Northern Rock and Banking Reform

My hon. Friend asks an interesting question. My understanding, bearing in mind that I was not on the Treasury Committee, is that there was conflicting evidence on that and that the Committee could not come to a hard conclusion. If the Committee, having asked people the questions, could not come to a hard conclusion, I hope that he will forgive me if I duck the issue. I do not know the answer to his question, but the subject is perhaps worthy of further investigation. The Committee went on to propose a range of other potential regulations or policies that would help to prevent such an event from happening in the future. They include deposit protection, pre-funding and insolvency procedures. Those need to be examined closely and the industry needs to be consulted. I am a little concerned, however, that much of the source of inspiration for those—the hon. Member for Hammersmith and Fulham (Mr. Hands) raised this issue—is the American model. I was given to understand that about 10,000 financial institutions carry out banking functions in America, many of which are much smaller than institutions in this country. As a result, insolvencies are much more common and a process for dealing with those has been developed. It could well be that good, hard lessons can be learned from the procedures implemented there, but I would be a little wary of assuming that we can necessarily graft on to our own body of regulation regulations that are derived from a totally different financial services market, which has a far greater number of players and many more smaller players. I mention that as a cautionary note. I underline and support comments about a communications strategy. They were well made. In today's communications world, with 24-hour coverage, intense speculation about the smallest announcement, moves or sub-text within a balance sheet means that a coherent position has to be taken by the tripartite authorities when a problem is obviously arising. That is one of the problems that arose between 10 and 17 September last year. As a result of not getting a coherent message, media speculation was rife. That reinforced the natural sense of concern and worry of the depositors in Northern Rock and was a contributing factor to the queues that lined up outside that bank. There may well be a need for new regulation. However, that regulation must be proportionate and focused on the institutions where it is relevant. To return to my comments on building societies, I would not wish a body of regulation designed to deal with possible problems from a Northern Rock-style financial model to be imposed on building societies, which are based on a totally different model. The danger is that a new regulatory framework could be introduced that might be relevant to current circumstances but could prove a big problem for perfectly sound, well-run companies that have delivered value for money for, in some cases, hundreds of years In what will be a tighter and an illiquid mortgage market, we shall need to find whatever means we can of assisting the first-time buyer. If we introduced a set of regulations that might involve making the liquidity position of a range of financial institutions considerably more difficult than it is already, we could be working against our wider social objectives. There is a balance to be struck. I hope that the Government's consultation exercise will be deep and probing, and that the outcomes will reflect that balance. I hope that they will secure changes in regulation that are proportionate to the problem highlighted by Northern Rock without in any way damaging the wider financial services sector, particularly the building societies sector.