For those who don’t agree or haven’t grasped my arguments for letting the banks go I want to have another try!
Let’s take RBS as an example. The bank has a £2.2 trillion balance sheet. A very small fraction of that relates to UK retail and corporate lending – circa £350bn.
My question is simple, in order to protect the core banking activity – i.e. managing deposits, allowing payment and withdrawal of cash and lending to consumers and corporates, why shore-up £2.2 trillion when this activity only relates to 15% of this amount? Read on………
The cost of bailing out the banks is massive! The cost will be borne for decades and public expenditure on areas essential to the long-term competitiveness of the UK (education for instance) will suffer for the next generation at least.
My solution is simple – the Government removes support for the banks, lets those that can’t survive go into liquidation and then steps in to buy all assets related to UK core banking activities from the liquidator. The result is a clean bank with the mess sorted out by the liquidator.
There are a number of possible arguments against this:
1) If you let the banks go then they will all go! My answer is “so what” – let them all go and the Government can focus on nationalising those activities that relate to UK core banking.
2) Surely the UK would be exporting the problem to other countries! Yes it would, if our banks go then foreign banks will be impacted. Bad luck, they enjoyed the best of times as well so let them enjoy the worst – UK tax payers should not be supporting overseas banks.
3) How about the currency? Surely it would go into free-fall? I would suggest tha opposite. You will very swiftly resolve the banking crisis and insulate the public finances and public from further effects of the crisis. The impact on the currency will be positive.