Taxpayers are looking increasingly exposed on the back of Co-op downgrade

This morning credit ratings agency Moody's downgraded the Co-operative bank to Caa1. However the bank is still, as far as I am aware, open for business, despite the Prudential Regulation Authority (PRA) being told about the downgrade before the start of business today.

This morning credit ratings agency Moody’s downgraded the Co-operative bank to Caa1. However the bank is still, as far as I am aware, open for business, despite the Prudential Regulation Authority (PRA) being told about the downgrade before the start of business today.

In light of the downgrade it’s very important to make one thing clear: deposits are safe. The government (or in reality the taxpayer) is committed to picking up the tab should the situation deteriorate further.

But this is also a part of the problem. One of the aims of the coalition agreement was that their reforms would ensure that taxpayers were never again exposed by the failure of a bank. As George Osborne put it at the time:

“We’ve got a new law to separate the High Street branch from the dealing floor to protect taxpayers when mistakes are made.”

So in total, we find ourselves in a situation where a risky Caa1 bank is still open and backed by a government which once upon a time said that the taxpayer would “never again” be exposed to the risks that accompany a downgraded bank.

The PRA, which has the power to close Caa2 banks like the Co-op, appears to be sitting on its hands or, as New City Network director Cormac Hollingsworth puts it, “kicking the can down the road” while saying “we don’t believe the ratings agencies”.

Yet this lack of coordination between the PRA and the treasury in allowing the Co-op to continue doing business is potentially leaving taxpayers exposed.

In April the coalition made the Bank of England one of the most powerful central banks in the world. The government was warned by Alastair Darling in 2011 that to invest such power in the BoE would bring with it huge risks and questions over accountability.

We are seeing this borne out with PRA, as the regulator sees fit to allow a Caa1 bank continue to open its doors with the treasury seemingly unable to take action – even though it is taxpayers’ money that is ultimately exposed.

This has all the makings of an utter shambles.

 

 

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.