largely. The noble Baroness says that it is a pity that Parliament was not recalled. I hope that Parliament would have something a bit more constructive to say than what she managed today, if the Government are going to benefit from the support that the Opposition are offering.

My Lords, perhaps I may follow the Official Opposition’s new supportive line, as followed by the noble Baroness, which I did not note as being as supportive as my noble friend found. He told us that the Chancellor said in his Statement that the Bank of England is willing to take on a wider range of assets. I do not know whether that is to include so called—toxic assets, which I hope he will agree are not always easy to value, given the multiplier effect of many of the doubtful mortgage debts that were apparently being bought and sold until recently. I do not know whether they still are. In fairness to the accountancy profession, it is impossible to value them as nobody is willing to buy them these days. Will he accept that that is the case? Therefore, the case for guaranteeing all deposits is not really made; indeed, it might have the reverse effect on the stability the Government are rightly seeking by reducing the credibility of the banks themselves, which is pretty poor anyway.

Just before we rose for the Summer Recess I asked my noble friend a straight question—was it government policy to guarantee that all banks would never go bankrupt? His answer was no at that time. Is he now saying, as the assumption must be, that the answer is really yes? Will he accept that if the answer is yes now, it would help the stability the Chancellor is rightly seeking?

My Lords, the issue, as my noble friend knows only too well, is how we increase and restore confidence in a system that has been badly battered in recent months. He will appreciate that, within this framework, of course the Government are not going to underwrite every asset of every bank. Nor have we acted in such a manner. We have been careful about the guarantees we are giving. He will recognise that we are not guaranteeing all deposits; we are increasing the guarantee to £50,000 per deposit account, which covers 98 per cent of depositors, so we are giving that assurance. No Government could dream of being in a position to underwrite the totality of every banking failure but, where effective action can be taken to safeguard the interests of depositors and protect the interests of taxpayers, it ought to be taken because it is in the interests of the whole of our community that the financial system is restored to health. I merely sought to emphasise in my reply to the opening statements from the Opposition that the Government had acted with precision and effectively with regard to two banks that were in trouble. Therefore, I think that my noble friend will appreciate the effective action that has been taken thus far.

My Lords, the noble Lord says that the new compensation scheme will cover 98 per cent of depositors. What percentage of deposits will it cover, since it is important to protect the interests of large savers as well as small savers if we are going to deal with this problem?

It is confusing to deal with the Northern Rock and the Bradford and Bingley situations, as they were special cases. The first was in trouble because it gave excessive valuations and the second because it relied too much on self-certification of income. That is not the same as dealing with the banking system generally. Is it not clear from the taxpayers’ point of view that, if we are going to help to recapitalise the banking system, we are far better to do it by taking an interest in a particular bank or banks, preferably by way of preference shares, rather than to buy dud assets which may be worth nothing or varying degrees of nothing? It is not a good idea to follow the American model.

Having said that, the Government’s borrowing requirements have escalated beyond belief in the light of the various measures they have taken. Is the Government’s policy to fund that borrowing from the non-bank sector? There would otherwise be an enormous escalation in the money supply, with a delayed effect on inflation. Whatever balance one hits now between inflation and recession, one must take a longer, as well as a short-term, view on the problems that we face.

My Lords, first, I agree with the noble Lord on the importance of taking a longer view on such significant issues. The Government will do so. We will shortly be reporting on public finances in the Pre-Budget Report. The noble Lord will recognise how significant these issues are, and we will make a full report to Parliament on the situation. He will have to show a little patience there.

As for large savers, I fully understand what the noble Lord says. It would no doubt be ideal if every bank liability were underwritten, but there are obvious reasons for the Government being unable to do that. It must be a priority for the Government to ensure that the millions of relatively small savers have banking security. The larger savers are in a position to make judgments on the assets; the smaller savers are by definition bound to look to the Government to give reassurance, lest we have a run on a bank, which is a judgment not on the bank’s assets or a correct evaluation of where it stands, but on the rumour and false information that can so easily trigger such a run. The guarantee to the small savers helps to stabilise these things.

I accept what the noble Lord says about co-ordinated international action. Although we want it, we are concerned that our ideas form an important part of the debate upon it. I agree with him that following the American model would not be wise for this country, which is why we have followed a different path. We recognise the rights of other Governments to have different strategies, but if we are to come out of this crisis successfully together there must be co-ordination on the basis of international agreement, in which my right honourable friends the Prime Minister and the Chancellor will undoubtedly play an important role.

My Lords, does the Minister agree that the safest place for British savers in a troubled world is a big British high-street bank or building society? I have not had a moment’s worry about my savings in Bank of Scotland or HSBC, but if my cash were in an Icelandic bank I would be very worried indeed: the currency has collapsed, interest rates are sky high and bank liabilities are hundreds of thousands of pounds for each Icelandic citizen. Would the Minister be happy if his savings were in an Icelandic bank? What is the position of the 100,000 or so British savers with £5 billion in the icesave product, who would have to claim the first £16,000 from the Icelandic compensation fund? What are the assets of that fund? Can it pay out? What happens if it cannot or will not pay out? Countries can go bust when they run out of foreign exchange and this country shows every sign of doing that.

My Lords, I came fully briefed on the British responsibility but not on the Icelandic one. I do not have too many notes on which to fall back but I shall trade on the noble Lord’s comments. British high-street banks and building societies are safe and secure. That is why the Government have no compunction about underwriting savings in those banks up to the point that I mentioned.

As regards the international position, the noble Lord will recognise that in these tumultuous times countries are likely to face particularly difficult circumstances. It is not for me at the Dispatch Box to judge whether it is safe to invest in Icelandic banks. However, the safeguarding of their position will depend on co-ordinated action in which this country must play a leading role.

My Lords, does my noble friend agree that there is a danger of people shedding crocodile tears about the lack of co-ordinated action in Europe? If it proves to be the case that the competences of the European Union are ambiguous as regards doing what we know is necessary to avoid beggar-my-neighbour policies, will we obtain the all-party support in this Parliament which will ensure that we can strengthen the necessary European competences?

My Lords, I agree with the sentiment expressed by my noble friend in his latter remarks. As regards co-ordinated action, we were all somewhat shaken by the position adopted by the Germans over the weekend. However, I think it will be recognised that the European Community has sought to take steps to address the matter. President Sarkozy sought to bring together Finance Ministers and the Prime Ministers and Chancellors of the leading countries to initiate effective action. We are all aware that it is difficult for Governments to act in time when things happen so suddenly. However, the delays are greater in the case of the European Community as it needs to achieve much greater consensus and has a much smaller capacity for taking executive action. Nevertheless, we should not underestimate the overall intention to ensure that co-ordinated action is initiated to address what everybody recognises is not just a Europe-wide problem but an international one.

My Lords, I add my support and welcome to that expressed for the Statement, but is the action of the Government of the Republic of Ireland in giving a full and unreserved guarantee in relation to depositors’ funds legal as regards the competition laws of the European Union? If not, what is the worst scenario that could happen in that context? I respectfully suggest that that should be considered.

My Lords, I do not have detailed knowledge about the legal position but I imagine that in the present circumstances the Irish Government are postponing consideration of questions of legality until a later date. In the mean time, they consider that they are taking action to address the immediate crisis. Legal questions may not have figured too largely in their consideration. However, such unilateral action could have, and may be having, repercussions on other economies. That is why we need a co-ordinated response rather than the individual stance which the Irish have adopted.

My Lords, does the Minister agree that today we might have some thoughts for the unfortunate Mr Leeson, whose misdemeanours now look quite trivial against those of his elders and betters more recently? Secondly, will the noble Lord give some consideration to an inquiry into whether there has been any element of false accounting in any of our financial institutions, in view of the way in which they have swung from what appear to be vastly inflated profits into enormous losses in recent times? Finally, does he further agree that many of the problems that we are now witnessing on both sides of the Atlantic have their origins, on both sides, in the growth of government debt and of money supply at about four times the rate of growth in the economy?

My Lords, I imagine that the noble Lord’s recollection of Mr Leeson is somewhat greener than mine, as he had greater responsibility at that time than I had for the consequences. Perhaps not, but certainly the noble Lord was very active in public life when the Leeson issue broke.

The Leeson issue was dealt with in a fairly condign way. It ought to be the case—the whole country is clamouring for it, and no noble Lord on either side of the House does not think this—that if people have been involved in anything close to fraudulent or reckless activity, certain prices ought to be paid for that. That is why I emphasise that the Financial Services Authority will take into account the question of levels of remuneration when it looks at the status of any institution that it needs to examine.

On the more general issue, the noble Lord, an outstanding exemplar of deregulation, ought to show a little reticence at this stage, when so much of the claim is that certain people were acting in an unregulated fashion.

My Lords, on 1 April 1967, I first went to work in the town of Halifax and, until coming to this place, that was where I spent most of my working days. I was aware at that stage of the mighty umbrella that was the Halifax Building Society, and even today there are 6,500 jobs in that town, including that of my esteemed son-in-law.

Yorkshire is a financial centre; we have Halifax, Leeds and Bingley. We have been proud of having the biggest building society in the world, but where are we now? What is happening to the mantra of a mortgage business—lending long, borrowing short in diversity—with this new mantra of lending long and borrowing short in bulk?

Clearly, there is government influence around at present, and there are 50 points in the Statement. Where is regional policy in this and who is batting for Yorkshire? We have a Prime Minister, a Chancellor and a First Minister of Scotland. We hear about the Bank of Scotland every day and about preserving jobs in Scotland. I have no desire to talk down Scotland, but I want to talk up Yorkshire. Edinburgh is the second city as far as financial services are concerned, but what assurances can the Minister give that someone is speaking up for and looking after those jobs and the financial services sector in Yorkshire? The Minister has said that the Government have acted expeditiously and effectively on HBOS and Bradford and Bingley, but where is the work in making certain that they are looking after jobs in Yorkshire?

My Lords, the whole House appreciates the strength of the noble Lord’s advocacy of the interests of Yorkshire, which is suffering significantly because of the significant growth of the financial sector in Yorkshire, particularly in the city of Leeds. This is a calamity for the area, and no one is underestimating that, but the noble Lord will appreciate the obvious fact that the issues are so profound that no corner of the United Kingdom will not be affected adversely unless we are able to minimise the impact of this very difficult situation upon the real economy. Yorkshire, of course, has to be looked upon and safeguarded in those terms. The noble Lord will be all too well aware that the Government have to address themselves to issues that affect the whole of the nation, from which, when we prove them to be effective, Yorkshire will also benefit.