Darling: Dunfermline bailout 'would not have been enough'
Bailing out Dunfermline Building Society would not have been enough to save the Scottish lender, Alistair Darling said today.
The chancellor told parliament plans for a bailout, from the UK government, the Scottish government and a pool of other building societies would not have been a long-term solution.
Mr Darling said the regulator decided even if the government pumped money into Dunfermline it would not be enough.
"The FSA came to the view, [a bailout] might buy time, but it was certain the building society would have to come back for more," he said.
"The problem [with a bailout] was, it would not have fixed the problem. We have been back in a few years' time with the same problem."
The chancellor outlined to parliament how the society was engaged in substantial commercial property lending worth over £650 million, as well as the purchasing over £150 million of "high-risk" mortgages, from two American firms GMAC and a subsidiary of Lehman Brothers, just before the global market for such loans completely collapsed.
It was also revealed Dunfermline had to write-off £10 million from the purchase of a £31 million IT system - leaving a loss of over £24 million for last year.
Mr Darling said the management of Dunfermline "had prime responsible".
"The management took the decision to take the building society in areas where it had not gone before. Huge mistakes were made."
Conservative shadow chancellor George Osborne said: "It is sad the 140 years of history has come to end and depressing another pillar of Scottish banking fall.
"The absolute priority is to protect deposits and the transfer to Nationwide does that."
He added it would be an "anxious time" for employees.
Mr Osborne claimed the failure of Dunfermline was further evidence not all banking problems "had blown in from America".
He called for full details of the FSA's dealing with Dunfermline and how it was allowed to become a "property speculator".
Vince Cable, the Liberal Democrat Treasury spokesman, highlighted a series of poor loans made by Dunfermline, including a £10 million loan to a loss-making firm, that had never filed results
"Is this not an absolute gross failure of regulation by the FSA? It is difficult to see how would happen under the old building society regulator."
He added a bailout from members of the Building Societies Association was not possible because the FSA was holding too rigidly to capital requirements.
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