The day Britain nearly went bust

For most of us Friday 10th October 2008 was just like any other day, and we all went about our business as usual, with no idea that government officials were working frantically behind the scenes to try and save the nation from a disaster. However, it has now been revealed that on that same date the nation was on the brink of financial collapse.

In fact, in a recent report one of the ministers for the Prime Minister, Gordon Brown, has admitted that Britain was in fact just three hours away from complete financial meltdown last October, which could have resulted in national disaster. City Minister, Paul Myners, recently reported that on that Friday in October a number of major depositors attempted to withdraw their cash from the UK’s banks, which would have resulted in a run on the major banks in the UK.

The minister claims that the situation became so bad that government officials were ready to commence a banking lockdown, where banks across the nation would have had to close their doors to customers, cash machine withdrawals would have been stopped, transfers would have been cancelled, and banking operations would have come to a standstill. Had the banking collapse continued the Prime Minister would have had to announce the nationalisation of the financial system in the UK, according to Myners.

However, whilst Myners obviously thought that it was about time people knew just how close the financial meltdown the UK was last October, some have said that he has acted irresponsibly in admitting just how much trouble the nation’s banks had faced at a time when the recession was still taking a hold and when major banks were still under a huge amount of pressure.

Speaking about the day of the near meltdown, Myners said: ‘There were two or three hours when things felt very bad, nervous and fragile. Major depositors were trying to withdraw – and willing to pay penalties for early withdrawal – from a number of large banks.’

He added that the Bank of England even had to contact creditors in New York and Tokyo to talk them out of withdrawing their funds so that the banking system would not completely collapse.

A source from the Treasury also gave an indication of how severe the situation had become with the banking industry at that time, stating: ‘We faced the very real problem of how banks could stop depositors from withdrawing their money. The banks themselves were selling their shareholdings, accelerating the stock-market falls, and preparing to shut up shop. Mortgages would have been sold on and savers would have been spooked, to put it mildly. It would have been chaos.’

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said that Myners acted very irresponsibly for letting the cat out of the bag with regards to the severity of the problem, and she said that this admission could cause further strife for already struggling banks, stating: ‘We are not out of the woods yet. I fear for Barclays, after the fall in its share price, and Lloyds has been damaged by the HBOS takeover.’ She added: ‘If it was panning out in that way, then the Government would have had no choice but to step in and nationalise the entire financial system.’

Tags: britain bust, financial collapse, Financial crises, Baron Myners, stock market, credit crunch, bank of england, recent report