Financial Markets

Part of the debate – in the House of Lords at 7:13 pm on 13th October 2008.

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Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury 7:13 pm, 13th October 2008

My Lords, we, too, are grateful to the noble Lord for coming to the House for the third time in a week to repeat a Statement on the banking crisis. I hope the current rate of Statement-giving now rapidly diminishes.

We welcomed in principle the Statement that he made last week and we welcome today's Statement in principle as well. We are pleased to see that the Government are acting on bonuses at the banks they are directly recapitalising. The noble Baroness talks about anger at the Government's funding of the banks, but there is real anger at the fact that bankers have been taking huge bonuses while driving their banks into the ground. I am sure that the country will expect the Government to be very hard on that. Will the Minister say whether this bearing down on bonuses will go beyond the banks which the Government are directly recapitalising and cover all the banks covered by the recapitalisation scheme? They are set to benefit hugely from guarantees and one would hope that the Government impose at least some of the same conditions on them as on the banks they are directly recapitalising.

I have one concern about the language in the Statement concerning the banks having agreed to maintain lending at 2007 levels. This is obviously welcome for small businesses but, given that 2007 levels of lending on mortgages were fuelling an unsustainable boom in house prices, is that really what the Government mean? I suspect it is not but it would be useful if the Minister could clarify that today.

Have the Government sought any assurances from the banks about the terms on which it is lending to small businesses? The problem is not simply that the lending has dried up but that the banks have been imposing arbitrarily significantly higher interest rates and charges to small business borrowers which, in some cases, have been almost as damaging as if the facilities had been withdrawn.

The Government are taking powers to appoint non-executive directors to the banks which they are directly recapitalising, and that is surely right. Although we on these Benches have no great faith in the Government being a banker, we have not huge faith in bankers to be bankers either. Therefore we are relieved that the Government are putting some of their own people in place.

My colleague in another place, Vince Cable, has suggested that now the Prime Minister has got back his Stalinist approach to life in dealing with the banks, he needs a Beria to organise a purge of failed bankers. We are pleased to see that a number of bankers seem to have taken the revolver out of the drawer, but we hope there may be further progress on this front before too long. Let me make one suggestion about who might replace them. There are a number of highly respected executives from the mutually owned building society sector who have not been seduced by the exotic and risky products which have brought the high street banks low; perhaps they might get a call over the coming days. The Statement says that the shareholdings will be managed on a commercial basis by an arm's-length body. Can the Minister say what kind of body and who its members are likely to be?

When we discussed the first of the Minister's three Statements last week, I spent a little time speaking about the need to put a great deal of emphasis on co-operation at European and international level. We are very pleased that that has happened. This weekend, the Prime Minister was able to have a major influence on EU members by talking to the euro-zone Finance Ministers. This was a unique event. The Chancellor was not at that meeting and will not be at future meetings of the euro-zone Finance Ministers. It is absolutely clear that that is the body that takes a decision and then goes to the rest of the EU and, in effect, says, "Chaps, this is what we are doing". The UK Government have no place on the body and, while I do not want to excite Members on the Conservative Benches by mentioning the word "euro" at this time of night, do the Government believe there is any scope for a permanent involvement of the UK Government in the euro-zone group of Finance Ministers given that they, at long last, seem to be getting their act together in the co-ordination of European financial policy?

My final question on the international front is that, given its financial strength, China will be in a strong position as a result of events of recent weeks, but it is not clear why the Chinese Government do not appear to have been at the heart of the discussions which have so far taken place. Is this because they were not asked, or is this because they were asked and decided to leave it to capitalists to sort out the mess first before they come in and pick up the pieces?

The response of the markets today suggests that the worst of the banking crisis may be over, but the crisis of the real economy is just beginning. Having shown that it can help the banks in their hour of need, the challenge now facing the Government is to help those who are facing the loss of their jobs and their homes. This will now increasingly be the focus of our debates over the months to come.