Oral question asked in the House of Commons, by James Plaskitt (Labour). It was answered on Thursday, 12 February 2009 on behalf of the Treasury.

Banking Industry

Question: Northern Rock's banking practices were compliant with the Basel accords, so I think that this can be described as, in effect, a highway code written by boy racers. The system effectively hands all the risk assessment over to the banks themselves, and is fatally flawed as a result of being allied to a system of balkanised regulation. It does not need tweaking; it needs fundamentally changing. Will we try to get some proper, global banking regulation out of the G20 talks?

Answer: I think that the G10 regulators and people in the central banks who worked on Basel II will be surprised to hear themselves described as boy racers. They may be pleased to be regarded as so youthful. But I think the only boy racer when it comes to regulation is the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), given his earlier policy proposals in this context. My hon. Friend has raised an important point about banks and their internal risk modelling, which must be approved by the Financial Services Authority. The Chancellor has been at the forefront of international discussions about future arrangements. We believe that improvements are needed to the Basel II process, and it will certainly be a major topic of conversation at the G20 Finance Ministers' summit.

Secondary information