Banking (S.I., 2008, No. 432)

The right hon. Gentleman describes what he says would have been ““tough love”” by the Bank of England in managing it through. I presume that he is talking about the proposal, which Opposition Members have described, of a Bank of England-led administration. That would effectively use powers that do not currently exist. We think that there is a strong case for introducing a new special resolution regime, and that that would be the right thing to do. However, it would involve major changes to the law and the current approach to insolvency and failing or troubled banks. It is right that such proposals should be consulted on seriously and introduced through legislation. For Opposition Members to pray in aid powers that simply do not exist on the statute book, and think that they would somehow magically come to the rescue of Northern Rock, is pie in the sky and irresponsible. They are simply not facing up to the serious problems that Northern Rock faced. As hon. Members know, Northern Rock's new management team has presented the Government with a detailed business plan for their approval. It details how the new board intends to repay the Bank of England's loan, release the Government guarantee arrangements and return the business to the private sector. It is based around four strategic priorities: to contract into a smaller, sustainable business, reducing the asset base; to repay the Bank of England loan by the end of 2010, while increasing the level of retail deposits, although keeping them below 2007 levels; to restructure the organisation and its operations; and to strengthen risk management in key areas. The bank envisages repaying the loan by 2010, and £2.5 billion has already been repaid since the end of 2007. The business plan also addresses a concern that has been widely raised about Northern Rock's business model—its excessive dependency on the wholesale funding markets—and addresses that over-reliance by reducing the size of Northern Rock's asset base and also by increasing its retail deposit base. It is important, and we have stressed throughout, that Northern Rock should not cause unfair competition in the rest of the financial markets. The business plan recognises that. Although the retail deposits will increase over the next three years, both Northern Rock's level of retail deposits and its share of the retail savings market will remain lower than at the start of last summer. The competitive framework that Northern Rock published as part of its business plan also commits it to not appearing in the top three of the best-buy tables for the rest of 2008. The framework will be kept under review and will remain subject to the requirements of the European Commission.