Gordon Brown emphasised at this week’s PMQs that foreign banks that normally invested and managed funds in London had contributed to the ‘credit crunch’ by suddenly withdrawing their money back to their own countries, which severely reduced the funds normally available for British lending.
This had placed additional strains on British banks, because they could not completely replace the missing funds.
Perhaps the Prime Minister, and his Chancellor, might reflect on the wisdom of their knee-jerk reaction to the collapse of Iceland’s banks in the seizure of Iceland’s financial assets located in London, using the anti-terror laws to do so, which exacerbated the problems of Iceland’s banks and advertised the politically volatile impetuousness at the heart of Government.
Many foreign bankers did the sensible thing; they moved every last penny of their London deposits immediately, or as quickly as possible, just in case the same government seized their assets under one political pretext or another.
Once somebody’s assets were sequestrated by London’s government, breaking long-standing investment covenants necessary for London as a successful and safe centre for international finance, those who felt vulnerable did the ‘right thing’ by their own interests. Whatever quiet assurances the Treasury offered to foreign banks and investors, clearly they were not believed.
This amounts, on Gordon Brown’s own admission in Parliament, to a self-inflicted, near-mortal wound to British banking and to the longer-term interests of the City’s international reputation.
Professor Gavin Kennedy is a fellow of the Adam Smith Institute and writes regularly here