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TOPICAL DEBATES Financial Stability

I am grateful for that clarification, but the problem is that the statement, as published yesterday on the Treasury website, is not sufficiently explicit about the meaning of assisting in raising ordinary equity. Some clarification would be helpful rather than relying on Hansard or contemporaneous notes. Will the Financial Secretary explain the link between the recapitalisation fund and the £250 billion facility to guarantee the repayment of short and medium-term debt issuance? If a bank does not take Government money for recapitalisation—I understand that at least three institutions so far have declined to do that—can it take advantage of the Government guarantee? If a bank has not sought any of the £50 billion available for recapitalisation, but wants to use the guarantee, is it bound by the commitment to"““support lending to small businesses and households””?" If so, how will that be policed? Currently, the scheme is limited to eight eligible institutions, although the Treasury press release makes it clear that other UK incorporated banks, including those that are subsidiaries of foreign banks, can also join the scheme. Clearly, Abbey, as a financial institution, is an example of that form of organisation. However, other UK incorporated banks are subsidiaries of foreign banks, for example, J.P. Morgan and Citibank. Will they have access to the £250 billion guarantee fund? Will institutions that operate primarily in the wholesale market also have access to it? They are unlikely to lend to households or small businesses, and some clarity would therefore be helpful. Are the Government confident that the £250 billion is enough to help institutions refinance their wholesale funding obligations? What work have they done to assess the adequacy of the fund? I do not know where the figure has come from or the suggestion that it is enough. Might it be topped up later? Again, some clarity would be welcome, not only in the House but outside. When can eligible institutions use the guarantee fund? The statement on the Treasury website was silent on that matter. Institutions that wish to refinance their short and medium-term debt issuance will want to know when the fund is open for business. I have made some detailed points, but I think that the Financial Secretary appreciates that more clarity about the way in which the money is to be used, who has access to it and how the conditions are policed will not only help financial institutions that may benefit from it understand what is happening, but help our constituents, who are paying for the package, understand how the Government will secure the link between the money that has been advanced to the banks and their commitment to support lending to small businesses and families. Next Tuesday, we will return to the debate on banking reform. The Banking Bill sets out several mechanisms, which have partly been used during the past year to rescue institutions with problems. However, we need some long-term changes to entrench financial stability. The Bill that we discuss next week deals largely with the consequences of failure, not prevention of the recurrence of such problems. Conservative Members believe that, in setting up the FSA, the Prime Minister broke the link between the understanding of market-wide risk and the supervision of individual institutions. To avoid the repeat of a debt bubble, we believe that we need to reinstate that link, with the Bank of England being given a much greater role in determining the overall amount of capital needed in the market. That will strengthen the system and entrench financial stability in markets. The Government have embraced our proposals to increase the deposit protection limit from £35,000 to £50,000, and a bank-led reconstruction of a failing institution. Perhaps they will endorse the idea that I have just outlined. As we have made clear, for the package to work, we need not only inter-bank lending to reopen, but lending to businesses and families to recommence. Taxpayers want an end of the age of irresponsibility, but they also want responsible lending. That is the true test for this package, and we hope that it meets that test.