Northern Rock and Banking Reform

The hon. Gentleman has not changed the terms of the discussion one jot by that statement. The banks got it wrong and dropped every single one of us in it. It is a tale of woe, because some people will lose their jobs and have their homes repossessed as a result of what has gone wrong, and the banks should take responsibility for it. If the Chancellor has to raise taxes in his Budget on Wednesday, it will be the fault of the banks that messed up the British economy—[Hon. Members: ““Oh, come on.””] Of course it will. Even the people who write in the financial pages say that the credit crunch will lead to problems for the Chancellor in raising the taxes he needs to provide public services. That is why what happens to banking regulation is not just a matter for the banks or the political wing of the banking industry known as the Tory party. The issue affects everybody, and this time everybody must have their say about what goes on. The regulations must be in place in future to protect everybody, not just a charmed circle in the City. We cannot leave the debate about the future regulation of the banking industry to the failures who are running it now. Interestingly, they are exactly the sort of the people who talk about keeping the state out and not wanting the state to interfere. Apparently it is only the British state that they do not like, because some of them are going cap in hand to the Chinese communist state and its sovereign wealth funds, to the Singapore state or the Dubai state. No one in this country has ever been consulted on whether it is a good idea that major considerations about this country's future banking policy should be affected by the interests of foreign Governments. Generally speaking, even the Tory party has been against that sort of thing, but it is what is happening. We should not rush into a new regulatory system, because we need carefully to examine how we regulate the banking system. As my right hon. Friend the Member for West Dunbartonshire (John McFall) pointed out, we must have a system in which banks are allowed to fail. The basis of the competitive capitalist system is that people who get it wrong lose out and go down the pan. Our system is that when someone who produces useful IT equipment, builds ships or runs a road transport system gets it wrong they go broke and lose their job, but when someone in banking does the same they do not go broke and do not lose their job, and when someone at the top of the industry loses their job, they get a huge pay off thank you very much. We need a system that allows banks to fail, apart from in respect of depositors. We do not want a system containing 1 million loopholes—that is what this House, for at least the past 30 years, has managed to create in relation to banking regulations. In a mostly excellent speech in the Northern Rock debate, the right hon. Member for Hitchin and Harpenden (Mr. Lilley) said:"““No Spanish banks have any of the problems””—[Official Report, 19 February 2008; Vol. 472, c. 206.]" That is because Spanish banking law—not an old Spanish custom that appears to prevail in the City of London, but the new Spanish banking law—will not allow banks not to consolidate off-balance-sheet debt. Spain's new law requires that all debts and obligations be consolidated, recorded and transparent. Lo and behold, the Spanish did not get substantially involved in mad mortgages in the United States. I gather from the Financial Times that the Spanish law has another merit. It has a counter-cyclical arrangement designed to ensure that banks' capital and lending capacity is not reduced during an economic downturn, and that excessive credit is not made available during an upswing. We might discuss what financial stability is, but by and large it is a sound idea for the economy as a whole. It seems that the Spanish system has been fairly sound, which might be why the socialist Government have been re-elected with a bigger share of the vote and more members of Parliament. There might be better methods than those used in Spain, but certain aspects of the Spanish system might be of benefit if they were applied here. We certainly need to do better than we have in the past, and we need more effective regulation. What has gone wrong affects every family in the land. We hear a lot about choice, whether it is the parental choice of schools or patients' choice of hospitals, but nobody has had any choice in this case. The banks have lumbered us all with this problem. None of us volunteered for it: the banks created it, and they need to be constrained and restrained if the interests of people in this country are to be protected. We have a choice in the next few months. We can either rein in the banks so that they are never again allowed to drop us in it, or we can allow them to bring about the financial ruin of all sorts of people, companies and neighbourhoods. That is our choice—we either do it properly and get it right, or we let things stagger on. If we listen to the representatives of the banking industry, staggering on and feathering their own nest will still be their theme.