The Chancellor has attacked banks for allowing consumer debt to soar out of control by lending too freely.
In an interview with The Daily Telegraph, Alistair Darling said institutions needed to “open their eyes and be more honest” when assessing the risks of lending and borrowing money.
Darling said: “My starting point is that Government cannot stand on the shoes of borrowers or lenders. Borrowers need to ask themselves, ‘can I repay this?’ and lenders need to ask themselves ‘If it goes wrong can I get it back?”
“People need to think long and hard about this. One of the by-products of the current situations is that, not just at a high level but right across the piece, people will be a bit more cautious.”
Darling also warned the Comprehensive Spending Review, scheduled for next month, was likely to see the Government tightening its belt.
Elsewhere, in a written submission to the Treasury select committee, Bank of England governor Mervyn King warned the practice of central banks in other countries providing insurance to institutions that have leant money recklessly could sow “the seeds of a future financial crisis”.