The shocking reality of how close Britain came to financial meltdown - BBC

Britain's big banks under sustained attack on the markets. As we go on air there are crisis talks about how to stabilise the banking system. By early evening on the 7th of October 2008, just over 12 hours before markets opened, the government team now needed the banks to sign up to the bailout plan. Having briefed the Prime Minister at Downing Street, Alasdair Darling returned to the Treasury to meet Sir Fred Goodwin and Britain's other top bankers. All the biggest banks in the country were there. Fred Goodwin came about seven o'clock, very impressive, calm, collected. He could very well have been your proverbial duck that looked calm on the surface and was paddling like mad underneath, but it wasn't obvious. However cool Fred Goodwin appeared, he and his bank were clearly at the centre of the crisis. If RBS had failed, the consequences for the other banks in that room would have been very severe. So they were all in this together. They were not used to being in the position from being the masters of the universe to very much coming as supplicants. Some of them were ashen faced. They were all scared. But at that stage, they didn't really know what the government had up its sleeve. At the centre of the bailout plan was the request that to calm the markets, all the banks signed up publicly to a £50 billion package of capitalisation. In reality, while HBOS was also in trouble, RBS would be by far the largest recipient and the government would become its major shareholder. There was no agreement from the banks to sign up to the collective deal. They wanted to negotiate on that issue of the shareholdings. One of them said, what if we don't agree to it? And I said, well, tomorrow morning, when everything crashes, you can explain to your shareholders that you didn't fancy doing what we're asking you to do. So that was the end of that conversation. And so Alastair Darling said, try and understand the deal better. It was like, you don't understand. Once you understand, you'll sign. I was just trying to sort it out because the clock was ticking all the time. If we did not have a done deal by seven o'clock the following morning, that was it. So the banks all trooped out and I was sent down to explain it to them. And in that meeting, it was clear the pressure was moving around the room. And at some stage, somebody said, come on, Fred, we all know it's your issue. His fear was that if we'd announced eight banks, 50 billion, and the minute we announced it, seven banks said, it's not us. Well, it's him. With the bailout negotiations set to run into the night, Treasury officials decided to send out for food. There's actually a very good curry house just on the south of the river, which I'd been going to for years. And somebody had the idea, why don't we get them to bring some curry in? There was this enormous order placed, which was actually piled high in little containers next to the chancellor's office, available really to anyone that evening to come in and take. Well, it's a sore point, the Balty, because I didn't get any of it. By the time I'd made my way back from this meeting with the CEOs, the Balty had been completely hoovered up. As midnight approached, Goodwin and the other CEOs were still refusing to sign up to the bailout plan. I worked out if I stayed in the building, there was always a chance that I might relent. So I told them right at about 11 o'clock that I was going to my bed. It was a very bold move and a very good move, because if he hadn't left the building, the banks would have chiseled away and tried to make adjustments as they saw fit. By 2am, all except one of Britain's major banks had agreed in principle to the conditions of the bailout. Fred Goodwin was resisting until the end the need for RBS to have any capital. We didn't say, we are forcing you. We said, the banks need capital and this is the money that is available. He didn't have a choice. In the early hours of Wednesday morning, Britain's biggest banks finally agreed to sign up to the Treasury's bailout plan. I got up at five o'clock. When you're in 11 Downing Street, the flat is just above the work, if you like, so it doesn't take long to come down. But what I had arranged the night before was I wanted a meeting at five because I wanted to know where the negotiations had got to. But at 5.30, he was taking this briefing. I was told by our lead official that our proposal to put 50 billion pounds, it's a lot of money, into the system to provide capital for the banks would shock the markets because they'd think it's got us worse than we thought and it would be better to do 25. So we eventually agreed, you know, after about 10 minutes, we'll announce 25 billion pounds and I will say there's 25 more to come. And everybody's happy because apparently they weren't going to add 25 and 25 but it still came to 50. He read the announcement, made a few tweaks. We got confirmations from the banks before seven to say they'd sign up. As we were about to acquire substantial shareholding in RBS, I had to sign off, literally sign off. And I remember sitting overlooking St James's Park in central London just as it was getting light. And it's a historic moment here. You know, you are acquiring a large chunk of the world's banking system. Having signed off the deal, at 7am Darling left the Treasury to present the bailout to the media. At 9.20, he arrived at Downing Street to make a joint statement with the Prime Minister. Good strong banks are essential for every family and for every business in the country. And extraordinary times call for the bold and far-reaching solutions that the Treasury has announced today. I just say this, that we are going through a period of extraordinary turbulence in every part of the world. Every single country is being affected. When I look back now, there's not many occasions when you can honestly say what we did made a difference. And this is one of the occasions, it did make a difference. If we had not done what we did, then the banking system would have collapsed and the consequences would have been calamitous.