Building Societies (Insolvency and Special Administration) Order 2009

My Lords, I shall now with some excitement pick up my briefing note to find whether I have an answer to the question that the noble Baroness has asked, or whether it is one where I shall beg her indulgence and say it is a matter of detail and ensure that the information is shared with her—which is the answer that I am now confirming that I have given. The noble Baroness asked also about amount A. HMT specified the exact amount paid to Nationwide, which is about £1.6 billion—there is some rounding to it, but it is the figure that we have always declared. She also asked about the FSCS order and whether there has been consultation. There has not been consultation so far, but a public consultation exercise will commence before the Summer Recess. The noble Baroness also asked questions relating to amount B. The FSCS is calculating amount B, the compensation that it would otherwise have paid depositors. I have already said that HMT has notified the FSCS of amount A. HMT will appoint an independent valuer to estimate the recoveries that the FSCS would otherwise have made from winding up. Amount B, reduced by recoveries, FSCS compensation actually paid to depositors, if any, and FSCS contributions to compensation paid to owners of transferable property, third parties et cetera, gives rise to the FSCS’s total liability, otherwise known as the cap. The total liability is then audited and HMT sends a final notification to FSCS. If amount B is lower than amount A, amount B equals the FSCS’s total liability, and payment at the end is made by the FSCS in respect of the total liability. It is worth reminding noble Lords that the amount paid by the Treasury to the Nationwide in respect of the actions taken by the Nationwide to take responsibility for Dunfermline’s retail deposit liabilities represented the gap between the assets and the liabilities that were transferred to the Nationwide. That gap will be filled by the proceeds from the administration and disposals and any residual claim that might be made on the FSCS. The noble Baroness asked why amount B was reduced by compensation actually paid out to eligible claimants. This would happen theoretically in two circumstances. The first would be if the loss that the FSCS was asked to contribute to was not in respect of all the failed banking institution’s depositors and some depositors made claims against the FSCS under the normal procedure. The second circumstance would be if the banking institution in resolution had to put into the bank or building society insolvency procedure and depositors paid out through this. This provision ensures that the FSCS would not have to pay out twice in respect of a single banking institution. The noble Baroness, Lady Noakes, asked whether the verification process would be independent. Independent verification simply means auditing the numbers. I probably should not say "simply" to preface "auditing", given the noble Baroness’s professional standing as an accountant. Perish the thought that I was suggesting that auditing was a simple box-ticking exercise; of course, it is not. However, we will appoint independent auditors to do this work. The noble Baroness also asked about the independence of the valuer when appointed and the skill sets required. The valuer will be appointed along with the other valuer under the compensation scheme order. We are in the process of drawing up a specification and we will, of course, ensure that the valuer has the necessary skills. That might also allow me to answer a point raised by the noble Lord, Lord Newby, in respect of the huge fees that he fears might be accruing to firms of accountants, lawyers and investment banks. I have not been involved in negotiating all these myself, but I can say in respect of those I have that I have tried to drive a very hard deal. I think that there is some surplus capacity in some of these advisory industries at the moment, which means that we in government, as buyers of services, are able to take advantage of an imbalance. I am very alert to the fact that we are dealing with public money, and that we must handle and treat it as if it were our own and absolutely ensure that we get high-quality advice. We are not totally dependent on external advice. I have now been in government for some six or seven months and I have been extraordinarily impressed by the quality of advice received from officials in the Treasury, who work exceptionally hard. Often, through the insights that they have brought to discussions, they have shamed the external advisers by picking up issues well before those advisers. That is not to say we do not get value from the advisers as well, but it is well worth saying how impressed I have been by the Treasury’s young, energetic, extraordinarily clever and hard working officials. I think I have nearly come to the end of the noble Baroness’s list of questions. She asked who had been disfranchised. There are various creditors and a small number of members left in the residual society, which is in administration. The remaining members are borrowing members in respect of a part of the mortgage book; they are not shareholding members with deposits. It is right, therefore, that creditors only should vote on administration proposals. I turn to the question of the noble Lord, Lord Newby, about the burden of the FSCS on building societies. This issue has been referred to previously in this House and representations have been made to me by the management of the Nationwide, the Yorkshire and other building societies with whom I regularly meet, and even yesterday when I met the Building Societies Association. It is always easier, of course, to find people who should not be sharing the burden than to identify those to whom the burden should be shifted, and if one lightens the obligations on one sub-community within a business segment it has to be picked up by another segment. I welcome advice from noble Lords on who they think should be paying more. In fact, I direct them to give that advice not to me, but to the FSA, which is consulting at the moment on the FSCS. It is worth remembering that the present formula is one which the Building Societies Association supported. It is only the outcome that has led it to conclude that it might have been better not to have secured the result for which it worked. However, I am sympathetic to the case that has been made eloquently to me by many, and repeated again with considerable precision by the noble Lord, Lord Newby. I finally add—this goes back to my noble friend’s earlier comments—that on the long list of things which brought the Dunfermline Building Society to its knees, its contribution to the FSCS was not the straw that broke that particular camel’s back. It is worth remembering that building societies and banks are benefiting from the fact that their customers know that they are safe and secure in holding retail deposits with a UK-regulated banking institution. I think I have covered nearly all the questions asked and, unless the noble Baroness would like me to have a stab at answering more now, I will handle them in written correspondence, with the promptness for which I hope I am beginning to develop a reputation. Motion agreed.