Warning over second bailout for banks

Nia Williams

October 4, 2010

The think tank says at least £1.2 trillion of taxpayers’ money has already been pumped into the banking system in an effort to stabilise banks but believes there is a “shocking lack of information in the public domain about where the money has gone, how it has been used and what has been the ‘quid pro quo’ for the support”.

In a report titled “Where did our money go?” released today, the NEF also called for major banking sector reform including the break up of the big banks.

“The financial crisis resulted in a massive socialisation of losses after decades of private gain,” said Tony Greenham, head of the finance and business programme at NEF and co-author of the report.

“The public have already paid for the failure of the banks twice, first by bailing them out, and then by suffering a programme of drastic cuts to public services to appease the financial markets. We need urgent reform of the banking system to ensure that bailed-out banks are not allowed to repeat their failures.”

But George Osborne, Chancellor of the Exchequer, refuted the claims on Sky News this morning.

He said: “I am certainly not expecting and I have no indication at all that any British bank needs any further support.

“Those decisions were taken and the banking system in Britain is much more stable than for example the banking system in Ireland.”

Tony Ward, chief executive of Homefunding, said he agreed with the NEF’s assessment but pointed out that the Bank of England had already highlighted in its June Financial Stability Report the need for the banking sector to raise between £750 billion and £800 billion by the end of 2012.

“£25 billion a month is a hell of a lot to find,” said Ward. “I would think lending to businesses and individuals is going to be severely constrained for some time and it does raise the question of whether the banks will be able to meet their refinancing requirements.

“But I am sure there won’t need to be another bail out. The banking sector will resolve this, I would think using a mixture of the industry refinancing and financing themselves, as well as looking to the Bank of England to provide some extra liquidity.

“That doesn’t have to mean using tax payers’ money at a loss, far from it. I think we need some permanent Bank of England liquidity facility where the Bank agrees to buy AAA and AA rated holdings of mortgage backed securities or to use those as collateral. A market could be made at a price that makes the Bank of England money.”

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