Darling: Banking crisis leaves lessons to be learnt

Alistair Darling today admitted lessons were to be learnt from the banking crisis – in government, from regulators and on the "front line" on bank boards.

The chancellor of the exchequer – banked on either side by the governor of the Bank of England Mervyn King and the head of the regulator the Financial Services Authority (FSA) Adair Turner – faced questions from the Treasury Select Committee.

MPs grilled the trio on the banking crisis – the first time the Tripartite authorites had ever given evidence to committee.

Some 5,000 emails with questions were emailed to the committee from the public – in another first – for the trio to answer.

The first question stated: "Why does everyone seem to be a loser?"

Mr Darling said he accepted responsibility for areas of his responsibility over the crisis – but claimed regulators only failed by not looking at international problems and only focusing on domestic problems.

"Undoubtedly there are lessons to be learnt," he said.

He hit out at the boards of banks that should have been "on the front line" to protect their shareholders but claimed some did not know what they were doing as money "flooded into the system", interest rates were low and securitised investments became popular.

The chancellor also hit out at bank boards relying too heavily on the judgements of credit reference agencies of their own judgement.

Lord Turner also admitted failures.

He said: "At the level of whole world there was failure to see enormous risk.

"In retrospect it is clear the world was on a boom of credit that turned out to unsustainable and raised issues of capital adequacy."

Mr King, meanwhile, denied the taxpayer has been taken for a mug.

"The action was necessary – when a banking system fails… it is necessary to take drastic action," the Bank governor said.

"That action was recapitalisation – exactly the right thing to do; not in interest of banks but for the whole economy."

Mr King also said HBOS would have been nationalised if there was no merger with Lloyds TSB.

"What we saw was HBOS was suffering from falling share price and loss of confidence," he said.

"The only alternative would have been full scale nationalisation.

"Our advice at time was merger was desirable."

Mr Darling added: "If we had not intervened, then HBOS would have been in an extraordinarily difficult position.

"HBOS has benefitted from recapitalisation. Frankly it needed the money."

The chancellor added: "HBOS is not out of the woods."

Turning to Bradford & Bingley small shareholders, Mr Darling sad the "prospects are not great".

Following the nationalisation of B&B, shareholders of the former building society now seem to have accepted the prospect of getting much cash back is low.

Mr Darling advised any shareholder to take legal advice before taking action against the former board of B&B – which had claimed the business was strong days before it was nationalised.

The trio also defended themselves over Northern Rock – and maintained the Northern Rock mortgage book was good in 2007 despite it offering 125 per cent mortgages.

Lord Turner said problems came from liquidity not solvency – depending too greatly on money markets.

Mr Darling also said he would be reporting soon on the Equitable Life scandal – where many people lost their pensions – after a question asking why people suffering from bank collapses had been covered, but Equitable Life savers had not.


Mr Darling also said he would be reporting soon on the Equitable Life scandal – where many people lost their pensions – after a question asking why people suffering from bank collapses had been covered, but Equitable Life savers had not.

Turning to depositors of Icelandic banks in Isle of Man, Guernsey and Jersey, Mr Darling was less than positive on the chances of depositors – except those investing via Derbyshire Building Society.

"We can't have advantages in the Isle of Man, and then the UK rushing in when things go wrong."

He added: "That is quite a significant step."

He added cash transferred from Isle of Man to the UK was not the government's to transfer back but now laid with the creditors of Kaupthing Singer & Friedlander.