I quote this from yesterday's Hansard report of the House of Lords debate on Granite:
Lord Higgins: My Lords, I apologise for persisting, but is it true, as was alleged, that the Granite assets appeared in the accounts of Northern Rock?
Lord Davies of Oldham: My Lords, I cannot answer that question directly, but I have given the noble Lord a clear indication that the Government are dealing with Northern Rock; they are not dealing with Granite, which is entirely separate from Northern Rock and has no claim at all on the assets of Northern Rock. I cannot go further than that and I intend if I may, with the leave of the House-
Earl Ferrers: My Lords, this is actually quite important, because my noble friend said in his question that Granite appears as an asset of Northern Rock. He wanted to know whether or not that is the case. I can see that the noble Lord has difficulty and has referred to a letter that he wrote which was placed in the Library but which no one seems to have received. Perhaps it might be a good idea to suspend the debate while people get sight of that letter, if it is so important.
Lord Davies of Oldham: My Lords, I am taking steps to remedy the position with regard to the letter, I hope in very good time. I hope that the noble Earl will recognise that we have a fairly lengthy debate ahead of us. I am giving assurances that this debate and this Bill revolve around the institution, as far as the immediate issues are concerned, of Northern Rock, and Granite has no claim on its assets. We are dealing with Northern Rock and its assets-that is the issue of exposure to the taxpayer. Everything that we debate on this Bill will revolve around those issues.
It's staggering, isn't it, that the Minister leading for the government in the Lords (Lord Davies) did not know the answer to this question?
Nor did he understand what IFRS required here.
And that he did persist in the argument that legal form counts for more than substance, which is patently untrue in this case.
I admit, I am amazed. On the other hand I can safely say:
1) If this structure so confuses people, such as minsters, then it is not transparent, and should not be used.
2) If the accounts of Northern Rock were so incomprehensible they were not true and fair.
This casts doubt on the credibility of banking regulation and on the credibility of banking accounts based on IFRS. This is not a storm in a tea-cup. This is a systemic failure.
This issue will not go away.