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

This afternoon, there was an announcement on the home page of the Northern Rock website saying:"““Due to essential maintenance, access to our Tracker Online and Silver Savings Online services will be unavailable between 20:00 and 21:00 hours today, Monday 31st March. We apologise for any inconvenience this may cause.””" We can only hope that that was not a bad omen of what lies before us. It does not bode well on the very day that Northern Rock is putting its best foot forward, announcing its business plan and setting out its future, with much publicity surrounding its full-year results for 2007. In view of Northern Rock's declining mortgage book, the order before us deals with the transfer of shares to the Treasury solicitor, the possible hiring and firing of directors, and administrative changes surrounding shares. I want specifically to consider the regulatory aspect of this exercise, because that is at the heart of the problem. Section 2 of the Banking (Special Provisions) Act 2008 requires the Treasury to consider the desirability of making the order for two reasons. The first is to protect"““the public interest in circumstances where financial assistance has been provided by the Treasury to the deposit-taker for the purpose of maintaining the stability of the UK financial system.””" The other is to maintain"““the stability of the UK financial system in circumstances where the Treasury consider that there would be a serious threat to its stability if the order were not made””." That is the exact point made by the Chief Secretary, and it is the heart of what is before us this evening. In a letter sent to MPs by the chief executive of the Financial Services Authority, the internal audit identified a number of key failings. Before we can agree to any order, therefore, we have to be satisfied that the arrangements will be satisfactorily monitored by the FSA. I should add in passing that Northern Rock will not be a publicly owned company for the purposes of the Freedom of Information Act—a key element in the whole Northern Rock picture. After the regulatory failure of Northern Rock as a public company, is the Minister satisfied that there will be adequate resolution of that issue by the FSA with regard to Northern Rock in its new state? It is worth remembering that the reliance on wholesale markets helped to bring Northern Rock down when banks became reluctant to lend to each other. The interest rate offers on the website that I mentioned are pretty generous. Despite the modifications to the business plan, we must consider what is happening in the marketplace today. For example, LIBOR, which is the interbank lending rate, is back over 6 per cent.—its highest level since 27 December. That indicates the real nervousness among financial institutions, despite the additional liquidity provided by the Bank of England. In the build-up to the situation that confronted us, we saw the failure of the tripartite system introduced by the Prime Minister. Given the poor regulatory performance of the FSA, what assurances can we get that it will meet regularly and monitor lending and borrowing practices carefully? Given the clear illiquidity I referred to in the wholesale markets—and there is real pressure out there—will the FSA work closely with the Bank of England? There is no easy divide between liquidity, compliance and solvency. Last summer, the FSA presumed that the Bank of England would provide sufficient liquidity to bail out failing banks. We have to see the order in that context. As far as Bear Stearns is concerned, it is not a question of it being some sort of pure exercise—I refer to the comments of the hon. Member for Twickenham (Dr. Cable). Of course, a credit facility was provided by the Federal Reserve, but the real point is not so much the way in which Bear Stearns was handled by the Federal Reserve, but the speed of the action. That was the key.