Control of Deposit-Taking and Meaning of "deposit"

Part of Clause 1 – in the House of Commons at 12:00 am on 14th February 1979.

Alert me about debates like this

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury 12:00 am, 14th February 1979

The right hon. Gentleman cannot have been listening to my speech. I said that the secondary banks went bust. If only the Giro had gone bust we would not have been having this silly debate this afternoon. The answer is that the Giro should have gone bust, just like London and County and all the other fringe banks that went bust. There is no way of securing full and fair competition if Giro cannot go bust when it deserves to.

I come back to the question of Treasury and Bank of England supervision. It was under that supervision, as well as the supervision of the Ministry of Overseas Development, that the Crown Agents were able to lose about £220 million in secondary banking and property ventures. There was a certain degree of supervision after a few years. The various authorities that supervised the Crown Agents were unhappy that the Crown Agents had made all those investments but said that because they were such good investments there was no real need to worry about them.

Leaving out of account the constitutional question of whether the Crown Agents were entitled to make those investments, those who supervised the Crown Agents were on the whole not worried about their investments because they were in marvellous concerns such as that of Mr. William Stern and many other characters who have since departed from the financial scene. So I have no great faith in Bank of England supervision, and I say that out of personal knowledge.

When one tries to supervise investments and loans made by a bank, the picture at the time the investments and loans are made is different from the picture when the concern crashes. It takes a man of great skill, not to say genius, to know that a concern which appears to be healthy when a loan is made to it will turn out to be a complete dud. That supervision is one for the directors to exercise. The responsibility should be placed upon their heads, and if they fail it is they who should pay the penalty. That is what happens in the private sector.

The worst casualties of the secondary banking crash were the directors of the secondary banks. But with Giro and the Crown Agents only the taxpayer loses any money. No individual whose responsibility for supervision had been found wanting personally lost a penny.

I have difficulty about the whole subject of whether Giro should be included in the Bill. I think that it is a bad Bill, and I think that we should not have a Giro. Therefore, I find it difficult to give a view on whether something that I do not believe should exist should be subject to a supervision and control which I do not think we should have. That difficult question may take me some time to resolve this afternoon.

The only way to supervise and control the activities of banks is to have in charge of them people who are so committed, either in terms of their own money or that of their shareholders, and that they take the necessary great care and skill to control loans. I am humble about how difficult that is. I do not believe that by examining quarterly returns or by asking a few questions at the year end one succeeds by one iota in helping those who are in charge of banks. I do not believe that supervision of the Giro will stop it from losing another £33 million of public money in due course. With inflation, the figure will probably be higher next time.

I am, therefore, not happy for the Giro to continue as it is. There are two alternatives. One is to close it down. The other is to denationalise it. Both seem excellent ways of supervising it. I would like to see the Giro either closed down or passed into the private sector by a gradual transfer of its shares or by outright sale. If either of those alternatives were adopted, at least Giro would be suitable for supervision under the mechanisms in the Bill. It would be right to add it to the contributors to the fund because it would be liable to accept contributions from the fund should it get into trouble and its depositors face loss.

There is, therefore, an argument in favour of the amendment. If and when somethting is done about Giro, as it certainly will have to be, at least by putting Giro into the Bill it could be supervised along with the other banks. We are burying our heads in the sand if we believe that Giro will go on and not lose another packet pretty quickly. There is therefore a case for including Giro in the Bill.

I often wonder why Labour Members are so keen about Giro and why the hon. Member for Thornaby (Mr. Wriggles-worth) rose to make a minor defence of it. He even interrupted me to say that it had made a profit in the last three years. With the £20 million investment income on the Government stocks that it has been given, I am not surprised that it made a tiny profit. The profit is totally and utterly inadequate to build up reserves against a had period in future. Labour Members do not examine what is the nature of banking. They do not understand its function in the industrial process. They do not begin to consider whether this is the right way to provide banking services. It is simply that the private sector has banks which are grand, important, powerful things—rich things.

The public sector did not have a bank. Like little boys at school, it asked "Why can't we have a public bank, just like the private sector has its banks?" Out of that desire there was set up this monster. However, no one is responsible for the conduct of this monster. When it next puts its hands into the taxpayers' pockets, which it undoubtedly will do at some stage or other, the public sector will merely say that the loss was due to the oil crisis or the failure of the anchovy crop off the coast of Patagonia, in which the Giro had invested heavily, or that it was blown off course, or something of that sort. But it will not go bust. It will not mean that some man loses his reputation and his fortune in the process. There is no one there who feels that he is remotely at risk.

The whole point of banking is that a person should be at risk so as to concentrate his mind upon the importance of making the right decisions. We have this problem with the Giro. On balance, my hon. Friends are right to seek to put this provision into the Bill. I hone that at least the Minister will agree that the regulations about advertisements and about the general way in which banks behave in our society should apply equally to the Giro as they will apply to the other banks. There is something extremely obnoxious about saying that, because it is a public sector institution, it will never cross the mind of the Giro to do anything which is unethical in terms of its accounts, its advertisements or the way that it attracts customers and depositors.

This type of approach does the public sector great harm. If it is necessary to control the advertisements of banks, it seems that this control must apply equally to the Giro. That is desirable because ultimately we shall have to do something about the Giro. I know that Labour Members wash their hands of the events that have occurred, whether they concern the Crown Agents or Giro. Such institutions are always bailed out.

We must think not about deposit protection but about taxpayer protection. The need for such protection in relation to the Giro is such that anything that we can do to help will be an improvement. My dilemma in not being able to see how to deal with an organisation which I think should not exist in relation to a Bill which I do not believe should have been given a Second Reading is unresolvable. I therefore propose to vote with my hon. Friends and I hope that the vote will do something to impede the progress of the Giro.