THE BIG FOUR warned former chancellor Alistair Darling about the catastrophic consequences for the UK economy if financial assistance to banks was not expanded, new documents reveal.
The correspondence, released by the firm today, shows the grave fears the UK’s top accounting firms held for the financial sector if the government failed to come to the rescue, during the tense weeks following the collapse of US bank Lehman Brothers in 2008.
In a 11 November 2008 letter, KPMG senior partner John Griffith-Jones, on behalf of the Big Four, warned that the government’s announced measures were inadequate compared to the “aggregate size of the balance sheets of UK banks and building societies”.
“No one can be certain that the announced amounts will be sufficient in all circumstances,” Griffith-Jones said in his letter.
In response, then City minister Paul Myners said the government would consider “potential enhancements” to its announced liquidity scheme.
“The government remains committed to taking what ever action is necessary to maintain financial stability, protect depositors and protect the taxpayer,” Myners said in his letter.
Griffith-Jones believed one UK bank failure could become a contagion and spread throughout the UK financial system.
“Uncertainty in one bank could cause uncertainty in other banks,” he said.
“A going concern uncertainty in even a small number of banks could have significant impact on going concern in a much wider community of banks and corporates.”
Going concern guidance is issued by auditors if they believe a company will survive the next year.
The documents were submitted as part of KPMG’s submission to an Economic Affairs Committee inquiry into audit.
The letter reveals how close the UK audit forms came to qualifying the audit reports of UK banks, a move auditors feared would have led to the total collapse of the UK economy.
“If we had started as a profession modifying the reports of banks, I think it is fair to say by the end of the week everyone would be going around with wheelbarrows with goods to barter,” one senior Big Four auditor said last month.
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