The question must be asked: were we really "on the brink"? The title of Darling's book and millions of column inches would have us believe so. Throughout the crisis the bankers and officialdom were at loggerheads about the nature of the problem. The bankers insisted that they had good assets and good businesses, and that in the years leading up to the furious rows of October 2008 they had complied with rules on capital provision and liquidity. Sure enough, mistakes had been made, and RBS, HBOS and some of the mortgage banks had done some particularly silly things. But — in the UK at least — the bad assets were insignificant compared with the secondary banking crisis of the early 1970s, the Third World debt crisis of the early 1980s and the property crash of the early 1990s. 

The bankers argued that the trouble was not that they were insolvent, but that the closing of the inter-bank market in August 2007 meant that they were having difficulty funding their assets. They needed help from the Bank of England, not to remedy a lack of capital, but to provide long-term funding. The problem was one of liquidity, not of solvency. The numbers now published by the Bank of England suggest that the bankers knew what they were talking about. RBS and HBOS were in a spot of bother. Nevertheless, given a calm macroeconomic environment of the kind that had been enjoyed in the previous decade, even these institutions ought to have been able to rebuild capital — over, say, five years — by retentions from profit and a series of capital issues. A big hullabaloo was not needed. 

However, in the fateful period (essentially the 18 months to the end of 2008) the Governor of the Bank of England, Mervyn King, refused to make long-term funding available and contended that the central bank's job was not to act as banker to the banking system. Darling's book mentions a meeting in his Edinburgh home at Christmas 2007 with Fred Goodwin, the chief executive of RBS, where Goodwin explained the increasing strains in the inter-bank market. Goodwin and other bank CEOs had met King some weeks earlier, and King had spelt out the doctrine of "moral hazard". In King's view loans from the central bank to the commercial banks set a bad precedent, because the commercial banks would come to regard the central bank as a soft touch and would repeatedly return for more loans in future. 

One surprise in Darling's book is his clear scepticism about the doctrine of moral hazard and indeed his suspicion of King more generally. To quote from the pages just before Goodwin's visit to his home, the underlying problem may have been "lack of capital, but the immediate cause was lack of liquidity. Moreover, if a liquidity problem remains untreated, it has a tendency to make a problem with solvency worse." Quite so. That is why pre-emptive central bank action to inject liquidity is helpful and even necessary in banking crises.