Treasury Questions: Banking Sector Reform

3rd November 2009

Brooks Newmark calls on the Chancellor to ensure that the right systems are put in place to prevent a repeat of the Lehman Brothers collapse when neither bank nor Government was able to understand the counterparty risks to which it was exposed.

Mr. Brooks Newmark (Braintree) (Con): When he last met the Governor of the Bank of England to discuss reform of the banking sector. [297065]

The Economic Secretary to the Treasury (Ian Pearson): The Chancellor of the Exchequer and the Governor of the Bank of England meet regularly to discuss a range of issues.

Mr. Newmark: Given that and the fact that when Lehman Brothers collapsed neither it nor the banks actually understood the counter-party risks, has the Minister discussed the right systems and ensured that they will be in place when the system is reformed?

Ian Pearson: As the hon. Gentleman rightly points out, the collapse of Lehman Brothers was of systemic importance to not only the US economy, but the world economy, and he will be very aware of the actions that followed it. The issue has had extensive scrutiny, and he will also be aware of the administration position at the moment. Those lessons have and are being learned, which is one of the reasons why actions have already been taken by the Financial Services Authority and it is another reason why further reforms in the financial services Bill will follow the Queen’s Speech.

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Mr. Brooks Newmark (Braintree) (Con): The Chancellor said in his statement that before we could reach a binding agreement with RBS we needed to carry out due diligence on the assets. What was the level of write-down after, as opposed to before, in respect of RBS’s balance sheet on those assets?

Mr. Darling: I said that we and the FSA had to carry out diligence; the FSA has carried out that due diligence. As to write-downs, they will appear in the bank’s accounts.

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