Treasury: we were unprepared to deal with the financial crisis

 
Julian Harris
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THE TREASURY was severely unprepared and ill-equipped to deal with the financial crisis, according to a damning internal report it published yesterday.

The core government department was too reliant on inexperienced staff – who had an average age of 32 – and appeared to be working under the assumption that a financial crash was not a threat, it said. An inability to deal with failing banks was recognised by the Treasury, but was not followed up vigorously “as the risk of major financial instability was deemed to be low”.

A standing committee working under the tripartite of the Treasury, the Bank of England and the Financial Services Authority (FSA) “identified the absence of a legislative framework to resolve failing banks as early as 2005,” the internal Treasury report states.

“Remedying this was not deemed to be a priority by the Treasury in the context of the benign financial climate.” A systemic crisis “was judged to be highly improbable”.

The report added that the Bank of England responded more slowly to the crash than the Treasury. Threadneedle Street officials “are accustomed to working in a more hierarchical structure,” it said.

Relationships between the Bank, the Treasury and the FSA “were sometimes more strained” at senior levels, the report revealed.

The FSA has conducted a similar self examination following the crisis, but the Bank of England has not.