Speaking to the Treasury Select Committee, Darling admitted that banks should not be able to hide ‘off-balance’ sheets, but insisted that the liquidity issue could not have been anticipated. He said: “No one anticipated a freezing of liquidity, which was unprecedented in modern times.”
Darling also admitted that he was responsible for the Tripartite systems which had failed and indicated that the government was looking at ways in which to help lenders who were experiencing funding difficulties.
Speaking at the International Bankers Annual Breakfast Dialogue in Washington, Callum McCarthy, chairman at the Financial Services Authority (FSA) admitted that the market had been stretched in recent months. He said: “These are testing and fast moving times for both bankers and those who regulate and supervise banks. They are testing times because we are dealing with the effects of a much needed and, in many ways, overdue correction in the pricing of risk, which has imposed strains on a number of business models and which has raised questions about the effectiveness of bank regulation and supervision in countries round the world.”
He added that the FSA would be undertaking its own review of liquidity models in an effort to stave of any further funding downturns in the UK market. “The recent troubles, whatever their causes, have manifested themselves as an acute liquidity problem, and we need to make progress on liquidity standards,” he added.
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