UK Faced ‘Bank Runs, Riots’ as RBS and HBOS Neared Collapse
October 10th, 2009Via: Bloomberg:
A year ago today, Royal Bank of Scotland Group Plc and HBOS Plc were close to collapse, causing a chain reaction that could have ended with riots in U.K. cities, security analysts and economists said.
Bank failures would have forced the government to cancel police leave and deploy troops as the breakdown of the financial payments system threatened the ability of utilities to provide essential services, said David Livingstone, a fellow at the Royal Institute for International Affairs in London, a former adviser to the government’s Cobra crisis response committee.
“You are talking about a situation with mass disorder and panic,” the former Royal Navy officer said in an interview. There would be “riots, pandemonium, everyone fending for themselves.”
Chancellor of the Exchequer Alistair Darling, Bank of England Governor Mervyn King and Financial Services Authority Chairman Adair Turner met at 5 p.m. on Oct. 7, 2008, and readied a 250 billion-pound ($398 billion) rescue for the banks in the 16 hours before they opened for business the following day. In response to a Freedom of Information Act request from Bloomberg News one year on, the Treasury declined to say if it had a contingency plan for the two banks, then or now.
Releasing such information would probably “have a destabilizing effect on financial markets,” damage the government decision-making process and cause commercial harm to the banks involved, the Treasury said in a letter.
“In the current economic climate, economic perception, even if totally misconceived, is important and has the capacity to alter market behavior,” the government said. “To confirm or deny whether or not the information is held, either in relation to the banks mentioned in your request or more generally” would hurt the banks and the U.K.’s economic interests.
‘Catastrophic’ Costs
The crisis last year was the worst Britain had faced in peacetime, Darling told the British Broadcasting Corp. last month. The two banks were not “confident they could get to the end of the day,” on Oct. 7, King told the same program.
“You would have had unmitigated panic and a bank run,” said Tom Kirchmaier, a fellow at the London School of Economics. “People would not have been able to buy bread. The cost to the economy would have been catastrophic.”
