The FT warns this morning that there are widespread fears the the government will have to bail out RBS, again.
RBS passed the so-called European stress test in July, but that test failed to take into account the likely failure of Greek and other debt. Now that failure is likely and the EU is demanding new stress tests then RBS may well need new capital.
Well, if need be the state should supply it, but on a condition. This time the remaining private shareholders will have to be taken out of the equation. The current market capitalisation of RBS is about £14 billion. Candidly as part of the QE programme now announced the remaining private capital of this bank could be bought in by the government for what will in the context of that programme look like small change and RBS could then become a state owned bank.
What could it then do? It could firstly lend direct to the government and remove the costs of QE I wrote about yesterday.
Second it could lend straight to the small and medium sized business sector and so get rid of the need for Project Merlin and the ridiculous credit easing programme.
Third, it could the basis of the National Investment Bank we so desperately need.
Fourth, its own PFI assets could be cancelled - more than paying for the buy out in the long tern, and it could become the hub for a general PFI buy back programme.
Fifth, its investment bank and other arms could be spun off as a sign of things to come. Breaking up this bank may well cover the costs of buying it.
And please don't tell me that this could not be done. Of course it can be done. Mervyn King says this is the biggest crisis the UK has ever faced. Not since the 1930s. Maybe ever. The normal rules are suspended - and we should say that's the case in the current state of emergency. And those offended should just go and whistle. They got us into the mess. There is no way on earth they should be allowed to stop us getting out of the mess.
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I think if there is another large-scale UK bank bail-out then a lot of the British people will just conclude that the whole system is kaput… we could well face demonstrates that make Occupy Wall Street look like an afternoon tea party (if you’ll pardon the expression).
And yet the people in charge of these istitutions still do not get it. One of my wife’s friends whose husband is a senior RBS banker was bewailing the drop in value of her million plus pad in Edinburgh was a bit put out when I informed her she’s lucky to still have a roof over her head as the whole thing should have been put to grass in 2008. Her husband nice chap does not get the basics of banking it is beyond incompetance and that is just one.
I second that. A good friend recently went to a presentation by a very senior RBS banker as came away appalled by his self-serving arrogance. He opined that, yes, RBS was too big to fail and if it got into trouble the government would have to bail it out again. His body language apparently spoke volumes and the clear implication is that such an outcome wouldn’t affect himpersonally.
My friend promptly opened an account with another bank and moved his mony.
So I say, let them fail, but first put in place a special bankruptcy code – sui generis for banking – to preserve depositers money.
Richard,
This idea of yours would eternally tie the UK to the debts of RBS, its loses would become the public’s liability, leaving me & the rest of us paying the tab. Those bad investments would need paying, saddling generations to come with billions in extra taxes or cuts in public services. You can rest assured that we would not be seeing the eventual privatisations of those bits of the bank when (if it will be ever possible) they are actually sold off, those bad debts will stay with us, the guys you’re claiming to stand up for.
This is even if returning to meaningful growth is possible in the next couple of decades, which is looking increasingly unlikely. We’ve already heard talk of a ‘lost decade’ of growth, and that isn’t factoring in everything we really know, or present events. Imagine 20 years of it all just gradually getting worse, at a rate like it has been since 2008, it’s certainly a possibility & I hope you know that.
Maybe the coalition could (and should) scrape together enough to protect depositors, that would be small change compared those dodgy contracts & games of loss which they wish to socialise out their way. Let RBS fail, let it go bankrupt, see those bad debts burn & move the hell along with everything, defend people who have worked hard to protect & build their lot, not the bankers who have merely gambled their way to where they are.
You are either dangerously misguided, or simply dangerous & you should be ashamed to call yourself a defender of the tax payer.
http://www.taxresearch.org.uk/Blog/2011/10/08/should-we-just-let-the-baks-go-bust/