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Banks should never get taxpayer cash again, say bankers

Taxpayers should not be expected to bailout any bank in the future, deputy governor of the Bank of England Paul Tucker and Barclays' chief executive designate Robert Diamond said today.

 

Taxpayers should not be expected to bailout any bank in the future, deputy governor of the Bank of England Paul Tucker and Barclays' chief executive designate Bob Diamond said today.

'No bank should never ever receive taxpayer money,' Diamond told the annual conference of the Confederation of British Industry in London.

Barclays spurned an offer of government cash and turned instead to Middle Eastern investors to help it through the downturn.

Tucker echoed Diamond, saying banks should not expect preferential treatment.

He said in the future bondholders rather than taxpayers should 'take the hit', pointing out this is normal practice in other sectors.

While Northern Rock was nationalised back in the spring of 2008 amid concern about its reliance on wholesale cash, Tucker said that would not be repeated now.

'For medium sized firms we already have the capability in place,' he said, adding that it was 'unfortunate' that this had not been the case when Northern Rock needed help.

Antonio Horta-Osoria, the head of Santander UK which bought Bradford & Bingley's £20 billion savings business for £612 million in 2008, said he also believes systems should be in place which allow banks to fail, 'without the taxpayer having to step in.'

Economic recovery

Looking to the future, the trio all said they are confident the UK will continue to grow next year.

Tucker said it was the job of the Bank of England to ensure the UK does not fall back into recession but said he thinks the recovery will be 'bumpy' and 'uneven.'

And he gave the strongest signal yet that he thinks the UK is still too weak to go it alone without the Bank of England's support.

Tucker said he had half expected some change in policy by now but has now thinks that would be premature.

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8 comments so far. Why not have your say?

Drake

Oct 26, 2010 at 11:12

This should read, "Rabbits should not be allowed into the lettuce patch ever again", says Chief Rabbit. "It is quite unnecessary to mend the fence", he went on. "If the grass dries up outside the lettuce patch, rabbits will ignore the hole in the fence. Honest".

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John H

Oct 26, 2010 at 13:48

My wife and I have had our account with Barclays since we were students 40 years ago. A couple of years ago, fed up with Barclays preference for corporate accounts and contempt of domestic account holders we thought of moving to another bank, but asking round it appeared that the others were just as bad so we didn't change. I was very pleased when, during the bail out, Barclays didn't ask for government assistance but sorted themselves out.

Good on you Bob Diamond, all you have to do now is start looking after small businesses and your domestic customers.

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martin roach

Oct 26, 2010 at 18:02

So next time we let them go bust like Lehman Brothers and everything will be fine. No domino effect? No impact due to leveraging? So we should have let Lloyds and RBS, AIG and Fannie Mae etc. all go? Barclays may not have taken Govt cash but they sure benefitted from the fact that others did.

This seems like a claim of everything is fine now so don't change anything.

To make these words meaningful you have to make sure they are all rock solid which requires separating risk taking from boring banking and being sure they hold plenty of liquid assets for the worst case senario. Bondholders funds will not be enough.

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John C

Oct 26, 2010 at 19:14

No Martin - we should have let Halifax Bank of Scotland go then Lloyds TSB would not have needed any help.

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martin roach

Oct 26, 2010 at 19:30

John

They didn't let HBOS go then and they won't next time - maybe correctly due to the risk to the whole system. We cannot rely on them doing so next time. We need more resilent banks, i.e. better capitalised taking less risks, not a 'next time let them fall' approach which leads to another bail out when the authorities judge them (again maybe correctly) too big to fail.

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John H

Oct 27, 2010 at 08:06

Good point Martin. Maybe banks are too few and too big, if they fail they bring down the system. By banning bank takeovers and mergers we would have lots of small banks and if one failed it wouldn't matter.

Everything points to separating investment and retail banking

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Drake

Oct 27, 2010 at 12:00

I completely agree with Martin Roach and John H. The fact is we can't afford to bail out the banks a second time without risking the country's bankruptcy, so they will have to fail, with all the consequences that will entail (loss of deposits, possibly breakdown of the whole financial system).

One preliminary the government could do (before a complete restructuring) is to require the banks to build up their capital to a proper level before they pay any bonuses (I'm only talking about big bonuses, above say £20,000).

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joe stalin

Oct 29, 2010 at 18:19

it is truly worrying that people like Tucker are in a position where they can potentially make decisions on behalf of us. Economists attempting to apply old text book logic to a new environment. Of course we should let the banks have the money if we are smart we might even make a profit on our investment just like the Americans have done with TARP. An advantage the Americans have over us is that they dont have Tucker, King, Cable and uncle Tom Cobley and all to tell them what is best. its is by tehir screwing with our banks right now that lending is hard to come by.

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