Mr. David Went:

I mean, the issue of tracker mortgages was discussed before we began to offer them. The problem with tracker mortgages is basis risk because, traditionally, mortgage products were lent on a ... on what you might call an "administered rate" basis, a standard variable rate basis. So, therefore, if interest rates went up on the deposit side, the bank had the discretion to raise the interest rates on the asset side, so there could be a pretty much immediate re-pricing of both asset and liability. However, in the UK, in particular, tracker mortgages had become a very significant feature of the market in the '80s - sorry, in the '90s - and these ... tracker mortgages are where you lend at a fixed margin over the official rate. So that introduces another rate ... another element of risk, which is basis risk, where if you, for example, are lending at 1% over the ECB rate and the ECB rate goes up by 0.25%, well, that reduces your margin to 75 basis points, so that's not a good thing.

So the ... and what ... how we analyse that risk would have been to look back over the period. I mean, we didn't have a very long period of euro rates, but we had a reasonably long period of Deutsche mark rates, which would have been a proxy for that. And when you look back over the previous 20 to 25 years, you would have seen periods where official rates diverged from market rates for periods of extreme stress. In 1987, Black Wednesday, when Gorbachev was ... or Yeltsin was kidnapped in Russia, like, there was a tremendous dislocation of markets. So individual deposits ... market deposit rates spiked and official rates didn't. But by and large, those periods were relatively short and if you had to sit and suffer, you know, a contraction of your margin over a period of time, it wasn't a bad thing.