Gordon Brown admits 'big mistake' over banking crisis

Watch: Gordon Brown, speaking at The Institute for New Economic Thinking's annual conference in Bretton Woods New Hampshire, says he made a 'big mistake'

Gordon Brown has admitted he made a "big mistake" over the handling of financial regulation in the run-up to the banking crisis of 2008.

The former prime minister told a US conference he had not realised the "entanglements" of global institutions.

He said: "We set up the FSA [the City regulator] believing the problem would come from the failure of an individual institution. That was the big mistake.

"We didn't understand just how entangled things were."

Mr Brown said he had to "accept my responsibility" but added he was not the only one who had made mistakes.

'Global meltdown'

Conservative Party deputy chairman Michael Fallon said: "These are the first words of contrition Gordon Brown has uttered in his entire political career.

"But he hasn't apologised for doubling the debt, selling off the gold and leaving our children and grandchildren paying the bills for his mistakes."

He also called on Labour leader Ed Miliband and shadow chancellor Ed Balls, who were both key advisers to Mr Brown during his years as chancellor, to apologise.

Mr Balls, said the current Chancellor, George Osborne, had been a keen advocate of further banking deregulation when the Conservatives were in opposition.

Mr Osborne had accused Labour of being "too tough", he said, adding: "You aren't hearing that from George Osborne anymore."

Mr Balls also said: "I take my responsibility. I was in government. In Britain, our government, our central bank and our regulator, like in America, in Germany and across the world, we didn't get [bank regulation] right.

Start Quote

We didn't understand how risk was spread across the system, we didn't understand the entanglements of different institutions”

End Quote Gordon Brown

"But the actions we took to stop this becoming a global economic meltdown were right."

'Across the system'

Addressing the Institute for New Economic Thinking in Bretton Woods, New Hampshire, Mr Brown he had come under "relentless pressure" from the City not to over-regulate.

"We know in retrospect what we missed. We set up the Financial Services Authority (FSA) believing that the problem would come from the failure of an individual institution," he said.

"So we created a monitoring system which was looking at individual institutions. That was the big mistake.

"We didn't understand how risk was spread across the system, we didn't understand the entanglements of different institutions with the other and we didn't understand even though we talked about it just how global things were, including a shadow banking system as well as a banking system.

"That was our mistake, but I'm afraid it was a mistake made by just about everybody who was in the regulatory business."

'Incomplete understanding'

Mr Brown said the banking meltdown had forced a rethink of financial regulation "in its entirety".

"I have got to accept my responsibility and I do, and I have been very open about saying we made mistakes on that," he said.

"But in a world where the understanding of what global meant was incomplete, I think many writers as well as many regulators made exactly the same mistake."

The FSA, which Mr Brown established on his first day as chancellor in 1997, was widely criticised for its part in the banking collapse.

Mr Osborne has announced plans to break up the FSA and hand more regulatory power to the Bank of England.

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