My Lords, I am grateful to both noble Lords for their response to the Statement and the broad welcome which they evinced in principle. I hope that the noble Baroness will recognise that the Government are approaching this issue not, as she suggested, on the basis of positions adopted more than a quarter of a century ago but on the basis of the real need of the British economy, particularly the finance sector at the present time. Regarding the international dimension to the proposals to which the noble Lord, Lord Newby, referred, there is a great deal of support for the approach that the Government are taking and a degree of emulation.
The noble Lord will know that there is no mileage at this point in talking of membership of the euro, with that happy, throwaway line for the Liberal Democrat Party. I hope that he will give credit for the fact that European Finance Ministers have been very concerned to discuss the British proposals and, in key respects, have taken steps to follow the basis of those proposals in some of the developments for their own banking structure. I reassure the noble Lord that co-operation at that level, which has been a feature of this past week, is bound to continue. In the same way, the Prime Minister and the Chancellor have been active in the G7 and have been very concerned that the Americans fully understand the nature of the British response to the banking crisis and the importance of the Americans following a strategy. Contrary to what the noble Baroness indicated, the Americans were first to propose the figures involved, not through any doctrinaire position or because of any ideological stance, unless she is suggesting that we have been successful in persuading President Bush of the merits of certain stances of effective government intervention. No. The Americans have been concerned with how they bring the necessary government resources to support a system which was on the brink of collapse.
The noble Baroness suggested that I could not go into detail when discussing certain areas last week, and of course I could not. It has taken a week of negotiation with the banks. If she thinks that we were supposed to promise significant sums of money without having any basis for negotiation with the banks and getting understandings of what the terms should be, she is being rather more naive than does her credit. It was necessary for the Government to carry out these negotiations.
In giving support for the recapitalisation of the major banks which are involved in the exercise as well as the potential for other banks and financial institutions which may need help, of course we are concerned that they know the terms on which this is to be effected. I reassure the noble Baroness that the Financial Services Authority has today published a document that indicates the nature of the strategies which the institutions will need to follow in order to qualify for government support. They include support for the real economy. What does she think the promise of support for small and medium-sized enterprises is? What does she think that seeking to avoid the repossession of our fellow citizens' homes and keeping that to an absolute minimum is about if not the relationship between the financial institutions and the real economy? If she thinks it is crying in the wilderness to say that anything can be done in this period of crisis to help mortgage holders, I can only say that there are rather more constructive optimists on this side of the House and, equally importantly, among the institutions which lend as well. That is why we are able to indicate that the terms on which we are reaching the agreement with the banks is a strategy for lending to SMEs and advancing mortgages.
On preference shares, we have been very concerned to emphasise that the very significant sums involved in the recapitalisation of certain banks come with clear terms of government interest in their strategy. It is all right for the noble Baroness to say that people are upset about bonuses to those who have got us into this mess. Let her rest assured that the Government intend that bonuses will be paid not on the basis of the past but on the future position in share options. In that way, there will be rewards for bankers who are successful; such success will be measured in terms of the effectiveness of the bank strategy over a period of time and not these excessively short-term measures which helped to reduce us to the calamitous state that we all face.
I am grateful to both noble Lords for their responses but emphasise that the Government are pursuing a line which the international community is eager, in significant ways, to follow.