Mr. Tim Bush:

I will answer that question by finishing Mr. Butler's answer. The key issue when things go wrong is who knew what, when and where. The case of Northern Rock was the first run on a bank in the UK for 100 years in the early autumn of 2007. The day after that, somebody in The Timeswrote an article asking if the situation was the same as the collapse of the City of Glasgow Bank 100 years previously, that is, this was not a liquidity crisis but a capital crisis and that was why nobody would lend to it. It is as if markets smell that there is a problem. That analysis kind of faded away.

Six years later, the Bank of England minutes were released publicly. In that autumn, the bank knew it was lending money to Northern Rock but the public did not know, because it was private. A board member asked if the numbers are right, if the bank was insolvent or if the problem was one of liquidity. Again, that analysis got pushed away because other parties were saying that the banks were all solvent. If an entity has audited a bank, it has an interest in saying that the bank has capital. If it has audited ten banks globally, it has a major problem on its hands if it starts admitting that there is a systemic problem and that the banking crisis is actually a capital crisis. It suited an awful lot of people to call the banking crisis a liquidity crisis when it was actually a capital crisis. Every banking crisis in history has effectively been an insolvency crisis where the assets are overstated and the capital is, therefore, overstated. For years, people were running with a red herring and what was quite remarkable in the UK was that the Walker review, which was conducted in early 2009, came up the liquidity crisis diagnosis but if one talks to people in the capital markets, they knew that was because they suspected that the banks were bust. I worked with somebody who was experienced enough to remember the secondary banking crisis of the 1970s and he suspected that it was a capital crisis in the first part of 2007. There was a disconnect between what I call PR-based analysis and proper fundamental common-sense-based analysis. One interesting feature of all of the studies and reviews during the banking crisis is that the people asking the best questions and coming up with the right answers are elected politicians, like members of this committee, and the press.