This is the latest extract from the introduction to Gordon Brown’s memoir, My Life, Our Times, which is published on Tuesday 7 November.

In the chapter on the banking crisis, the former prime minister writes:

Andrew Haldane, the chief economist of the Bank of England, has calculated that if dividend payments had been cut by a third during the period 2000–7 then £20bn of extra capital would have been available to the banks.

If the banks had restricted dividends in years when they made annual losses, £15bn more would have been available. And if they had paid themselves just one tenth less, another £50bn could have been used to bolster the banks’ positions.

Three modest changes in payout behaviour would have generated more capital than was supplied by the UK government during the crisis. And the £50bn public rescue would not have been needed.

Looking back on the crisis, Brown writes:

Little has changed since the promise in 2009 that we bring finance to heel. The banks that were deemed ‘too big to fail’ are now even bigger than they were.

Similarly, with inadequate oversight of shadow banking, with exotic new financial instruments such as collateralised loan obligations and without, as yet, a proper early warning system, some regulators freely confess that risks have morphed and migrated out of the formal banking system and if the next crisis came they would still not know what is owed and by whom and to whom. 2009 has proved to be the turning point at which history failed to turn.

Dividends and bankers’ pay today represent almost exactly the same share of banks’ revenues as before the crisis hit.

While bonuses have fallen from their £19bn high in 2007–8 to around £14bn last year the financial sector has paid out a total of £128bn in bonuses since 2008 – enough to recapitalise our banks.

Moreover, the fall in bonus payments does not mean bankers are being paid less. After the European Union capped bonuses at a maximum of 200 per cent of salary – a move fiercely opposed by the coalition government, who excluded asset managers from the cap – the banks circumvented it by introducing a new category of remuneration called “fixed pay monthly allowances” and by just raising salaries.

The typical senior banker earns £1.3m and Britain has three-quarters – more than 4,000 – of Europe’s €1m bankers, a figure that has risen 50 per cent since the crisis.

Even at RBS, which has had £58bn of accumulated losses and is guaranteed by the taxpayer, the number of bank employees earning more than€1m has barely changed – 121 down from 131.

We still do not have the right balance between the capital that banks need, the dividends they pay, the remuneration they give employees and the contribution they make to the public for the social costs of their risk-taking.

One of the arguments for high pay in the banking sector – that they take risk – has not survived the crash.

With many banks backstopped by the taxpayers, they make their profits at least in part because of the government guarantee. The risks they are taking is often not with their money but with ours.

And often bankers are not being compensated for risk but rewarded for failure. It cannot be right that Fred Goodwin walked away with all of his past bonuses untouched, a reported tax-free lump sum of £5m, and even after he agreed to halve his pension it still was said to amount to £300,000 a year.

If bankers’ conduct was dishonest by the ordinary standards of what is reasonable and honest, should there not have been prosecutions in the UK as we have seen in Ireland, Iceland, Spain and Portugal?

While the new criminal offence of reckless misconduct in the management of financial institutions is intended to deter irresponsible management decision-making within banks and building societies, defendants will likely argue that their institution was in difficulty more because of fluctuations in interest rates or exchange rates, inter-bank illiquidity, or even regulatory changes imposed by government, rather than their own conduct.

The Fraud Act 2006, which criminalises fraud by false representation, failing to disclose information and abuse of position, may be more relevant.

If bankers who act fraudulently in this way are not put in prison with their bonuses returned, assets confiscated and banned from future practice, we will only give a green light to similar risk-laden behaviour in new forms.”

Brown says the conduct of RBS and its chief executive Fred Goodwin was typical of what was going in banking a decade ago… “the shameful wasting of millions of pounds”.

To the public in Britain it was a dynamic retail and commercial bank with branches all over the country, backed by some of Britain’s most famous names. At least that was how RBS presented itself on advertising boards round the country.

I had known the bank from my early days as an MP. The Fife constituency I served was just across the Forth from the bank’s headquarters in Edinburgh, and I remember visiting their new offices before they were officially opened.

Their plush £350m headquarters, opened by the Queen, was the size of a small village, with shops, cafés, auditoriums, a swimming pool and even space at the rear for a proposed golf course.

The RBS chief executive, Fred Goodwin, was a self-made man. I first came across him as one of the accountants involved in privatising Rosyth Dockyard.

But over the years I saw him change. By the time the bank collapsed he had from his company a private suite in the Savoy costing £700,000 a year, a fleet of 12 chauffeur-driven Mercedes limousines with RBS emblazoned all over them, and he regularly used a private jet at the weekend – whether for boar hunting in Spain or following the glamorous F1 circuit around the world.

Every year £1m was paid out to each of RBS’s “global ambassadors”, including Sir Jackie Stewart, Jack Nicklaus (whose image was on one of the bank’s commemorative £5 notes), and Andy Murray (who, to his credit, would volunteer a cut in his payment) as part of an estimated £200m sponsorship budget.

Large five-year contracts, including for cricketer Sachin Tendulkar, were to be signed just weeks before the bank crashed. Millions of pounds were simply wasted.

Fred and I spoke only rarely but I do recall one conversation with him. While I was still chancellor I met him at his Edinburgh office and asked about what were called “orphan assets”. These were assets held on banks’ balance sheets belonging to customers who had died without leaving any instruction as to where the money should go. In some cases, these customers had passed away a century ago or more, but their savings were still held by the bank and accruing interest.

The banks estimated them at £400m. We thought they were in excess of £1bn. Once the unclaimed assets of insurance companies were added, the figure exceeded £2bn. I told him that this was money that the institutions did not own and that, according to a plan drawn up by the Commission on Unclaimed Assets – led by the philanthropic venture capitalist Sir Ronald Cohen, who proved masterful in raising money for social purposes – it should be put to community uses.

One was building new youth centres, another was funding education in financial literacy. I was planning to introduce a policy that would bring this plan into effect, and in my discussions with other banks had found them, if not overjoyed, at least receptive.

Fred Goodwin was resistant, the odd man out, and for reasons that at the time I couldn’t work out. I can only now imagine how delicate his bank’s position must have been.

RBS did indeed have an unusually low capital base, but we did not know quite how vulnerable it was. And when RBS proceeded in 2007 with a leveraged and risk-laden $60bn bid to take over the Dutch bank ABN Amro, they did not do the checks necessary to discover it was riddled with sub-prime and impaired assets.

The information made available to RBS by ABN Amro in April, 2007, the FSA later reported, amounted to “two lever arch folders and a CD”. I was later told of the crucial email that gave the order to go ahead: they would deal with the assets and liabilities later.

In just over a year, from mid-2007 to late 2008, Fred Goodwin had doubled the bank’s debt and inter-bank borrowings to £500bn, suffered a£2bn write-off in Germany, and amassed further losses in American and eastern Europe.

And, with too little capital in the first place, funding was about to dry up. Yet at no point did I ever hear Fred Goodwin express real contrition to me – or to anyone else – for his role in the bank’s collapse.

Brown describes the dramatic events leading up to 8 October when the government announced its bank rescue plan:

Tom McKillop, the chairman of RBS, phoned me. He explained his problem was cash flow. All he needed, he said, was “overnight finance”.

A few days later his bank collapsed with the biggest losses in banking history. RBS’s problems were not simply about liquidity, and help with cash flow could not have helped for more than a day or two. The problems were structural. The bank owned assets of unimaginable toxicity and had too little capital to cover their losses.

On the evening of 7 October bank CEOs came to the Treasury to hear the details of the bank rescue plan. They were shocked by the amount of capital we said they needed – £50bn – and tried to halve it.

Alistair Darling and I rejected the compromise and told them the deal on offer was final. I went to bed at midnight on Tuesday, 7 October, with my mobile phone next to me in case of any further disasters. I had decided to announce the plan at 7am the following day, and that we would phone other national leaders and finance ministers immediately beforehand and afterwards.

When I got up the next morning I told Sarah that she would have to be ready to pack our things for a sudden move out of Downing Street. If what I was about to do failed, with markets collapsing further and confidence ebbing from Britain, I would have no choice but to resign. As I walked into the office, I didn’t know if I’d still be there at the end of the day.

We now had to agree how much capital each bank would receive. Fred Goodwin had changed his tune. Having previously denied the need for any capital, he was now telling Shriti Vadera that taking some capital would be prudent. He said he didn’t want to shock anyone but that his needs might be as high as £5bn or even £10bn. When she recounted the call to me she told me her reply: “I am shocked – not by how high your estimates are but by how low.”

When HBOS realised that RBS would be taking up the offer, they too came on board and their new partner Lloyds also joined them. That weekend, bank by bank, we hammered out the numbers and the terms of the government’s stake in the failing institutions.

Barclays stood aloof. Earlier in the summer it had gone for help to the governments and sovereign wealth funds of Qatar and UAE. Indeed, only 19 per cent of its first rights issue in July had been taken up before Qatar and other sovereign wealth funds came in.

Now, according to our calculations, Barclays had to find £13bn from share issues or sales by June, 2009. A deadline was imposed by the Bank of England and the FSA but institutional investors shied away and a further rights issue was deemed impossible. Now needing to devise a debt instrument that would convert to equity, Barclays turned again to Qatar and UAE. In the deal they then brokered, Qatar would raise their stake in the bank to 12.7 per cent and UAE would go even higher to 16 per cent. Qatar’s 12.7 per cent stake would turn out to be temporary: in the autumn of 2009 Qatar were to sell off a 3.5 per cent stake and in November 2012 they sold off more.

Barclays paid the sovereign funds a service fee – in Qatar’s case, £300m – that they never disclosed. Because of this they have been warned they may well be subject to a Financial Conduct Authority (FCA) fine for handing over money they did not properly declare. However, the FCA probe had to be temporarily suspended to give way to a Serious Fraud Office investigation into a £3bn loan subsequently given by Barclays to Qatar.

If Barclays found money elsewhere in a legitimate way there could be no objection, but I was always suspicious of the bank’s lack of openness with their shareholders – and the public – about the deal it did with the Gulf states. And I was always unhappy that Barclays chose to use their deal to make a political statement: denouncing our state recapitalisation of the banks.

The fact that it was state money – from Qatar and UAE – that bailed them out did not discourage them from trying to score cheap political points and build a myth about the awfulness of state interventions. In doing so, they made it far more difficult to explain to the British public that this was a widespread banking crisis and not just an emergency faced by one or two banks and, by not telling the full truth, they hampered our ability to persuade legislators around the world of the need for far-reaching reform.

In a later chapter Brown runs through the national and global regulatory weaknesses in 2007; describes his pre-2007 attempts to devise an early warning system to prevent financial collapses and sets out proposed banking reforms arguing that the post-2010 changes have not been sufficiently rigorous to prevent future crises.

Brown recounts how Barclays, who had tried to buy Lehman Brothers in September 2008, now tried to buy RBS in October of the same year. He recalls that while the US authorities wanted the Barclays-Lehman purchase to go ahead, they wanted the UK to agree to “unacceptable” conditions that could not be met – to pass all risks to the UK authorities who were then to be required to authorise a take over without first seeking shareholders’ approval.

Because the crisis had revealed so much of what was wrong with the financial system – its brittle structure, its excessive rewards, its lack of transparency – I wanted the post-2008 period to be as energetic a time for rebuilding and reform as the post-1945 period, which had produced the IMF, the World Bank, the Marshall Plan and the United Nations.

These international institutions, which had been built in the 1940s for the era of separate national economies, were now out of line with the needs of an interdependent global economy where financial institutions worked across borders and were so internationally interconnected.

At the suggestion of the Indian prime minister, the London G20 Summit in April 2009 agreed that I would head a review of the structure and role of the international institutions. I wanted the outdated “Washington consensus” – which had become synonymous with neo-liberalism – replaced by what I sometimes called a new London consensus, in which we explicitly abandoned the mindset of deregulation, privatisation and liberalisation at the core of economic policy in favour of a more balanced approach.

At London and then Pittsburgh we agreed, on paper at least, common global financial standards for bank capital and liquidity, including basic leverage ratios to prevent banks from risking their savers’ money in the absurd lending and trading practices that had been revealed by the crash.

But I wanted to go further and create a global banking constitution that would set standards across the system to be applied in every financial centre in the world. I wanted an international early warning system to identify and head of future crises. I wanted a global growth strategy driven forward by a reformed IMF and World Bank, and the G20 bolstered with the staffing and representative membership necessary to make it what it said it was: the premier forum for economic co-operation.

In the end, delivering these proposals meant overcoming more obstacles than I had time left in government to surmount. And, just at the time I argued for enhanced cooperation, I found resistance to change was growing.