Thursday, 22 October 2015
In October 2008, with the collapse of US banks beginning to infect the UK banking sector, the then UK Chancellor of the Exchequer, the Rt Hon Alistair Darling, received a phone call from the chairman of the Royal Bank of Scotland (RBS).
Mr Darling says the phone call sent a chill down his spine. He learned that RBS would last just two to three hours until it ran out of money, leading to panic and a run on the remaining banks.
With no precedent or text book to refer to, Mr Darling said it was not clear the record £500 billion ($1.07 trillion) government rescue package he devised overnight to bail out the banks and restore confidence would actually work.
“To tell you the truth, when we finalised it at half past five the next morning, it wasn’t clear to me it was going to work, such was the febrile tension, the fear that was around.”
But a day later it began to have an impact. In his Oration, Mr Darling spoke about the three key lessons he learned from the crisis.
Send a clear message
Mr Darling acknowledged that restoring public confidence was a key part of the bailout package.
“If you really want it to erect a firewall [to contain the crisis], you’ve got to act more quickly than people expect and, crucially, you’ve got to do more than people expect,” he said.
“If you want to know how not to do it, you don’t have to look any further than the Eurozone management of Greece where neither of these things have happened. And if you don’t do it, you have to keep coming back again and again.”
Mr Darling says what worked in the UK's favour was that only two Ministers were involved in the bail out package – Prime Minister Gordon Brown and Mr Darling himself – and they had the authority to act rapidly.
“Unlike in America where the President of the United States of America had to send his Finance Minister on bended knee to negotiate with the Congress over their alleviation program, British ministers have the authority to spend that sort of money.”
But action in the UK alone would never have been enough, Mr Darling admitted.
“Because the International Monetary Fund had its annual meetings in Washington that weekend we got agreement not just with the Americans but with the Eurozone too.
“It’s the fact that all governments reacted together that helped to reassure a very febrile world that we were actually in control.”
Despite being criticised for it at the time, Mr Darling said his early predictions that it would take many years after the financial crisis to return to 'normal' had been proved correct.
The ECU Vice-Chancellor’s Distinguished Oration is a public lecture held annually at ECU. Previous Orators have included Dr Ira Harkavy from the University of Pennsylvania, Chief Justice Dr Robert French, Dr Fred Chaney AO and Rio Tinto CEO Sam Walsh AO.
During his visit to the University, Mr Darling also gave a lecture to ECU finance students and took questions from business journalism students during a one hour press conference.
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