Turner: Cost of bank bailout was small compared to instability

The cost of the financial crisis may be much less than was initially feared, the chairman of the Financial Services Authority said yesterday.

In his opening remarks to the Treasury Select Committee, Lord Turner said: "Discussion of about the costs of this crisis often focuses on the costs of public rescue – exceptional central bank liquidity support, Treasury funding guarantees, and equity injections.

"But these overt costs, while significant, may turn out to be small relative to the overall costs of financial instability. Central bank liquidity support is provided at market or penal rates and may turn out to be profitable: guarantees are provided for a fee and may well not be called, and the equity stakes may rise in value in future."

Lord Turner said it was "quite possible" that the total overt costs of the big bank rescues may end up being less than 5 to 10 per cent of GDP, "and perhaps considerably less, as was the case in the Swedish banking crisis of the 1990s". But he said both regulators and banks had been "led astray" by the boom times and had been operating for too long on the basis that they could not end.

The peer added: "Everyone was seduced by the long boom. We were often led astray in the past by complicated mathematical rules. Regulators failed to notice the inherent weakness in that position."

He also warned MPs that there could easily be a repeat, saying: "History tells us that it could happen again."

Lord Turner said the FSA would look again at the regulation of financial products, although the watchdog is wary of such a move, given that an FSA stamp of approval could be seen as too much of a guarantee that they could not lose money. At the hearing, he also said London could not go it alone in squeezing the banks tighter if it still wanted a viable financial centre. Were the UK to take this step, he warned, it would inevitably lose business to rivals.

He indicated that banks could escape an outright ban on deposit- taking institutions indulging in "proprietary trading" – where they take bets on financial markets using their own capital. This, he said, could be covered by imposing much higher capital requirements on banks engaging in these activities.

However, he sought to play down a difference of opinion with Paul Volcker, the economic adviser to US President Barack Obama, who wants to see an end to bank trading that is unrelated to customer service. Lord Turner said he believed there was no "fundamental divergence" between Mr Volcker plans and the way the US Financial Stability Board (FSB) is addressing this issue. The FSB has been given the job of setting out banking reforms to prevent a repeat of the financial crisis by the G20 group of nations.

Lord Turned told MPs: "Having discussed this with Paul Volcker, I believe we are in full agreement on the means and that capital requirements for trading activities will be key."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable