- Reuters/Dylan Martinez
- Former British Chancellor Alistair Darling tells BI cyber attacks could cause another global financial crisis.
- Darling said it would be a “profound mistake” for governments and institutions to ignore the possibility that another crisis could be just around the corner.
- Darling was Britain’s Chancellor of the Exchequer during the 2008 financial crash and oversaw the bailout of UK banks Lloyds and Royal Bank of Scotland.
Ignoring the possibility of another looming financial crisis would be a “profound mistake” for governments and institutions, according to Lord Alistair Darling.
Darling, who was the UK’s Chancellor of the Exchequer during the 2008 financial crisis, told Business Insider in an interview: “If you look at the causes of the last crisis, yes the banks are stronger, but don’t assume that the next crisis will come from the same place.”
Darling, now a member of the House of Lords, highlighted concerns about the growing role of technology in the financial system and the fact we are now “totally depend” on computer systems.
“Where I think you make a profound mistake is to assume that the next crisis will come from the same place as the last crisis. This is why, rightly, regulators are looking at things like cyber attacks.”
Mexico’s central bank last week reported cyber attacks on several local institutions, while the Bangladeshi central bank lost more than $80 million in a 2016 cyber attack.
Darling added: “Never mind attacks, just look at TSB recently, or look at the difficulties British Airways had a year ago. If your systems, on which we now totally depend, go down for any length, what can that do?”
Darling was referring to the recent major outage of online banking at British lender TSB. A botched IT system upgrade left as many as 1.9 million customers unable to access their money for several days.
In a similar incident, although unrelated to the financial system, an IT outage grounded hundreds of British Airways flights last year, causing travel chaos.
Central banks and regulators are paying increasing attention to the role of technology in financial systems. Both the UK and the EU have said they will include cyberattacks in future stress tests, which test the ability of commercial banks to cope with financial difficulties and market turmoil.
“Cyber attackers are a serious threat to the UK financial services sector,” the Bank of England said in a recent publication.
10 years on from the crash
Darling was speaking to Business Insider 10 years on from the great financial crisis that rocked the world between 2007 and 2009.
Today, asset prices are booming, and global growth is soaring but Darling cautioned that complacency cannot be allowed to creep in.
He is concerned that new generations will forget lessons learnt from the crisis once those who held positions of power in the crisis retire.
“After this generation who have been around in the last ten years are gone, there will come a new generation who don’t have the institutional knowledge,” he told Business Insider. “Sooner or later someone will crop up and think: ‘I’ve found a new way of making money that’s too good to be true.'”
While there are causes for concern, Darling believes that the financial sector today is in a better state of readiness than it was prior to 2008.
“If you ask me about the banking system, it is clearly much better capitalised in most parts of the world,” he said.
“There is a greater realisation that you need to have sufficient liquidity around if something goes wrong – because that was one of the things that exacerbated the problem last time around. People simply didn’t have the day to day cash they needed.”
Regulators are more prepared for trouble too, Darling said.
“I think the regulators are much more attuned to what can go wrong,” he told BI. “11 years ago people tended to look at institutions in isolation and say that if they look alright they are alright. They didn’t realise how connected the entire system was, and that it is only as strong as its weakest link.”