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Gordon Brown reveals US and UK simulated bank collapse in 2007

The US and UK governments engaged in a financial ‘war-game’ to simulate the collapse of a bank after the run on Northern Rock in September 2007.

In his book out today, Beyond the Crash, former prime minister Gordon Brown describes how together with the Financial Services Authority, Bank of England, HM Treasury and US counterparts he began preparing for a collapse.

Brown says it was the first joint simulation test between the two countries on financial matters.

He says:  “Most who joined our financial ‘war-game’ started with the view that there would be much moral hazard if a rescue was undertaken.

“After much discussion, most ended with the view that in some circumstances rescues would have to be undertaken. No one imagined that in our modern economy there would be queues around the block with runs on banks.”

Brown says he could not involve the private sector for market-sensitivity reasons but now feels he should have included them.

He adds: “Most importantly the simulation was not set up to ask what might happen if a combination of banks might be in difficulty.

“With the exercise bound around the fate of one institution, there was no detailed discussion of the increased entanglement of the institutions with each other and the dependence of many institutions on the shadow banking system- and what would happen if an off-balance sheet entity had to be brought back on to the balance sheet.”

Brown also says Council of Mortgage Lenders’ figures on July 18 2008 showed a 32% drop in lending from June 2007 and these figures made his “blood run cold”.

He says he knew that this meant a lack of credit for individuals and businesses and could lead to a bad recession.

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  • Brian 7th December 2010 at 5:38 pm

    The proceeds fom his book are going to charity – after he’s taken his expenses out no doubt!

  • Samuel Dale 7th December 2010 at 5:06 pm

    @anon 5.00pm All profits from Gordon Brown’s book are going to charity.

  • Brian 7th December 2010 at 5:00 pm

    Just another book full of questionable claims from another greedy polititian in order to make mega-bucks by writing a book – after failing miserably.

    I seem to remember Gordon Brown being interviewed on TV JUST BEFORE THE GENERAL ELECTION. When asked ‘what will you do if you lose the election?’ his reply was along the lines of ‘I’ll probably give up politics, and go and do something worthwhile like CHARITY WORK’. Haven’t seen much of that Gordon have we? Then they do say that charity begins at home.

  • Philip Curnow 7th December 2010 at 4:22 pm

    Huh ! So much for our political leaders ! I could have told them that BEFORE Northern Rock his a brick wall – and I was “just” a lowly IFA compared to the wonderful brains at the FSA, Treasury, etc . . . . in fact, I DID tell them exactly that in a number of newpaper articles I wrote (I’m also a freelance journalist), which of course were rubbished by those in the seats of power . . . . about time the whole lot in authority at that time were given their marching orders ! – I decided to drop the IFA side of my life and have moved far more to Journalism and Photo-Jouranalism . . . but with lots of other sensible people in financial services deciding to get out and keep their sanity and integrity, what good is that going to be for the next generation of victims of Bank and Regulatory blunders !