Gordon Brown

Before becoming Prime Minister, Brown praised bankers for their achievements and predicted “the beginning of a new golden age for the City”,

Brown’s time as Chancellor was marked by major reform of Britain’s monetary and fiscal policy architecture, transferring interest rate setting powers to the Bank of England, extending the Treasury’s power to cover much domestic policy. In 2001 he created the Financial Services Authority, which was given responsibility for banking supervision.

While he also established many of the regulatory rules, there was criticism that before the Crash regulators were under political pressure not to stop banks’ reckless lending.

“The key thing that went wrong was that a culture was allowed to develop over the last 15 years or so where the relationship between what people did and what they got went way out of alignment, especially at the top end. If there is a fault, it is our collective responsibility.” said Alistair Darling. “We set up the Financial Services Authority (FSA) believing that the problem would come from the failure of an individual institution,” he said, “So we created a monitoring system which was looking at individual institutions. That was the big mistake.

“We didn’t understand how risk was spread across the system, we didn’t understand the entanglements of different institutions with the other and we didn’t understand even though we talked about it just how global things were, including a shadow banking system as well as a banking system.

“That was our mistake, but I’m afraid it was a mistake made by just about everybody who was in the regulatory business.” (Mary Riddell, Robert Winnett and Andrew Porter, Daily Telegraph, 3 Mar 2009)

On the other hand Brown has also been seen as one of the main figures responsible for saving world from financial meltdown by “equity injection (temporary part-nationalisation). In October 2008 his officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again. The major economies of continental Europe followed suit, injecting hundreds of billions of dollars into banks while guaranteeing their debts.

Get the latest news from Promoting Economic Pluralism: