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How I helped rescue Britain from brink of bank disaster
Jonathan Prynn, Consumer Business Editor15.09.09
The minister who brokered the rescue packages that saved Britain's financial system from collapse last autumn today spoke of the "unimaginable" chaos that would have followed if they had failed.
On the first anniversary of the fall of Lehman Brothers - triggering the world's gravest financial crisis since the 1929 Crash - former City banker Shriti Vadera, who works with Lord Mandelson and the Cabinet office, has described for the first time how the Government wrestled to keep the banks afloat.
In an exclusive interview with the Standard she said one of the major high street banks was "very close to collapse" in the days after Lehman went down.
In the weeks that followed Baroness Vadera and senior officials helped put together a series of unprecedented rescue packages, including the £37billion partial nationalisation of Lloyds Banking Group.
The minister, one of Gordon Brown's closest confidantes, said that if the deals had not been agreed Britons faced waking up to a world where they could not get money from cashpoints and thousands of businesses would have been forced to shut their doors.
This is the full interview:
When were you first aware of the seriousness of Lehman's position and of the catastrophic consequences of the bank's collapse?
The market, especially in New York, had been speculating about problems at Lehman for a few months but the situation really became critical during that last week and it was clearly the weekend that was decisive.
When talks with the US government failed and we heard of the collapse, the scale was clear but it was hard to imagine all the consequences and how they would play out — it was just so unprecedented. We had to operate on the basis of expecting the worst. But even then the interconnectedness of Lehman positions all over the world was unclear. I remember there were protests somewhere in the Far East when the implications became clear to some savers.
How close do you feel that the entire British financial system came to collapse?
It wasn't the UK banks but the world's banking system that was threatened. We'd been thinking the UK banks needed equity to declare their losses and had been working through how that could happen. But after Lehman, the situation became unpredictable — it felt like anything could happen quite suddenly.
A couple of the banks in particular were finding it hard to fund themselves even for very short terms. Thankfully we'd already started thinking about bank recapitalisation, because when it came to it, I think it was in time. One of the banks was close to collapse and in that environment, if one goes the contagion can spread rapidly.
What would have been the short and longer term consequences of that collapse — if for example a major British bank had gone under?
Dire. Unimaginable. At worst: people's savings at risk, we wouldn't have been able to use cash points, businesses wouldn't have been able to get credit and stay open. Banks oil the machinery of the economy.
In 1933 the US had to close everything down and tell people to stay at home over a few days while they tried to sort it out. But I think it's the long-term consequences that would have been even more dangerous.
Was there a pivotal moment when you felt that “armageddon” had been averted?
No, there wasn't, really. When your muscles have tensed up for a long time they aren't going to relax immediately. We couldn't really let up and I remember still watching those indicators constantly for months afterward and I still look at them every day. In retrospect I think the announcement of the recapitalisation and funding plan and the details a few days later for RBS, Lloyds and HBOS were a turning point, and the Europeans and US taking action following us was another turning point.
But the Treasury still had people working weekend after weekend. We have to remain constantly vigilant.
Were there times when you felt that events were running out of the Government's control? When was the most dangerous time?
Lehman was the shock that set off events that it seemed no one could control. But we knew what the right thing to do was. And we got there in time. But it felt isolated that no one else was prepared to do it and at that time it was a real worry.
The morning of 8 October, when the Prime Minister and Chancellor announced we would underwrite £50 billion and take shares in the banks, I wasn't sure how the banks, the markets, depositors, other governments were going to react.
It now seems so obvious and right to do what we did but it was really not obvious then. If it had been that obvious why had no one done it?
Those were extraordinary times without recent historical precedent. What was the mood of the meetings in which these key decisions had to be taken under the most intense pressure?
Focus, focus, focus. Driven to deliver the results the Prime Minister was demanding. The team spirit was great, you find camaraderie when it's 2am and everyone is giving it their all. And occasional black humour to ease the tension. And when it came to making the decisions with the Prime Minister and Chancellor, it was calm, focused, they questioned us to ensure we had covered all the angles. There wasn't really the time to be distracted.
Could it happen again?
The job we are now doing, the next phase, is to make sure it can never happen again. The Treasury has already implemented changes like the Banking Act and, with the FSA and Bank of England, is reforming our regulatory system totally.
We are proposing higher capital requirements for riskier activities and riskier banks, liquidity requirements, leverage ratios, changes to bonuses and remuneration and frankly we need bankers and boards who actually understand the risks they are taking.
The lessons have to be learned. People need to feel their banks are safe without government guarantees. There is no going back to business the way it was.”
Reader views (27)
She's a "positive discrimination" appointment by Zanu Liebour.
- James Caine, Witney, Oxfordshire
People like this jumped up, unelected, arrogant and overbearing nonentity, whom every Permanent Secretary detested, are part of the the reason for this country sliding daily into Third World status.
- Derek Peake, Exeter, England.
Who is this arrogant women...the way she is ratterling on...one would think she put the money up to save the banks...
- Mark Egan, Sidcup
Are you sure that her first name is correctly spelt? The only job this arrogant (and allegedly exceedingly unpleasant to work with/under) ZaNuLab Judas is fit for is related to the dispersal of the feculent output of the bird in the cuckoo clock.
She has form, this one, used to work in "merchant banking", the euphemistic expression for grand larceny, reckless endangerment of national wealth and general extortionate usuary.
- David Low, Cirencester, UK
Goes to show the utter utter arrogance of these people.
- Frank, Home Counties, England.
Article should read:
"How I was at the heart of government with incompetent economic policy which has lead to huge debt,whilst feathering my own nest..."
Labours inept management of the economy has left us in a terrible position.
- Joseph, London
Oh, she was the one who stuffed up TSB. Thanks a million! It was doing fine until she intervened. No doubt a place awaits her on the board when NuLabour leaves power.
- B Gare, Norfolk Gorleston
This parasite Baroness worked with Meddleslime?
That says a lot.
- Reuben Camara, Morecambe Compound, EUSSR
My view is that what the government did in the crisis, was like sticking you foot under a plate that's falling. You may stop it breaking if you are lucky, if not you'll probably reduce the overall amount of mess. And you don't have time to think whether you're using your foot in the best way possible, you just react and hope.
It's much better not to drop the plate in the first place. That wasn't all the government's fault, but they were in charge of regulating financial services, and both the regulators and the government were asleep in the run-up to the crisis.
The financial crisis isn't high on my list of reasons for wanting rid of this government, but neither is the crisis any reason to want to keep them.
- Nigel, London
Shriti Vadera. As one of the senior civil servants said about her " She gets things done but most often they are things that don't need doing".
- David Stephens, London
Fred the Shred knighted for "services to banking" Baroness most probably baronetted for being with Brown when he was a useless chancellor. Pity she never saw the mess before it hit the fan.
- Frederick, London
Those in the know how knew just how close we were on a brink of disaster. Be grateful that we had someone of her calibre at such a time to decisively sort the mess out otherwise we all would have been in a even worse situation now!!!
- Nik, London
'Baroness'? That means another unelected no-hoper in McBruun's appalling government.
Whilst the Banks have a lot to answer for, if NuLabour hadn't sold all our gold reserves at a rock bottom price and squandered our remaining reserves we would be much better placed to climb out of this mess they got us into.
Bring on the election - soon please.
- Mark Myword, London
Did'nt we hear that this government was going to stopping spinning their stories.
Oh.no.they are of again,spinning their total drivel and they expect us(the voters)to believe every word.She and the rest of this inept government do not seem to understand that we do not believe what they say,and we do not believe that they have saved Britain,Banking,Jobs etc.
The problems they have created will be with us for years.
Thanks.
- Grumpy As Hell, wimbledon
Jack of London thanks for posting a brilliant article. Its people like you who should be advising the Government.
- Ann, Norfolk
If the noble Baroness is so smugly reporting her "success" of saving the financial system and the world, let us hope that she never has to comment on her failures.
She has been at Mr Brown's elbow from the time he was the chancellor. She smugly waited while the Financial industry rotted away and the FSA slept on the job. Then she went an threw our money recklessly in "saving" the banks without dealing with the underlying problems such as casino banking, excessive remuneration and even worse bonus system. The culprits, otherwise known as bank bosses went home with their great loot and even greater pensions.
Still the noble baroness feels smug. No wonder Mr Brown likes her and no wonder once great nation feels lost with even young university graduates going straight to the dole queue.
- Raj, UK
No dear, WE, the electorate, saved the country. And we are expecting payback in 2010 when you are your ilk are confined to the dustbin of politics.
- Nobby Clark, Perth, the Scottish one
Let us look at the facts and take Lloyds TSB as an example. At a private meeting Brown convinces The chairman of Lloyds to take over HBOS ASAP and that the government will not refer it to the monopolies commission.
Due diligance was not conducted in the usual manner taking just 3 months to complete. Result, massive redundancies and branch closures and now the mortgage market has shrunk even further with fewer lenders.
The FSA is itself in financial difficulty having a pension deficit of £89 million and they borrowed £200 million from the very banks they are supposed to regulate to prop up their balance sheet. Yet they paid out £23 million in bonuses and are still critizising the City for doing the same thing. You couldn't make it up!
- James, Braintree UK
Baroness Vadera should remember it was a serious failure in the FSA, Bank of England and Treasury's regulation of the UK Financial Market in the first place that lead to this mess, which the UK taxpayer will have to honour. Why did the FSA not ensure real due diligence checks had been done by RBS and HBOS? New Labour have not refelcted on what went so wrong and there will be no moral hazard now, that banks can fail.
- Andrew, London
I wonder why she is looking so smug? This is a "close confidante" of Brown and so presumably was the brains behind his disastrous handling of the economy and his complete lack of financial management. No coincidence that this dope used to work at UBS the bank that lost the most in the recent turmoils and itself had to be rescued after being caught out giving questionable advice to US taxpayers. And her reward? A title and a cushy seat in the lords.
- Jon, london
Another one claiming to have saved the world but not a mention that a)the world would not have needed saving if the govt had put in a proper regulatory regime and b) that the world will need saving from the debt mountain that our children and grandchildren will inherit from this administration.
- Peter, London thr
Isn't this a bit like those odd people who go and commit a crime themselves and then turn up all public spirited to help solve it? I believe it's regarded as a form of attention-seeking.
- Will Vieux, Hampshire
Wasn't this the buffoon who was giving it Green Shoots talk at the height of the recession? Another unelected, unaccountable, inept drone who has been promoted to the level of her incompetence.
- M, London
Funny she claims all the credit. Apparantly some say Standard Chartered Bank went to the Government with the bank rescue plan. She was the one who defamed the Railtrack shareholders as 'grannies' when Labour ran Railtrack badly they had to take it over, and wipe out the 'grannies'. The same with banking. Brown put the FSA in control, replacing the Bank of England. Then told the FSA to 'regulate light' and ignore risky loans by RBS and HBOS. Result over risky lending by banks so they collapsed.
She also forgets the Northern Rock run was 12 months before Lehmans. So the Credit Crunch had a major UK cause, and was weakened already by Brown 'reforms', not not just from the US. Northern Rock was totally mishandled. They could have had it all settled by a Lloyds buy out.
Her article all sounds like personal boasting puff for Brown. Like his 'I ended boom and bust'. Funny he repeated that a lot in 2007, just as the markets all peaked. Not much mention recently. Does he NOW see how financially ignorant he really is?
Recent polls say 66% want 'Anyone but Brown'. Who are the other 33%,,, cavedwellers? Or do they depend on Brown for income, and stuff the rest of the uk?
- Jack, london uk
We do well lying to ourselves that we are a democracy with an unelected head of state (Lizzie), unelected prime minister, unelected deputy prime minister and unelected upper house.
And then we lecture Afghanistan and Africa about elected democracy. Farce.
- Thomas, London
I’m sure her words and the joy we can all share from reading about her "achievements" will mean so, so much to the people who have been out of work for a year as well as to our next couple of generations who will be saddled with the enormous debt which will be New Labour’s true legacy.
- St, London
Who voted for this 'Minister'? Complicit in bankrupting the nation and completely unelected (just like her boss) and proud of it. Is this democracy? Seems to me the Army should be deposing tyrants closer to home. Regime change in the UK now! Election!
- Ethan, UK
