Treasury Committee bitchslaps Alistair Darling
Posted by Christie Malry on March 31, 2010 at 1:05 pm
From the recently-published Treasury Committee report Too important to fail–too important to ignore, on page 13 (emphasis added):
A robust banking system must include a high level of protection for the retail depositor. Investors and wholesale depositors must price the risk, as the majority of consumers are in no position to undertake due diligence on the banks with which they hold deposits. It is noteworthy that audit reports are for investors rather than depositors. But an explicit provision of a guarantee on all deposits, without limit, is a step too far. There will be trade-offs even in deciding which limit is suitable, and whatever limit is chosen, there must be clarity about the limit of depositor protection. This will require constant consumer education and clear information within all financial institutions.
This basically says that Alistair Darling was wrong to guarantee all deposits. At the time, people were moving their money to the riskiest, highest interest rate accounts because they didn't perceive there to be any risk. When they looked like losing their money, they squealed. And when push came to shove, Darling buckled and underwrote their risk-taking.
In the future, these deposit rate tarts need to know that they can take bigger risks but it will be them, not the system (and therefore the rest of us) who will carry the financial downside.
[...] from the same Treasury Committee report, this time on pp16-17 (emphasis added): If investors are to assess [...]