Downing Street Says » Northern Rock

Asked whether the Prime Minister regretted not introducing a system to combat the collapse of a banking institution, the PMS replied that if people read the report closely, the relevant pages stated clearly that work on dealing specifically with the scenario of a major financial institution getting into difficulty for liquidity reasons had been ongoing. It showed that work was ongoing through 2005, 2006 and 2007, that in May 2007, the tripartite authorities agreed to develop a consultation document, that a discussion paper was produced later in 2007 and that that work formed the basis of some the changes that were put into the Banking Act.

Put that there were three years for this to be worked on and didn’t the Prime Minister feel responsible for the fact that it wasn’t carried out with more urgency, the PMS said that there were two points to make. There was work ongoing; this issue was considered in depth and it was right that a good deal of detailed work was carried out between 2004 and through to 2006, with the objective of putting detailed proposals together.

On the wider point of regulation, the Government had taken very important steps to change the regulatory regime by making the Bank of England independent and creating the FSA. As the Chancellor and the Prime Minister had also said, there would be lessons that we would have to learn from the global financial downturn. That was why the Turner Report was commissioned and that was why the Treasury would be bringing forward a White Paper ahead of the Budget, setting out what steps we were going to take to change the UK’s regulatory regime.

It was also why we were in Brussels today, talking to European partners and why we would be extending that conversation to G20 partners on what steps the EU and the international community could take to ensure that there was adequate global supervision of financial institutions and that there were appropriate rules in place.

Asked why Northern Rock were still issuing 125% mortgages after it had received Government support and the Prime Minister had said that 100% mortgages were a bad idea, the PMS said that this was covered in some detail in the NAO Report. Lord Mandelson had said this morning, that “the alternative was to put the whole business into receivership….That’s why decisions were taken to maintain mortgage lending.”

Asked why that would have helped Northern Rock survive, the PMS replied that as he understood it, the business was treated as a going concern in the period during which a new owner was trying to be found and that as soon as we had legislative power through the Banking Special Provisions Act, those mortgages were stopped.

Asked if the Government didn’t have the power to stop those mortgages before the act, the PMS said on the detailed response to the NAO Report, people should wait for the Treasury Report, which would be brought forward at the Public Accounts Committee hearing on the 30th March.

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» Friday, March 20, 2009

Northern Rock

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