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Brown 'ignored 2004 warning on bank cash crisis'
Joe Murphy, Political Editor20 Mar 2009
Gordon Brown came under fire today when it emerged that he failed to act on a warning about a gaping hole in emergency planning to cope with a banking crisis.
A bombshell official report revealed that the Treasury realised in 2004 that it did not have a proper plan to deal with a bank that ran out of ready cash and put the financial system under threat.
But at the height of the boom, it was decided that the threat was not important enough.
Just two years later the credit crunch brought Northern Rock to its knees and began a banking meltdown that drove the country into recession.
Conservatives and Liberal Democrats today turned the heat on the Prime Minister who, as Chancellor at the time, was in charge of decisions after the warnings were sounded.
Shadow treasury secretary Phillip Hammond said: "The fact that Gordon Brown was head of the Treasury who were warned about the system's inability to deal with this scenario but chose to ignore that warning says all you need to know about his lack of competence. This demonstrates why he is part of the problem, not the solution."
Liberal Democrat shadow chancellor Vince Cable said: "Gordon Brown had his head in the sand."
The 2004 warning was revealed in a scathing report from the National Audit Office into the nationalisation of Northern Rock a year ago.
It disclosed that the tripartite regulators - the Treasury, the Bank of England and the FSA - decided to hold war-gaming exercises to test their ability to handle crises. One of the first tests was of options if "a major financial institution got into difficulty for liquidity reasons".
It went on: "The report of the exercise noted that thinking was relatively underdeveloped as to how the resolution of an insolvent firm with systematic repercussions would be handled and by whom.
"It concluded that work was required to understand the issues they would face in dealing with an insolvent institution posing potential systemic risks to the financial system."
But the NAO disclosed that the Treasury did not feel it was a likely enough danger.
"At this stage, work on improving the existing arrangements was not considered within the Treasury to be a priority, in the benign economic environment then prevailing, compared with other financial crisis planning that was being taken forward."
In 2005, the tripartite authorities concluded more work was needed because its only options were to let a bank fail or to bail it out with taxpayers' cash.
Further exercises were held in 2006 and 2007 - too late to draw up a plan for Northern Rock.
A senior No 10 official today said the credit crunch was "unprecedented" and stressed that Northern Rock had been rescued so that no depositor lost a penny. Hepointed out that the bank had since repaid government loans faster than expected and was able to return to mortgage lending.
Business Secretary Lord Mandelson defended the decisions on Northern Rock but admitted he had not read the NAO report..
Reader views (14)
It would be interesting to have a legal experts view on this. Directors are legally bound to their fiduciary duties so surely The Chancellor of the Exchequer would be too? Has anyone relevant experience in this field? Seeing gb and his treasury cronies in the dock would go along way to making Britain "United" and "Great" once more by restoring some faith and accountability from our timorous politicians.
- Richard, Colchester, 23/03/2009 12:47
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Circa 2005, Eddie George said we had an asset boom but was powerless to act. The BoE remit was to manage general inflation only, not asset bubbles.
This is a failure of legislation because GB thought "boom and bust had been eradicated".
Its like the X Files - The Truth Is Out There
- Dave Davies, Basingstoke, Hants, 23/03/2009 09:02
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Brown is not a part of the problem, he is the main cause of all the problems. He ignored dire warnings from IMF, FSA and National Audit Office who all knew better. He boasted 'I ended boom and bust' proving his commercial sense is insufficient to run a sweet shop. He boasted 'I ended the economic cycle' proving he is an insane megalomaniac. 'Brown's Touch' is the reverse of the Midas Touch. Brown makes misleading headlines to get votes, has some cunning and can bully and intimidate. Brown praised Fred Godwin as a great banker. Proof of complete self delusion. Another City expert appointed by Brown, 'Lord' Myners approved Fred's pension and lied to Parliament he did not know the details, despite full briefings and 3 long discusions on it. Brown said Fred was 'his best and truest friend'. What a pair.
- Jimmy Scot, glasgow uk, 21/03/2009 11:24
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I have been saying this for over four years. Brown has been shouting how good he is for years when in fact he is not really very good at all. All he was, was in the position to be able to do the things without having to listen to any one else. Which is exactly what he did. Two things Brown does well, he does not listen, and he does ot take advice. He thinks he knows best. And look where that has got this country. This particular group of Labourite's have a lot to answer for.
- Ebin Donk, angus scotland, 20/03/2009 17:42
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I must disagree with some of the posters, he was not doing nothing, he was locking horns with Tony Blair and at the same time raking in the tax pounds, whilst borrowing ever larger sums, to spend on his bloated army (civil service) pet projects which had nothing to do with looking after UK PLC.
On TV today, he said he had not read the report fully, but ignored the section that said that he knew about it, although you and I, if we were the subject, in part, of such a report, would have immediately gone to the section which dealt with alleged shortcomings.
He will deal with this in the way that he has always dealt with this, ignore it. He is, after all, the greatest gift we have ever had and is the only one who can lead us out of the mess that he got us into, so he says.
He is the problem, and will remain a problem until such time as the public gives him his well deserved order of merit, the order of the boot!
- Hugh, Middx, 20/03/2009 17:19
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Is there any reason why the goverment and the labour party cannot be sued for criminal mismanagement and deception.There is an abundence of evidence to support a strong prosecution case and is it not about time that we punished those unqualified political animals who deceive us at election times with false bloated promise's of non existent competence which enevitably always leads as history shows to the tax payer paying dearly for there deception.One particular law that come's to mind and relates to my own personal experience in youth whence i declared a lack of licence endorsements to obtain a driving position resulting in a cherge that i "obtained a pecunery advantage by uttering a false statement to obtain legal employment".I was convicted.Please come forward one wealthy individual and give us a test case against our so called public servants.
- Alan Parker, Newcastle upon tyne, England., 20/03/2009 15:48
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That's a surprise to those who believe him to put Queen & Country first before his own ego.he should be thrown out by his own party before the country does.
- Harvey Lawrence, London UK, 20/03/2009 15:46
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He ignored it because he believed he had eradicted boom and bust. FOOL
- Dave Davies, Basingstoke, Hants, 20/03/2009 15:22
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Er Margy, The comment was made from the point of view of Brown repeats the mantra of The do nothing party, but as long ago as 2004 did exactly that, hence 'would appear' I should have said the Did Nothing Party. Irony was not my best topic at school, which was such a long time ago!
- Alan, carlisle uk, 20/03/2009 15:14
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Alan, carlisle uk
Selective memory. If you cared to indulge in a little self education you would find out that the tories do have ideas and policies. You are just choosing to believe Brown's mantras & labour propoganda (lies) which are repeated over and over again (regardless of whether or not they are true) in order to make people like you think they are reality.
Besides, every time Cameron mentions a good policy idea, Brown and his cohorts just go and nick it.
- Margy, London, 20/03/2009 13:01
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Of course Brown wasn't listening, he wasn't 'with us'. Between 2004 and 2007 he was fixated in masterminding a powergrab to depose Blair!
With Gurner Gordon it's always been self, before party, before service.
Get it?
- Dave, Cumbria, 20/03/2009 12:17
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Didn't the IMF also warn Brown, as early as 2005, that spending and borrowing were getting out of control?
Brown's reply was that he had ended 'boom and bust'.
Why aren't the press making more of this?
Brown is culpable for so many of our current woes and the activities of the Banks in NY and London contributed towards the global recession.
Brown is clearly unfit for purpose and should be removed from office before he causes any more avoidable destruction and damage.
- Margy, London, 20/03/2009 11:54
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Now remind me, which party would appear to be the 'Do nothing party'?
- Alan, carlisle uk, 20/03/2009 11:44
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So the Government,Gordon Brown,the Treasury,the FSA and the Bank of England had thought of the problem of a failing Bank but did nothing to stop such a thing happening.They were in my estimation extremely negligent,especially Gordon Brown as he set the Tripartite system up in the first place.For to stand up now and say it had nothing to do with him(it was all the USA's fault)just shows he is not fit for purpose.
- Nigel, wimbledon, 20/03/2009 11:01
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