Bank of England says: Let banks fail

Robyn Hall

January 19, 2011

The comments came in last night’s BBC2 documentary Britain’s Banks: Too Big to Save in which the BBC’s business editor Robert Peston explored efforts to reform and regulate the nation’s banks following the bailout, which saw Britain’s institutions rescued by the taxpayer.

Tucker told Peston that in the bad times, banks’ losses should be absorbed by their creditors and investors, not by the taxpayer, adding that banks had to incur the losses when things went wrong and that changes to the banking sector had not gone far enough yet to allow for that.

“If we have a system where banks take the upside, but the taxpayer takes the downside, something has gone wrong with capitalism, with the very heart of capitalism and we need to repair this,” Tucker told Peston.

“We want the upside to go to the shareholders and to some extent the managers, but the downside must go with that too. This is going to require big changes internationally.”

The British government owns a stake of 83% in Royal Bank of Scotland and 41% of Lloyds Banking Group after bailing them out in 2008-2009.

An Independent Commission on Banking will report this year on whether British banks are too powerful and need to be reined in.

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