Banking (Special Provisions) Bill

We will have to see what he proposes and why, but one hurdle to be overcome is the fact that whatever we do must comply with European rules on state aid. In general terms, and for understandable reasons, those rules mean that state aid support cannot be carried on indefinitely. The EU is also dealing with the actions that have been taken by other member states—for example, Germany has also been helping its banks—and will want to ensure that the rules are applied consistently. Such matters will be dealt with in the business plan. As I said, we will not have to wait too long for it, as we have to submit it by the middle of March. I want to add one other thing, in anticipation of what Opposition Members may say about the board. The hon. Member for Runnymede and Weybridge made a remark about a civil servant who is a member of the board, but we have appointed Ron Sandler because of his formidable experience, much of it gained when he restructured Lloyd's of London. He in turn appointed Stephen Hester, who was chief officer of the Abbey National building society. Philip Remnant is chairman of the Shareholder Executive, which advises the Government on their remaining shareholdings, and so his appointment is not surprising. Mr. Scholar will be on the board for an initial transitional period. It is proposed that the Treasury will have the option of appointing two people, but that is not surprising when one considers Northern Rock's indebtedness to the public purse. It is important that the Treasury has that option, but the full board membership will be announced in the next couple of days or so. I believe that the board will be able to restructure and refocus the bank in the way that is necessary. As for the Bill, clause 1 defines the class of institutions that could be acquired. In practice, it means that they have to be incorporated here or regulated by the Financial Services Authority. However, the powers can be exercised only in what I regard as exceptional circumstances and a pretty high hurdle has to be passed. Those circumstances, which are set out in clause 2, include a serious threat to the financial system—so serious that the Treasury considers that the exercise of the powers is necessary—or conditions under which significant financial support has had to have been provided beyond the Bank of England's lender of last resort functions. The Treasury has had to have underwritten that support and notified it to Parliament under the existing conventions. Both of those conditions were met in the case of Northern Rock, but they are exceptional. There must be a serious threat to the stability of the financial system before the powers are exercised. That is a high test to be met, and the action must be proportionate. The Treasury must consider alternatives. The circumstances go way beyond simply a threat to depositors. In relation to public support, the scale of assistance necessary has to be such that it could not be met by the Bank of England in the normal course of its support operations. It would have had to be underwritten by the Government and then reported to the Public Accounts Committee and the Treasury Committee, which is what we did in relation to Northern Rock. I assure those Opposition Members or any Members of the House who are concerned that the Bill gives us the arbitrary power to act that it does not do so. Only in defined and what I regard as exceptional circumstances would it be possible to use the power in the Bill to acquire the shares or other assets of a financial institution. Clause 2 is important because it erects what I regard as a high hurdle that the Government must cross before they can proceed further.