Cormac Hollingsworth writes on the embarrassment for the chancellor that is the British banks RBS and Lloyds having to go to Europe for a bailout
It’s reported today by the Financial Times that RBS and Lloyds are going to borrow €15 billion from the European Central Banks’ long-term refinancing operation.
It’s the mark of the government’s abject failure of re-organising its regulation around the Bank of England that while the Bank is putting £50 billion into buying gilts, and Osborne is putting £20 billion into small loan lending (a scheme the banks say (£) they don’t want), what the banks actually need is three year wholesale financing, and our own government-owned banks, poor dears, have to go to the European Central Bank to get it! Thank goodness that there’s a different central bank out there to help out the coalition!
So why aren’t the government doing what Labour did in 2008 – stress test the banks, and then guarantee their new borrowing, so they can borrow the three year money they clearly need (the Labour plan had a guarantee up to three years, coincidentally)?
It’s not like credit conditions aren’t appalling right now. According to the Bank of England’s own credit conditions survey, the conditions for lending are worse than during the Lehman collapse. Mervyn King has already said we’re back in a new financial crisis.
The answer is in Ed Balls’ warning on the debate on the financial services bill this month. In the coalition’s view, the rearrangement of all regulation within the Bank of England will prevent a new financial crisis.
But here’s Ed Balls’ warning:
Can the chancellor envisage a situation in which the governor of the Bank of England would choose not to inform the chancellor because in the governor’s view there was not a material threat to financial stability, and therefore no need for the use of public funds?
The problem is that in the legislation, in the memorandum of understanding and in the chancellor’s own answers there is a gap, a hole and an ambiguity [in this, for example]…
Can the right hon. gentleman envisage such a situation, when the governor chooses, for example —as he said, this is a judgment for the governor—that the moral hazard overrides the systemic potential threat?
Those who follow this area will know that Mervyn King has a ‘Chicken Little’ propensity to cry: “moral hazard”.
And the UK-owned banks going to the ECB exposues just such a situation that Ed Balls has described now: a new financial crisis, the Bank of England governor unwilling to do anything about it, and the banks forced to go offshore to get their money.
It took eight years for the FSA to miss a financial crisis. This time, the Bank of England hasn’t even got its powers and it has failed.
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• Transparency, accountability, responsibility: Miliband’s “one nation banking” principles – Shamik Das, February 3rd 2012
• A word for 2012: Liquidation – Cormac Hollingsworth, January 4th 2012
• Implementing Vickers won’t stop the next crisis – Josh Ryan Collins, December 20th 2011
• The challenges for Labour in developing a credible banking regulation policy – Matthew Pitt, September 2nd 2011
• Banking Commission: A huge, missed opportunity to prevent economic failure – Ann Pettifor, April 15th 2011