Hysteria in banking: stocks tumble

Last Modified: 29 Sep 2008
By: Faisal Islam, Sarah Smith

The world's central banks have spent the day battling to revive a financial system apparently close to paralysis.

A crisis that started in the USA today swept through Europe, felling banks in France, Germany, Holland - and here, with the nationalisation of Bradford & Bingley.

Crunch UK: Bradford & Bingley nationalised

All this on the day the US House of Representatives votes on a bailout plan that was meant to calm the markets. Instead, share prices have slumped, particularly banking stocks.

Crunch US: $700bn loan vote drama

More coverage

FSA: 'we've been tracking B&B for months'

Talking to Channel 4 News Lord Turner confirmed that "the FSA, along with the Bank of England and the Treasury, have for several months been tracking the situation at Bradford and Bingley."

He added: "[the tripartite authorities] has been concerned about whether the existing operation would be sustainable in long term."

'What became obvious at the end of last week was that a purely private sector solution was unlikely to be available rapidly enough.'
Lord Turner, FSA

Lord Turner told the programme that "what became obvious at the end of last week was that a purely private sector solution was unlikely to be available rapidly enough and the situation was beginning to deteriorate."

Adding, "The FSA therefore took the decision that we had to take action and the tripartite authorities together agreed that the best way forward was what has actually gone ahead now".

Asked why the bosses of Bradford and Bingley had been offering assurances to their customers last week, Lord Turner said that "issues to do with funding can of their nature keep on changing over time" adding:

"There can be reasonable expectations that funding is available and then it turns out not to be, or there can be situations where you understand what is happening to retail sentiment and there's a real possibility that funding is going to turn bad very quickly.

"That was the judgment that we had to make, and I think it is the nature of these situations that reasonable judgments at the beginning of the week, you have to be willing to say that by the end of the week, you've got new facts and a new situation".

Asked if this had been a pre-emptive strike, Lord Turner said:

"It was a strike, which was required because we the FSA had decided that Bradford and Bingley were beginning to break what was called their 'threshold conditions', their conditions in terms of liquidity and the visibility of their liquidity going forward, which are required for us to say that its ok for them to continue to operate and to take in new deposits."

He explained: "We have to have a point were we say, looking forward we are not confident of that being the case and therefore we have to stop it taking on new business".

Adding: "Once you've got to that stage, you've then got to try and have a solution in place. And the situation was there were contingency plans for what we would do if it got to that situation".

Pushed on any differences with Northern Rock, Lord Turner replied:

"Compared with the Northern Rock situation, lessons had been learned. There were also legal powers available to the authorities which didn't exist at the time of Northern Rock.

"And therefore we have been to a much greater extent, able to prevent there being and an actual panic situation of queues in the street... and also we have been able over a weekend, to end up with a clear solution which is in place".