Alistair Darling, the former Chancellor of the Exchequer, has told of “the most scary moment” of the financial crisis which began a decade ago.
And in an interview to mark the 10th anniversary of the crisis has warned that “alarm bells” are ringing for the UK economy and called for continued vigilance on the tenth anniversary of the financial crisis.
A decade ago, the financial system across Europe and the United States was brought to the brink of collapse as global banks stopped lending to one another.
Billions of pounds of taxpayers’ money were pumped into banks at risk, and the crisis triggered the first run on a UK bank in 150 years as the government rushed to bail out Northern Rock, and then the much bigger Royal Bank of Scotland.
Ten years ago today, French bank BNP Paribas suspended three of its funds with major exposure to bonds backed by US sub-prime mortgages - it was unable to value them because the market for these products, or “securities”, had dried up completely.
Lord Darling said “the most scary moment” of the financial crisis came in a telephone call to alert him to a run on RBS in 2008.
“I had to go to one of these meetings of European finance ministers, and I was asked to come out and take a call from the then chairman of RBS [Tom McKillop], who said the bank was haemorrhaging money,” the ex-Chancellor said.
“Remember this was not only the biggest in the world, it was about the same size as the entire UK economy.
“I said to him, ‘How long can you last?’ And what he said to me shook me to the core. He said, ‘Well we’re going to run out of money in the early afternoon’.”
Lord Darling said the global financial system was more secure now, with banks holding much more capital and regulators “far more sharp and ready to intervene” than before.
However, he warned against complacency and said the “massive uncertainty” caused by Brexit, coupled with debt-fuelled economic growth, should “raise alarm bells”.
In a BBC interview, he said: “When interest rates go up, and they will go up, if not this year then certainly next year, and suddenly people find they are going to be paying more in their monthly payments, that’s when you need to watch out.”
The former Chancellor under Gordon Brown added: “I think in some ways the biggest danger is when you get complacent about these things.
“The next crisis will probably come from somewhere where it wasn’t really expected, from causes that haven’t yet been identified.
“In a few years’ time, when institutional memories start to fade and the people around are all gone and retired, then that’s when the risks reoccur. You always have to be vigilant.
“The lesson from ten years ago is something that starts as an apparently small ripple in the water can become mountainous seas very quickly.”