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Safety Deposit Current Accounts Bill [HL]

My Lords, we should all be grateful to the noble Earl, let alone his noble friend for his intervention, for raising what is clearly a significant issue in the current climate. The debate is particularly opportune, because, as he indicated, it is being taken on the same day as the debate which follows, on the Motion of the most reverend Primate. I think that it will be common ground in your Lordships' House that the recent events involving Northern Rock, let alone some of the problems that the major clearers have got themselves into, indicate, or perhaps a lift of a veil on, banking problems of which most of us had been only dimly aware until the unhappy events of the past few months. It has been said to me by a senior banker that what the public have never appreciated is that, for most of the past 150 years, almost every bank has been technically insolvent, because the practice of borrowing to a large extent short and lending to a considerable extent long has been supported by the ability of banks to borrow significantly in the inter-bank lending market. If that starts to be difficult, banks by any rational test of solvency become insolvent because they have difficulty knowing how they are going to meet their liabilities. That banking practice, which in the case of many of the well established banks has been based on long-standing accepted ratios of short-term to long-term lending, and endorsed, or to some extent ignored, by the regulators, has existed for a long time. Only in the past few months have we come to realise that the banks were perhaps not as prudent as they might have been. In raising this topic, the noble Earl has touched on something that is fundamental in the operation of our financial system. Having said that, we on these Benches we have some difficulties with the noble Earl’s solution. In practical terms, I assume that he is suggesting that the banks should provide a safety deposit box for people’s money and assets, give them a key and enable them to turn up at the bank whenever they want to get their money back—or, in the case of the friend of the noble Earl, Lord Ferrers, have their money counted and put back in the safety deposit box. In reality, that is the effect of this Bill. I suppose that in many other countries of the world where there is concern about banking stability, people buy a safety deposit box to keep their money in and put it under their bed. Indeed, I somewhat frivolously wonder whether it would be cheaper for members of the public, rather than taking up the opportunity presented by the Bill, to get themselves a safety deposit box and pay for a good burglar alarm company to protect their property while putting the cash under the bed. In a slightly frivolous sense, I worry that the Bill would not have the real effect on the customer that the noble Earl clearly believes that it would have. In a wider sense, however—and this is where this short Bill would have a volcanic effect—what the noble Earl is really suggesting is that the whole basis on which our banking system has been based for 500 years should be overturned. He is saying that banks cannot take our money and lend it on in a prudent manner but that they should leave it in our ownership, not pay us interest on it, pay us a small fee and allow us to have our money back whenever we want. That is fine—but I dare to suggest that, were this to be implemented, commercial life as we know it and have known it for 500 years would actually come to an end.