Northern Rock and Banking Reform

It may well do so, and as we now own Northern Rock, it may be protecting the taxpayer by taking that approach. None the less, an awful lot of people in distressed situations are being treated far more harshly by the bank than other borrowers. We simply have to take note of that. The hon. Gentleman is quite right: we do not know the answers, and I hope that the Select Committee will go further into the subject. There is another set of questions to which we still do not really know the answer. They are about the Granite vehicle. As many hon. Members will remember, the issue surfaced in the last stages of debate on the Banking (Special Provisions) Bill. The Select Committee refers to the issue in its report, and it obviously heard evidence on the subject, but there are big outstanding questions about what is really going on and how Granite will operate in future. My first major group of questions is: what are the circumstances in which the Granite vehicle will have to be topped up in future with new mortgages from Northern Rock bank? How will that happen? What mortgages will go into it, and what is the scale envisaged? How will that affect the nationalised company that we have acquired? The other question that I have is: in the documentation relating to Granite, what is meant by the ““pass-through event””? I have no idea what the phrase means, but it refers to circumstances in which Granite is effectively closed down and has to pack up. Presumably, in those circumstances, the bondholders lose their money and a complicated set of legal and financial processes are engaged. I hope that in its future work, the Select Committee will help us to understand the issue, because the Government have not been very enlightening and the Select Committee does not say much on the subject. Those are two sets of questions that we ought to pursue further. Then there are the policy issues that arise from the Select Committee's work. The Committee is rightly damning about the FSA, but I am left asking, ““What does it mean for the future of the FSA and the way in which it carries out regulation?”” If it has been excessively indulgent in supervising the bank, what will it do in future if it sees banks behaving in a rather high-risk way? Is it supposed to intervene to stop them immediately? Is it supposed to issue a formal instruction, such as, ““You must stop lending””? Is it supposed to have a quiet word in the ear? In future, will much more explicit, complex, prescriptive rules be applied to banks through the regulator, as the hon. Member for Sevenoaks (Mr. Fallon) suggested, and will we have a much more regulated system? If the system were much more regulated, what would it mean for the concept of banking as we have traditionally known it? Banking would then become much more like supplying electricity and water; very tightly controlled conditions would apply. That raises the question of what the banking system is for—something that the right hon. Member for Holborn and St. Pancras (Frank Dobson) mentioned. It is fine to criticise the FSA and its failures of regulation, but I am still not clear what the implications of doing so are for the way in which the FSA operates in future. The second set of recommendations by the Select Committee, and probably the most important, relate to deposit protection. There is general agreement that there must be proper deposit protection, that the American model in general is the best available, that it must be, in practice, 100 per cent. protection up to a limited sum—£50,000 seems about right—and that that is the direction in which we will proceed. I have one worry about that, which was not dealt with by the Select Committee; that is, what happens to competing institutions, such as insurers, who do not have the same quality of compensation? They are competing with banks in many respects. There is the outstanding problem of Equitable Life, whose investors were just as exposed as investors in Northern Rock and who have not been compensated and presumably will not be. Why should one set of financial institutions have a fundamentally different type of compensation mechanism from others?