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Northern Rock

Part of Topical Questions – in the House of Commons at 3:31 pm on 19th November 2007.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 3:31 pm, 19th November 2007

The right hon. Gentleman raises two points. Let me deal with the second one first, as there has been some comment about a proposal that a major bank made to the Government, the Bank and the FSA at the end of August. There was no firm proposal on the table, but, as the FSA chairman has said, an exploratory inquiry was made as to whether the Bank would be prepared to lend the institution in question about £30 billion at commercial rates. It was explained that there were three problems with that. First, neither the Bank nor the Government normally provides commercial lending in this way to a going concern, which is what that financial institution was. The second problem was that if we were to entertain such an option we would have had to ask other banks whether they would be willing to enter into a similar arrangement, perhaps involving less Government money. As the right hon. Gentleman will recognise, the Government cannot just, in effect, lend £30 billion to a bank without there being some sort of due process to allow others to see whether they could do something more competitively. I would have been open to severe criticism if I had done that. The third problem was that, on any view, this would have been state aid.

As it happened, having made the preliminary inquiry the institution never pursued the matter. The proposal was made on a Saturday and the institution withdrew its interest in Northern Rock on Monday. Therefore, it was never the case that there was a proposal on the table that was there to be considered and accepted or rejected. There was a preliminary inquiry, and I have explained what the difficulties were. However, as I have also said to the House, and to the Treasury Committee, I have always taken the view that had it been possible for Northern Rock to have been acquired prior to all these difficulties, that would have been the best solution. I must also say to the right hon. Gentleman—I apologise to the House for taking up so much time in dealing with this, but it is important—that we should remember that that approach was made before anybody in the outside world knew there was a problem with Northern Rock. For us to have then started a competition as to which bank might take it over might have drawn attention to the very problems we are concerned about.

Let me now deal with the other part of the right hon. Gentleman's question. I will be able to tell the House about the terms of repayment once it is clear what course of action is best for Northern Rock and the public interest, as I have set out. It is not possible to do that until we have a proposal that is properly assessed and worked out. On the right hon. Gentleman's point about the general Bank of England question, I explained the position in my statement.