Northern Rock and Banking Reform

It is a pleasure to open today's debate on Northern Rock and banking reform. The Treasury Committee was quickly off the mark with this investigation. On 20 September, the Governor of the Bank of England and his colleagues came to the Treasury Committee ostensibly to consider a report on inflation, but in particular to discuss the issues surrounding Northern Rock. In the intervening period, we produced two reports, ““The run on the Rock”” and ““Financial Stability and Transparency””. I thank my colleagues on the Committee for their commitment and hard work in producing those two reports in the past few months. The reports are unanimous, and to date they have been well received by Parliament and the outside world. I also want to put on the record my thanks and those of my colleagues for the hard work of the staff and for the leadership of the Clerk of the Committee, Colin Lee. A tremendous amount of work was involved, but the staff stuck to the task. One measure of their success was that the report was out in time for the Government's consultation exercise at the end of January. The Committee examined what went wrong with Northern Rock and recommended changes in banking law, regulation and practice, with the aim of ensuring no repetition of the Northern Rock saga. My speech has three parts. First, I will present the Treasury Committee analysis of why Northern Rock needed state support in September and how the tripartite authority responded to that. Secondly, I will briefly examine the available information on the extent of state support to Northern Rock. Thirdly, I will consider banking law and regulatory changes, which are reflected in the Treasury Committee report and in the Government's proposals. Turning to the first item, what went wrong? Undoubtedly, Northern Rock employed a reckless business strategy, and the executives and the non-executives did not live up to their responsibilities.