'It sent a tremor down my back': ex-chancellor Alistair Darling reveals how Britain came within hours of the 'breakdown of law and order'

(Photo by Oli Scarff/Getty Images)Alistair Darling in 2010.

Britain came within hours of “the breakdown of law and order” on the day the government was forced to bail out RBS at the heart of the 2008 financial crisis, Britain’s chancellor at the time, Alistair Darling told Business Insider.

Darling, now a member of the House of Lords said that there were genuine concerns prior to the bail out of RBS in October 2008, that the collapse of the bank could lead to violence in Britain’s streets.

“Gordon [Brown] and I were faced with the imminent collapse of what was then the world’s biggest bank, we were very clear that if RBS had collapsed, it would have brought down the entire system with it,” Darling told Business Insider in an interview.

Had the government failed to bail RBS out, Darling said, it “would have had to close its doors, switch off the cash machines.”

That in turn, Darling said, would have caused “complete panic” among the British public.

“I think you’d have had complete panic with people realising they couldn’t get their money,” he said.

“If you can’t get your money you can’t buy food, you can’t buy petrol etc. There was a grave risk of going from an economic crisis to a political crisis, where you have a breakdown of law and order. We were that close to the brink.”

RBS was the biggest beneficiary of the British government’s near £40 billion bailout programme during the crisis, which sought to stop the UK’s major lenders from going under. Nearly 10 years after the bailout, RBS is still majority owned by the British taxpayer.

Darling described the morning before the bailout was announced as the “scariest moment” of the crisis, when he received a call from RBS chairman Tom McKillop while attending a meeting of European finance ministers.

McKillop told Darling that RBS was “haemorrhaging money, and asked what we were going to do about it. I said ‘We’ve got a plan ready to go, how long can you last?'”

“He said: ‘Until the beginning of the afternoon’ which was about three hours away. That was probably my scariest moment. You think about these things, you game plan them, but when someone rings you up and says its happened, it is scary. It sent a tremor down my back.”

The government’s plan to part-nationalise RBS – as well as Lloyds and HBOS – ultimately worked, with the lenders able to weather the crisis and ultimately come out of the other side without threatening the entire financial system, but leaving significant scars.

Darling realised trouble was brewing on a trip to a Spanish supermarket

Having been made chancellor in June 2007, Darling said he first realised that a major crisis could be on his way while on holiday on the Spanish island of Majorca with his family during August of that year.

“I was sent down to the local supermarket to get the rolls and the papers. My friend noticed they had an FT, so I bought it to see what was going on.”

While reading the FT, Darling saw “coverage of the fact that a French bank [BNP Paribas] had stopped trading in two of its funds.” BNP froze withdrawals from three investment funds after U.S. subprime mortgage losses caused major market falls.

“The complete evaporation of liquidity in certain market segments of the US securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,” the bank said at the time.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.