Northern Rock and Banking Reform

The hon. Gentleman has set out the defence for the credit rating agencies. The Committee heard that view at great length, but I was not convinced by organisations that advise on structuring a package to obtain the necessary credit rating to sell the products, but—this emerged in the evidence hearings—do not scrutinise the details of the products that are being bundled up, which is a real weakness. A number of hon. Members have criticised the securitisation process, but I have not criticised it, because such products are bound to exist in a complex world that contains global financial markets. It keeps the system going by providing products in which the Chinese and others can invest, but bundled products require close scrutiny. Throughout the Northern Rock fiasco, people said, ““We did not know that sub-prime mortgages were so risky,”” or ““We did not know exactly what was being bundled up in that product.”” If, for example, my constituents' pension funds are going to rely on those products, I want security and assurance. The credit rating agencies did not provide that, and it is right to criticise them and demand more. As my right hon. Friend the Chancellor has repeatedly said, the ratings are just health warnings, and it is down to everyone to observe due diligence. There is no particular reason why people should accept the ratings as gospel, and they should consider other factors, too. The evidence presented informally and formally by the industry suggested that the due diligence to back up the assessments of the credit rating agencies is not routinely conducted, which is a severe problem. I am not worried about sophisticated investors, economists and hedge funds, but I do not want my constituents' pensions and homes to rely on financial products that have not been sufficiently scrutinised and properly assessed by the banks and financial institutions that have invested in them. The recommendations in the report are modest, and it is important that they are chased through the financial system. I am pleased about the debate in the financial press about the need for greater scrutiny of credit rating agencies. I am also pleased that the Financial Secretary and her colleagues in government are taking the matter forward, and I hope that she will say more about that.