Bankers under fresh pressure after beng pulled back from the brink

We are trying to achieve closure; we are trying to say there is a basis on which banks can say it will get no worse than this.”

Lord Myners , an insider brought in from the top of business and banking by Gordon Brown to add expertise as City Minister has given the frankest interview so far on the state of the financial crisis. Ministers appear to be trying so steady nerves now by admitting we were “ on the brink” in October. Saving the banks then was the necessary first step in order to save the economy now. Myners’ tilt against the bankers draws fire away from government for a while and diverts attention from the insistent question: are the government’s twin bailouts going to do the trick? The growing consensus is – No. Myners told the Times.

“We were very close on Friday, October 10. 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.”

To show he’s no banker’s poodle Myners lays pretty brutality into some of his old colleagues.

Ӆ if people have committed crimes they should be prosecuted. : “I have met more masters of the universe than I would like to, people who were grossly over-rewarded and did not recognise that. Some of that is pretty unpalatable…They are people who have no sense of the broader society around them. There is quite a lot of annoyance and much of that is justified. Let us be quite clear: there has been mismanagement of our banks.”

Myner’s seems to be softening up the banks to start lending once the details of the government deposit insurance scheme is ready late next month .His main worry now is that banks have gone from a period of “excessive exuberance” to one of “reckless caution. They are “are at the shallow end of the pool, clinging on to the rail. We want to get them out into the deeper water. If they don’t go there, the fear they have is crystallised by their own actions. Failing to support British business and householders is going to create a downward spiral.”

The Economist in its main leader is broadly supportive of government – which won’t please David Cameron – but clearly believes it hasn’t yet done enough. Mass panic is still a threat.

“The excessive lending of the boom has to be brought under control. That inevitably brutal change can take place in two ways. It could be relatively orderly as borrowers scale back and lenders strengthen their balance sheets. Or it could cause a mass-panic that would wreck banks and businesses as it did in the 1930s. Just such a panic was in the air in October. Today’s recession is grave but in sparing the banks, however undeserving, governments spared their citizens from something worse—at least so far.”

Is the government getting it right?

“For any government setting out a rescue, this reception holds two lessons, concerning the scale and the shape of a rescue. First, its scale must surprise everyone. Britain chose insurance alone and, at the moment, it looks as if it has made a mistake. The suspicion is that the government preferred insurance for political reasons because it is a promise-now, pay-later scheme. It would have done better to reach for that kitchen sink and do both—buy the worst assets at their market value and put them in a bad bank, as well as insure the healthy assets that remain against catastrophe.”

Myners doesn’t disagree – but ministers haven’t reached the “bad bank” stage yet, at least in public..There could, the minister admits, be more bailouts to come. “There may well be. Who knows? It depends how we negotiate these things… Nationalisation is not the solution, he says. “I always say you can never rule anything out, but I believe that strong independent commercial banks are the best way to manage the division of credit in our economy. However, he insists that the Government will do “whatever is necessary” to shore up the banks. “Doing too much is less risky than doing too little.”

Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London