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.
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7 Responses to “Taxpayers are looking increasingly exposed on the back of Co-op downgrade”
Cole
I thought the point was that there is actually a ‘market’ solution to the Coop’s problem. It may not be a satisfactory one, but maybe about the best given how their idiotic management behaved. It seems they were infected with the same mania as the some of others, making acquisitions they had neither the skill nor the resources to execute. Now all of our major banks have been exposed as incompetents or crooks, or both.
LB is correct about the level of government protection. It’s limited, as with all banks.
the caber ninja
Should keep in mind that the ratings handed out by the likes of Moodys and S&P have no relation to the basic health of whatever institution is in the firing line – rather, these ratings are a reflection of the opinion of global investors as to the ease and scale of return which said institution is likely to provide to them. That is all.