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AMENDMENT OF THE LAW

CDOs are collateralised debt obligations, and I shall explain the CDO-squared to my hon. Friend over a cup of tea in the Tea Room if he is interested. Investors did not exercise due diligence when considering such products. They equated complexity with security. That has been compounded by the role of the credit rating agencies. All the members of the Committee appreciated that the credit agencies’ conflicts of interests need to be sorted out. The agencies are paid by the issuers, which is unacceptable. The Basle II international agreement must be examined, because we need to correct the perverse incentive for companies to meet the capital adequacy requirements by reducing their liquidity. That has to stop. There are both national and international elements to the current situation.