Alistair Darling, the Chancellor, has thrown his weight behind Mervyn King’s insistence that big financial institutions must shoulder the lion’s share of the blame for the shake-out in global credit markets.

In hard-hitting comments in a newspaper interview today, Mr Darling suggests that some institutions have paid much too little heed to the financial risks they were courting in a headlong dash for higher returns. He calls for a return to the City’s more traditional banking values. “Institutions need to open their eyes and be more honest,” the Chancellor says. “When someone comes up with a fantastic way of making money, they need to ask: ‘How is this money being made and what are the risks?’ ” In an outspoken assessment of the summer’s market upheavals, Mr Darling implies that the City should consider a far-reaching reappraisal of the way it does business.

“Primary responsibility has to rest with people,” he argues. “In crude terms, they need to know who they are lending to, how much they’re lending and what the risk is. Now, that’s elementary banking one might think. But there are times when going back to good old-fashioned banking may not be a bad idea.”

The Chancellor adds that institutions perhaps “need to ask themselves more searching questions”.

He adds that he and fellow EU finance ministers will discuss in Portugal this weekend the case for concerted action by the Group of Seven leading economies to bolster the financial system. “[The] key is to make the system more open and more transparent,” he says.

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