Cable, Smith and Pugh quiz Darling about the bank loans

• [Nov 26] Dr. Vincent Cable (Twickenham) (LD): ' . . MY understanding of these loans is that there was no interest involved. Will he clarify the position on this? . . My final question is this: are there any other loans that we do not know about?'

We all accept that the intervention had to happen and that it was right in principle to have confidentiality. That confidentiality has to be balanced against accountability to Parliament for the expenditure of very large sums of money. The question is why it was only yesterday that it was judged sufficiently safe for the public and Parliament to be given the information. Why, for example, were we not told about it on 7 March, when those banks entered into the asset protection scheme, or in the Budget a few weeks later? If there was still some major doubt about the stability of the banks, why was that not revealed a month ago when the Chancellor made a statement on the completion of the asset protection scheme? Why was Parliament not told then? Why has he waited so long to give us this information? One has to note, as the shadow Chancellor did, that yesterday's announcement occurred not in Parliament but in the middle of a statement from the Governor. That statement was a devastating indictment of the Government's policy of not splitting up the banks, and this announcement was hidden in the middle of it.

My second question is about the Chancellor's clear statement that there was no cost to the taxpayer. Is that true? My understanding of the lender of last resort facility is that it carries a commercial rate of interest, but my understanding of these loans is that there was no interest involved. Will he clarify the position on this? If there was a concessional element to the lending, that would mean that a very large public subsidy was involved, even though the loans were repaid. A very large risk was taken with taxpayers' money, and there was an enormous potential cost. We need to be absolutely clear that that cost was paid for by the banks. Will the Chancellor clarify what the interest rates actually were?

My third question is on the link with Lloyds. The Chancellor has just brought the historical record up to date by reading out what was said by the directors at the time. Indeed, he is quite right to say that there was a general warning that continuing liquidity was required for HBOS, but was it not clear on 1 October, when HBOS became the first bank to require major liquidity help-indeed, half the major package was for HBOS-that this was a can of worms, and that the situation was far worse than had initially been believed? That has been made clear in his statement today. Would not the correct course of action at that time have been to take HBOS into full public ownership in the way that Bradford & Bingley was? Instead, the Lloyds shareholders continued to be encouraged in their belief that this takeover should take place.

My final question is this: are there any other loans that we do not know about? Can the Chancellor give us a categorical assurance that no other financial institutions have outstanding records of loans that have taken place in this emergency that he has not yet told the House of Commons about?

Mr. Darling: I am sure that, when the hon. Gentleman has time to reflect on what he has said, he will agree that his last question was really ridiculous. No Chancellor of the Exchequer or Governor of the Bank of England is going to provide a running commentary on what they may or may not be doing, for perfectly obvious reasons that I would have thought even the hon. Gentleman would recognise. In fact, he did recognise them when Northern Rock was at the height of its difficulties. I just think that his question was plain daft, really.

I can tell the House that, to a large extent, because of the action that we and the Bank of England have taken, the banking system is now far more stable than it was. We have got through many of the difficulties that we faced, and we are working our way through others. Only by taking that decisive action were we able to do that. I appreciate that the hon. Gentleman has the luxury of being a commentator, as opposed to someone who actually has to do these things, but speaking from the other side of the fence, I can tell him that, because of the action we have taken, the banking system is now far more stable, not just here but in other countries as well.

The hon. Gentleman went back to the question of Lloyds. I will not read out what I have already said, but the directors of Lloyds clearly have an obligation to their shareholders, and they clearly had an obligation in anticipation of their takeover of HBOS. It was for them-properly advised, as I said-to disclose what they needed to in the prospectus. As the hon. Gentleman knows, there then followed a vote by the Lloyds shareholders and a vote by the HBOS shareholders. Both those votes were overwhelming. It is for the members of the Lloyds board itself to decide what to disclose to their shareholders, and there are all sorts of legal considerations that they have to take into account. It is for them to be satisfied that that was the case.

I really do not accept the hon. Gentleman's argument about splitting the banks. We discuss this at just about every statement and Question Time, and I refer him to what I have said on previous occasions. He should bear in mind that Northern Rock was a narrow bank-a classic retail bank-and it got into deep trouble. At the other end of the scale of exotic activities, there was Lehman's, which did not take a single deposit. It, too, got into terrible trouble. The US authorities at the time did precisely what some people suggested and let it go down. We do not have to speculate about what happened: it brought the entire system down at the same time. I disagree with the hon. Gentleman on that matter.

• . . Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): In the Chancellor's answer and supplementary answer to my hon. Friend the Member for Twickenham (Dr. Cable), he mentioned the fee that was paid, but he did not address the interest rate. Was it a commercial rate of return, or was there an element of public subsidy?

Mr. Darling: The fees are meant to reflect the cost to the public purse. At the time when such work is done, it has to be done very quickly, so the arrangements are not like a normal commercial loan. However, the most important thing is that the money was repaid, and it was fully covered.

• . . Dr. John Pugh (Southport) (LD): Will the Chancellor of the Exchequer publish now or in future the rate of interest charged, and if not, why not?

Mr. Darling: I am happy to discuss further with the Governor of the Bank of England what further information we can put before the House. The general point of importance is that when these facilities are provided the banks have to lodge collateral, they have to pay a fee, and we get the money back.

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