My Lords, the strictures levied at the banks by the noble Lord, Lord Barnett, are, in many cases, well taken. It behoves us all—certainly me and those of us who have earned our living until recently in the banking industry—to approach this debate with a certain amount of humility. But so should the Government. Whatever the faults of the practitioners—and there have been many—it was the Government who constructed the regulatory framework and presided over it and it was the Prime Minister, as he now is, who was for ever telling his European partners how marvellous things were here and who always wanted to be associated with what was going on. If, as the Prime Minister says, there has been an age of irresponsibility, in this country he was the master of the revels and the noble Baroness, who will be returning to the Front Bench soon, was his page.
Their mentor, the grandmaster of the revels, was Mr Alan Greenspan, the man who opened the new Treasury building. It will not have passed unnoticed in the Treasury that Mr Greenspan has now eaten a certain amount of humble pie; he has looked closely at what has happened and has admitted that perhaps he made errors of judgment in certain respects. It behoves the Government to follow Mr Greenspan on the way down just as they followed him on the way up.
It is true that other countries are suffering great difficulties, as the Minister pointed out, and that some of them are in a much worse situation than we are. But, although the storm began in the United States and is blowing across the world, certain features of it are particular to this country and are the responsibility of the Government and, in particular, the Prime Minister as the Chancellor of the Exchequer for so many years.
That said, I give the Prime Minister credit where credit is due and congratulate him on the way in which the recapitalisation of the banks and the attendant measures were put into effect. The British Government have set an example that has been followed elsewhere in Europe and in the United States and they deserve praise for that. So, too, does the Conservative leadership for supporting those measures, which is not what opposition leaders always do. It is worth pointing out that this time they did and that they deserve credit for it.
So where do we go next? Clearly the whole system of financial regulation and oversight must be looked at again from the bottom up—not only with regard to banks but with regard to insurance companies, hedge funds and the role of shareholders, who were for ever pushing management forward into taking greater and greater risks. The Minister and the House will recall that Lloyds was attacked by its shareholders for not doing the kind of thing that HBOS was doing, and we can see where that has ended up. All these players need to be looked at in the context of an overall review, as does the role of auditors.
In the time available, I shall make only one point at this stage. The primary responsibility for banking regulation should rest with the FSA rather than with the Bank of England. I agree with my noble friend Lord Lawson that regulating banks is not the same as regulating other institutions and requires particular skills—one might almost say particular arts—but I would place the primary responsibility with the FSA rather than with the Bank of England. Banking regulation is a thankless and controversial task, involving much public hassle and reputational risk. The Bank of England found that as it grappled with the secondary banking crisis in the 1970s and later with BCCI and Barings, to name only two.
Today, unlike in those days, the Bank of England's primary responsibility is monetary policy. Its ability to command public support and respect in that role could be seriously compromised if it was also held responsible for problems that arise in the banking sector and the way in which they are handled. Again, one needs only to look back at what happened with BCCI and Barings to understand the point that I am making.
This brings me to the question of monetary policy. Here I am very much with the majority. I agree with my noble friend Lord Griffiths that the Bank of England should cut interest rates when it next meets. I should like them cut quite sharply. I agree with Martin Wolf in the Financial Times that it cannot make sense for US rates to be 1 per cent while the United Kingdom's are 4.5 per cent. Last year, the Bank of England was slow in injecting liquidity into the system compared with the Fed in the United States and the European Central Bank. This year, it has been slow in cutting interest rates. I hope that, when the events of the past few months, or even the past couple of years, are looked at and when conclusions are drawn about the role of different institutions—of the Government, of the banks and of the FSA—the role of the Bank of England will also be looked at. So far the Bank of England has escaped a little easily during the debates over what has happened. I look to it now to cut interest rates. At this stage, the principal effort in combating the recession should be on that front.
No general throws all his weapons and all his troops into the beginning of a battle and we should see how we get on with monetary policy. I hope that we can avoid drastic fiscal measures and too much in the way of public spending, tax cuts and so on. However, in the circumstances in which we find ourselves, while we should rely on monetary policy now, the Government would be wise to make preparations for other measures should they be needed.