HL Deb 27 February 1995 vol 561 cc1318-29

3.40 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, with the leave of the House, I should like to repeat a Statement made in the other place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows: With permission, Madam Speaker, I would like to make a Statement about the insolvency of the merchant bank Barings. The Bank of England announced late last night, ahead of the opening of the Far East financial markets, that Barings was unable to continue trading and was applying for administration. Barings' problems have arisen from major losses caused by unauthorised dealings by the chief trader in its Singapore incorporated subsidiary. The losses arise from contracts on the Singapore, Osaka and Tokyo exchanges. At the close of business last week total losses appear to have been in excess of £600 million. Crucially, these contracts have further to run, exposing Barings to further unquantifiable losses. As a result, Barings was unable to continue to trade without the injection of substantial new capital. As the Bank of England announced last night, the British banks were prepared to supply all the capital needed to recapitalise Barings but only if it were possible to cap the potential liability of the outstanding contracts. In the event this did not prove possible. Other parties were not prepared to take on open-ended and therefore unlimited liabilities. The governor did not recommend, and in any event I would not have agreed, that public funds should take on these liabilities. Regrettably, in the circumstances there was no alternative to Barings having to apply for administration. Although it was not possible at the end of the day to recapitalise Barings, I would like to take this opportunity to pay tribute to the governor and his staff and the London financial community for their commitment over the weekend to the search for a solution. I would stress to the House, Madam Speaker, that these circumstances are unique to Barings and should not apply to other banks operating in London. The Bank of England is ready to provide liquidity to the banking system to ensure that it continues to function normally. Deposits at Barings are, of course, at the moment frozen and the extent of any losses on them will not become clear for some time. The deposit protection board will be writing to all of Barings' depositors potentially eligible for assistance. Madam Speaker, the House will be rightly concerned about how such huge unauthorised exposures could be allowed to happen and build up so quickly without the knowledge of the company, the exchanges or the regulators. I am determined to address that question rigorously and to review the regulatory system thoroughly in the light of this collapse. However, before we come to any firm conclusions, it will be necessary to establish in detail the facts of the case. These were transactions conducted on the far side of the world by overseas subsidiaries on overseas exchanges. There may be some falsification of the relevant records within the subsidiaries concerned. It will take some time to unearth the full and detailed catalogue of events and the methods employed to evade all the required management and regulatory controls. I have asked the Board of Banking Supervision to investigate fully and urgently all aspects of this episode and to report back to me. The investigation will include the circumstances under which such unauthorised transactions were able to take place and to remain undetected until too late. The board will need to work closely both with Barings and with the Singapore, Osaka and Tokyo exchanges. The House will recall that the Board of Banking Supervision is chaired by the Governor of the Bank of England and comprises six independent members and three members appointed ex officio from the Bank. I can assure the House that I am determined that, when the full facts are known, all the appropriate lessons will be drawn and that any necessary corrective steps will be taken. In today's global markets, the regulatory tasks are international and must be tackled internationally. Over the past two years, with other Finance Ministers in the G7, the G10 and the IMF, I have taken part in discussions of the need to ensure effective regulation of international dealings in derivatives and other instruments in high technology 24-hour trading conditions. The problems are obvious but practicable solutions are less self-evident. No system of regulation can ever guarantee total security. There is always the chance of unwise or fraudulent dealing by one or a group of individuals. The better the bank's systems and controls the less likely this is to happen. Every regulatory authority and every bank must now be considering what further steps it can take to protect itself against this sort of risk. Madam Speaker, I will report back to the House at the earliest opportunity on our analysis of this case, the lessons to be drawn and any proposals to strengthen security in highly complex financial markets. I would expect to publish a full report on the facts of the case subject only to the need to protect the legitimate confidentiality of innocent third parties and my other legal constraints. Meanwhile we must also be concerned about the implications of this for the employees of what was, until a few days ago, a successful and highly respected firm. The administrator will no doubt take early steps to clarify the position of the 4,000 or so employees, some of whom will be needed to administer the assets of the business and many of whom work for successful and profitable businesses for which purchasers will no doubt be found. Some redundancies will be inevitable but the employees in this country will of course be able to rely on a measure of statutory protection in the event of their employer being so insolvent that difficulties arise in the payment of salaries and redundancy payments. This failure is of course a blow to the City of London. But it appears to be a specific incident unique to Barings centred on one rogue trader in Singapore. There has inevitably been some turbulence in the markets since the announcement but global markets should be quite strong enough to absorb it without lasting damage since these events have not changed any of the fundamentals that underline foreign exchange, equity and bond markets". My Lords, that concludes the Statement.

3.48 p.m.

Lord Peston

My Lords, I thank the noble Lord for repeating the Statement made by his right honourable friend the Chancellor of the Exchequer. I am aware that I and any of us who wish to comment on the Statement or ask questions must be sensitive to the effect of anything that we say on the value of sterling. Although I am second to none in my willingness on other occasions to criticise the Government's economic policies, I agree with the last sentence of the Statement; namely, it seems to me that the Chancellor is entirely right when he says that nothing that has happened in the past few days has changed any of the fundamentals that underline foreign exchange equity and bond markets, at least so far as this country is concerned. My own judgment, for what it is worth, is that certainly at the present time if anything sterling is undervalued and should not be moving in a downwards direction.

To turn to various aspects of the Statement, we have heard about losses in excess of £600 million. I assume that that is simply the Chancellor's best guess at this moment. There must be a doomsday scenario figure that someone in the Treasury must have which I assume is much larger. I do not know whether the Minister can enlighten us on that.

More to the point, given the nature of the transactions—I believe they are connected with the behaviour of various Japanese or Far Eastern stock markets—until the contracts are finally closed presumably we cannot possibly know the full scale of what is involved. Equally, I suppose that these contracts will close within not too long a period, given the kind of contracts we are discussing. One will then wish to have a statement on the total scale of the operation.

Obviously the Governor of the Bank of England was right to bring together last night those parties who could be helpful. Can the noble Lord enlighten us on whether there was any hope in what happened last night? I take the fairly ruthless view that if you engage in high risk financial activities in the hope of making a profit you have to accept that you may make a considerable loss; in other words, there is a downside risk, and that is the nature of the game that you play. I hope that no noble Lord will wish to be party to the view that it is the role of the Bank of England to meet these losses, certainly on an open-ended basis. I cannot see that the taxpayer can be asked to do that. Was there any hope of a formula being found? I am sure we all agree that, if there was a possibility of saving this bank, it would have been worth doing.

That leads to a more general issue which I believe financial markets will wish to have explained to them. Since other banks can engage in precisely these activities while acting as banks, are we to believe that if the same thing happens in future—I do not mention any names in terms of clearing banks or anything like that—precisely the same line will be taken by the authorities, whether it be the Bank or the Treasury; namely, that in the end, if it is an open-ended commitment, they cannot guarantee any of it on a stop loss basis?

The Chancellor of the Exchequer is quite right when he says that he is determined to address the general question of regulation rigorously and thoroughly. He has told us what the Board of Banking Supervision will do. Surely we must support that. However, is the board capable of doing that job? In particular, will it be able to get all of the information that it needs to find out what happened? As the Statement makes clear, that body has to work closely with Barings and foreign exchanges in the Far East. What obligation do those exchanges have to be totally transparent and tell the Board of Banking Supervision all they know about what has happened?

That takes me to the matter of uniqueness. The Statement has used the word "unique". I have to say that I am not persuaded. I find it difficult to believe that this is the only example of this kind of activity that has occurred. I ask whether in looking at the specific transactions the Board of Banking Supervision will have regard to perhaps a large number of earlier transactions at least undertaken by Barings and possibly the same trader. In order to get an understanding of what has happened it must not be assumed that this is unique; we need to approach it with an open mind and ask what more generally has been going on.

The Chancellor has said that he is determined to discover the full facts and to learn the appropriate lessons. He has also said that he will report back to the House at the earliest opportunity. I hope that that also means that there will be a report back to your Lordships' House. I remind your Lordships that not very long ago I had to deal with a similar Statement relating to BCCI. At that time I said that it would be appropriate for your Lordships to debate the matter. I remind the House that there has been a deathly silence from that day to this. We have not debated it and have not had a chance to say what lessons can be learnt from it. In some ways this matter is more important. Once the facts have been established, an opportunity must be found for your Lordships to look into it in detail and debate it.

I am totally sympathetic to what the Chancellor has said in his Statement. I wish to be as supportive as possible when he says that these regulatory tasks are international and must be dealt with internationally. He says that the problems are obvious but the practical solutions less self-evident. I agree with that. Nonetheless, I feel that we can do better. I hope that the Chancellor in grasping this nettle is saying essentially that he is determined, together with international colleagues, to produce an agreed regulatory framework without destroying international markets and freedom of operation in international markets.

I raise one other matter of a slightly delicate kind. I can see who the losers are to some extent but in this kind of esoteric finance we have the classic problem of seeing precisely who are the gainers. Do the Government at this stage have any information to indicate that anything of a fraudulent kind has been going on? One view is that we are discussing incompetence; another is that we are discussing fraud; and a third view is that we are discussing both. I should like to know whether we can be enlightened on that or whether the Minister's answer at this stage will simply be that he does not yet know. I must be right in saying that among the losers will be those who have deposits in Barings. One's immediate intuition is that perhaps they are simply big businesses: who cares about them? They have tonnes of money and this loss will be peanuts to them. I do not take that view. I do not know who the depositors are, but I guess that among them will be public sector institutions, or near public-sector bodies, which bank with Barings. Does the Minister have any information about that? For example, if there are such public sector institutions that bank with Barings, will they at least fall to be recompensed by the Treasury on the grounds that they are in the public sector and therefore need to be looked after?

Some of us will remember being taught in school about the Baring crisis which occurred 100 years ago. I feel very old when I now talk about a new Baring crisis and think that in future schoolboys and schoolgirls will be asked exam questions on both crises. Having said how serious it is, one has to keep a proper perspective. I believe that every day on the London markets about 90 billion or 100 billion dollars worth of foreign exchange is traded. In comparison with that, £600 million is not a lot. Though I do not withdraw my criticisms—and next time that we debate the economy I shall be my normal nasty self—I hope your Lordships will agree that in the end this is not the biggest event to have hit the world and I believe strongly that it is one with which we ought to be able to cope.

Lord Ezra

My Lords, this is a sad day for the banking system. It is an occasion when the matter should be dealt with responsibly, as has the Minister in presenting this matter and as has the noble Lord, Lord Peston, in responding to it. I was also impressed by the way in which the Governor of the Bank of England dealt with it in a radio interview this morning.

In my time in industry I have dealt with many merchant banks, Barings among them. I have always had the highest regard for the expertise and the great historical associations that Barings has had. It is sad that that great name in banking will, as far as we can tell, no longer be there. Having said that, I believe that we must ask some general questions about the trade in derivatives which seems to have caused this crisis.

Derivatives as such are a perfectly legitimate way of hedging against known risks. For example, a company which is trading in a big way overseas and wants to hedge against currency or interest rate fluctuations is perfectly entitled to use that form of trading. However, not only has it become extremely sophisticated; it has also become an area of pure speculation. It is that speculative aspect of derivative trading which is the cause of concern.

Barings has taken up most of the space today in the newspapers but the Midland Bank has also announced its results. In the detail one can see that this year the profits from dealing have been reduced by over £550 million compared with last year. Midland Bank has great resources and was not prevented from making a substantial overall profit. Nevertheless, that is a further illustration of the massive fluctuations that can result from that form of trading.

We live in a global economy of high technical sophistication. Great deals can be made at great speed, emanating from any part of the world and moving to any other part of the world. Therefore, this issue is not one that we alone can resolve. The noble Lord, Lord Mackay, said that this subject had been raised several times at the level of the G7. I wonder whether the Government now intend to propose an emergency meeting of whatever grouping of the G7 is relevant in order to re-examine the issues.

It is satisfactory to note that the Government intend to conduct a very detailed inquiry and come forward with proposals. Like the noble Lord, Lord Peston, I too hope that we shall be able to debate them in this House.

The most worrying aspect of the affair is what will happen to the depositors. This case concerns a merchant bank with probably a limited number of depositors, many of them large companies. It must, however, also touch some individuals. But, as the noble Lord, Lord Peston said, if by some mischance or misfortune such a thing should ever happen to a clearing bank, then the situation with depositors would be much more serious. I entirely agree that we must tackle this matter cautiously and prudently. Nonetheless, we must consider the implications for the future.

We are justified in asking the Government, in their national and international role, to reassure us that they have looked again at the whole issue and have taken material, additional steps to try to prevent anything like this situation happening on this scale or possibly on an even greater scale in the future.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Lords, Lord Peston and Lord Ezra, for the careful and responsible way in which they responded to the Statement of my right honourable friend the Chancellor. I am particularly grateful to the noble Lord, Lord Peston, for underlining the points made by my right honourable friend in the last sentence of his Statement.

I was asked a number of questions and shall try to respond as quickly and as briefly as I can. The Statement mentioned that the losses were in excess of £600 million. Indeed, I can confirm to the noble Lord, Lord Peston, that some of the contracts have some time to run and it will therefore be a little time before the full extent of the losses are quantified. The noble Lord quite rightly pointed out that taking part in high risk business means that there are minuses as well as pluses. There is little doubt about that.

Both the noble Lords asked what we would do if any other bank got into similar circumstances. It is not easy to respond to such a theoretical question. It depends greatly on the circumstances. As I said in the Statement, in this case the problem was the unlimited exposure on these outstanding contracts, which still had some time to run, and the very tight timescale in which the banks and the Bank of England had to manoeuvre and to put together a package. That had a lot of bearing on this particular matter. Clearly, other banks may have been and were prepared to come in and see whether they could help; but they were looking for some kind of cap on the unlimited liabilities and that was not available.

I was asked a question about the Board of Banking Supervision and what it will examine. Of course it will look at earlier transactions and indeed at every aspect of this case which it considers relevant. With regard to obtaining information, the Bank of England has extensive powers to glean information under the Banking Act 1987. Inevitably, it will have to rely on co-operation from overseas supervisors and exchanges. We have no reason to believe that the necessary information will not be forthcoming.

The noble Lord, Lord Ezra, suggested that my right honourable friend the Chancellor might ask for an emergency meeting of the G7. I am not sure what is in my right honourable friend's mind in that respect. I should have thought that the first step is for the inquiry by the Board of Banking Supervision to report. We shall then be in a position to know exactly what happened and the steps that we should take.

To answer both noble Lords, the facts are not known in detail but it is clear that the chief dealer in the overseas subsidiary broke all the firm's internal control procedures and limitations by collusion and deceit. It appears that there may have been wider collusion and fraud. Only a full investigation will determine the facts.

With regard to deposits, the Bank of England has indicated its willingness to provide liquidity to the market so that the banking system can continue to function normally. The Deposit Protection Board will be writing to all Barings' depositors eligible for assistance under its scheme.

The noble Lord, Lord Peston, asked whether any public funds were at risk. Some public funds were on deposit with Barings. It will not be known for some time whether any losses have been incurred in that regard.

I hope that I have managed to answer at least the main questions asked by the two noble Lords.

4.7 p.m.

Lord Barnett

My Lords, I very much agree with the Chancellor that there was no way that he could use public money, much as he may have wished to save a bank as large as Barings and as important to the City. The Bank of England could not have provided such public money. It would have been quite wrong to have provided money for an uncapped liability.

On the other hand, I find it incomprehensible that the main board of Barings did not sufficiently monitor the bank's employees around the world and allowed this kind of situation to arise. That is, however, an entirely different matter.

With regard to the Deposit Protection Board and its relationship to small depositors—I am sure that there will be such depositors—including public sector depositors, the noble Lord mentioned that they would he eligible for assistance. I am not quite sure what that means. Could he clarify that for me? Does it mean that if public sector bodies, which to a large extent might rely on government grant to survive, have lost some of that money, the Deposit Protection Board will provide resources to enable them to continue? Would it provide resources, which —much as we may regret what has happened—would be essential to keep those public sector bodies going?

Clearly, there will be some assets left in Barings and I imagine that they will be quite substantial assets. Can the noble Lord say, in the current circumstances in a bank of this size, what would be the order of priority for payment as between unsecured creditors, secured creditors, preferential creditors and depositors? I am sure that that information would be helpful to small depositors who have lost—or believe that they have lost—a lot of money. Will the noble Lord clarify that situation?

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Lord, Lord Barnett, for the reaffirmation he made at the beginning of his question regarding the need to protect public funds and the fact that the taxpayer could not be asked to stand behind this problem, but I am not entirely sure that I am grateful for some of his further more detailed questions and comments. However, I shall take refuge in the response that I shall write to him about the priority for payments from secured and unsecured creditors in this instance.

As far as we can tell, no public sector body is in the position envisaged by the noble Lord. As I mentioned earlier, it will be some time before we can get a proper grasp on the quantity of money involved. Clearly we shall need to look at any specific problems that arise in that regard. The Deposit Protection Board will help small depositors to a limit of 75 per cent. of £20,000. Therefore, the maximum the protection board will help a single depositor will be to the tune of £15,000.

Lord Boyd-Carpenter

My Lords, perhaps my noble friend can clear up one point. The press generally has stated that the decisions taken on behalf of the bank in Singapore from which all this arose were taken by a very junior official, apparently without reference to his superiors. Can my noble friend confirm whether that is so? If so, is it not a reflection on the way in which the bank is administered?

Lord Mackay of Ardbrecknish

My Lords, I can certainly confirm that the chief dealer in the overseas subsidiary of Barings in Singapore appears to be the individual who brought about this problem, as I have already said. I should perhaps say that clearly the check sand balances in place at the time will be, and have been since this matter was exposed towards the tail end of last week, of considerable interest to Barings and the people who are to investigate.

Lord Hooson

My Lords, following the question asked by the noble Lord, Lord Boyd-Carpenter, is it correct that the dealer in question was only 26 years of age? Bearing in mind the awesome power he had over high risk investment, is that a unique situation in the banking industry?

Lord Mackay of Ardbrecknish

My Lords, my briefing does not contain a confirmation of the age of the individual concerned. However, I believe I saw his age stated in the newspapers as being either 26 or 28 and I have no reason to doubt that. I believe that the people who work in that rather tense environment are fairly young. Whenever I see television pictures of the floors of stock exchanges, the dealers seem to me to look, dare I say, like policemen—and getting younger by the year.

Lord Shepherd

My Lords, the Minister may be correct in that it is relatively young people carrying out those operations. But would he not agree that they are responsible to the management within whichever organisation employs them? Though it may be true that the individual concerned was a rogue, I hope nevertheless that the inquiry will he looking at the systems of control and discipline within Barings, particularly in Singapore and perhaps in London, to see how it was possible for one trader on his own to bring a bank of this repute to its knees in such a short time. It is not simply a question of how a rogue could do it, if he was a rogue, but how it is possible that he was able to do it within our banking system.

4.15 p.m.

Lord Mackay of Ardbrecknish

My Lords, the Board of Banking Supervision, in its investigation, will be asking exactly the questions posed by the noble Lord; that is, how it happened, how such unauthorised transactions were able to take place and how they could remain undetected by the checks and balances one would expect to be in place.

The Earl of Halsbury

My Lords, I pointed out to the House on an earlier occasion that nowadays people engaged in this class of transaction mature in their mid-20s and are burnt out by 35. They cannot operate as fast as they are required to operate. The rate of information exchanged, with all the computer accessories and so forth, must involve an uprating of the rate at which information reaches the management. At this time it is not necessarily the fault of any specific management; this had to happen at some time, somewhere, before we learnt our lesson.

Lord Mackay of Ardbrecknish

My Lords, I am sure that the noble Lord makes a valid point in relation to the speed and the 24-hour nature of transactions of all kinds around the world. In regard to somebody being able to do naughty things, in the past it would have been a slower operation. Nowadays, with the use of modem super-highways and the like, it can be done readily and quickly.

Lord Boardman

My Lords, my noble friend referred to the willingness on the part of banks in the City of London to inject initial capital if it had been possible to cap the liability. He referred to the difficulty of capping because of the uncertainty. Will my noble friend consider whether it will be possible at an early date to agree a cap on the basis that the certainty of a sum promised today with additional capital may be better than the uncertainty of what can be obtained from a bank in default? In that event, does he consider that the City of London may still be willing to put in additional capital or underwrite the debts rather than suffer the far greater losses that may flow from default in the City?

Lord Mackay of Ardbrecknish

My Lords, I am not a great expert in these matters. I should have thought that, with the administrator now in place, the die has been cast in that regard. As I expressed earlier to the House, the problem was the unlimited exposure. Added to that—perhaps I did not underline this point sufficiently—was the fact that a decision had to be arrived at before the opening of the Far East markets late yesterday evening. That meant that people were fighting against the clock as well as against the problems of the unlimited liabilities.

Lord Mishcon

My Lords, perhaps I may first emphasise a point made by my noble friend Lord Peston. It is apparent from the questions and comments that have arisen in your Lordships' House on this tragic matter that this House is possessed of an expertise and wisdom which, for the sake of the nation, make it important that we should have the opportunity to discuss the matter in full when the Government are prepared to make a further Statement. Having said that, can the Minister say whether the investigation into fraud is being left to the Singapore authorities or whether, with our great experience, we are sending an assistant body of people from this country to help?

Lord Mackay of Ardbrecknish

My Lords, the principal investigation on the ground will be undertaken in Singapore. The point was underlined in the Statement that these events happened on the other side of the world, involving regulatory authorities and subsidiaries that exist there. Therefore, while the investigation set in train by my right honourable friend will be thorough and complete in every detail, much of the work will have to be done on the other side of the world, especially with regard to establishing what happened on those stock exchanges.

I was asked earlier whether the administrator could renegotiate contracts. I believe that that was the point of the question asked by my noble friend Lord Boardman. I am advised that he can renegotiate contracts on behalf of the bank. In relation to the debate and the report back, in the Statement I read to the House my right honourable friend said that he would report back to the House at the earliest opportunity. I have little doubt that, if he does that via a Statement, I shall be asked to come here and repeat it. I shall pass on to the usual channels the suggestion of a debate. However, I do not think that there is any point in debating the matter until the report is received.

Lord Bruce of Donington

My Lords, I support my noble friend Lord Mishcon in requesting that some time should eventually be allotted to the House so that we can discuss this matter further. Your Lordships will be aware that over the past two years there has been contemplated in many circles—by no means confined to any one party—the desirability of broadening and extending the role of bankers within our society and indeed among countries. Will the noble Lord please take note that my reticence on this subject at the moment remains in abeyance for the time being and that when the time does arrive perhaps the circumstances will justify my suspicion that bankers in general are not the last repositories of human wisdom?

Lord Mackay of Ardbrecknish

My Lords, I think I get the drift of the noble Lord's argument. Perhaps we can at least agree that all this and everything else with regard to our knowledge of the world proves that bankers are only human as well.

The Earl of Lauderdale

My Lords, my noble friend referred to the duration of the uncapped liabilities. Is it a matter of days, weeks or months?

Lord Mackay of Ardbrecknish

My Lords, I am not able to quantify the time. My understanding is that it is more days than weeks. It may be months, but it certainly is not a very long time. Some of these things have come home to roost, so to speak, already. The young gentleman concerned has not been at this business for very many weeks. I think it will take a few months to quantify, but not very many.

Lord Desai

My Lords, perhaps it needs to be said, because no one else has said it—although my noble friend Lord Peston implied it—that we had a very similar situation with BCCI. I said at the time of the BCCI debate that the Bank of England is not very good at regulation whatever else it may be good at. I do not think it is very good to say after the event that someone far away did this and we did not know it. If we operate in round the clock global markets which are technologically advanced there should already be in place systems of control both at the merchant bank level and at central bank level which can foresee the problem. This problem did not arise in the past week. From what we can gather it has been going on for about two weeks. The person concerned has been buying in. He has been operating in put rather than call options for the past week. He has been adding to his liabilities. That should have been noticed long ago. He has bought around 15,000 contracts. If he has bought 15,000 contracts, why was no one aware of it? What systems of control does the Bank of England have to check the exposure of clearing banks and merchant banks to such problems? Every time this happens everyone says, "What a marvellous response we have made". It is usually said after the event and a bank has failed. I worry that if a clearing bank is exposed to such a risk—let us hope it does not happen—we will have a substantial bill on our hands. At that stage it will have to be said that it will be a tough burden for the taxpayer to bear because the mistakes will not have been those of the taxpayer but those of the bank managers and the bank regulators.

Lord Mackay of Ardbrecknish

My Lords, it is important that we have sensible and sound regulatory systems in place, but, dare I say it, it is perhaps only the noble Lord, Lord Desai, who thinks—I doubt whether even he thinks it—that that would necessarily prevent any kind of adverse situation arising, especially one which comes, as this appears to do, from someone behaving in a maverick way and breaking all the internal rules as well as all the other rules.

The noble Lord mentioned some other aspects. Those are exactly what the Board of Banking Supervision will be investigating, as indeed will the main regulator of Baring's Singapore subsidiary, which is the Singapore Monetary Authority. It has delegated its formal responsibility to an organisation called SIMEX, which is the Singapore International Monetary Exchange Limited. All these questions will be asked by it and we look forward to seeing the answers.

Viscount St. Davids

My Lords, I have to declare an interest in these matters as a director of a securities house which is also a subsidiary of a bank. My noble friend will agree, in answer to the noble Lord, Lord Desai, that if one is to contemplate any additional regulations in this market they would have to be agreed with every stock exchange, with every exchange involved in foreign exchange and with every user of those exchanges. We should not contemplate any legislation which places our banks at a disadvantage in international markets, however weak the regulatory bodies are in foreign countries.

Lord Mackay of Ardbrecknish

My Lords, my noble friend makes the point which was made earlier—we are dealing with an international market, international exchanges and international companies. It is all very well to call for regulation here in this country but, frankly, one has to look for sensible regulation and not overburdening regulation all around the world.