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Do banks use billions in subsidy wisely?

Robert Peston | 14:00 UK time, Tuesday, 12 April 2011

For me the most interesting part of the interim report of the Independent Commission on Banking is Annex three (right at the back of the book) on "cost-benefit analysis of financial stability reforms".

Among other things, this looks at the size of the subsidy taxpayers provide to big banks, through their (our) implicit promise to banks that they won't be allowed to fail.

And for the avoidance of doubt, this promise was real: at the height of the banking crisis at the turn of the year between 2008 and 2009, aggregate support in the UK for banks via loans, guarantees and investment provided and underwritten by taxpayers was around £1.2 trillion - and it is probably still a bit over £500bn.

Banks in London

Or to put it another way, British taxpayers did not allow any bank to fail. And any losses suffered by bank creditors were largely of a voluntary nature: they were incurred mainly when investors chose to sell their bank loans (often in the form of so-called subordinated debt) at less than par or 100p in the pound.

Here is the important point: if a lender to a bank believes that as and when a bank has difficulty repaying a debt, the taxpayer will step in and prevent default, that creditor is in effect lending to the state or government.

And, as you'll know, lending to a state or government is perceived to be one of the safest loans you could make.

The view that a loan to a bank is in fact a loan to HMG, intermediated as it were by the relevant bank, is particularly true of the biggest banks, such as Royal Bank of Scotland, HSBC and Barclays - because these banks are so important to the smooth functioning of the economy that they are deemed to be "too big to fail" (that's a phrase we've all learned to love - or not).

Which means that those mega banks - known in the jargon as systemically important financial institutions or SIFIs - are able to pay much lower interest rates when they borrow than they would have to do if there was no possibility of the state ever bailing them out.

To put it another way, if banks were perceived to be normal commercial entities, able to go bust like any other company, the cost for them of borrowing would be much higher.

In other words, taxpayers provide banks with an interest-rate subsidy - and the subsidy is disproportionately largest for the biggest banks.

That subsidy consists of the difference between the low interest rate banks actually pay to borrow and what they would have to pay if they were "stand-alone" entities that benefited from no external insurance against bankruptcy provided for free by taxpayers.

As you will recall from earlier posts, Andy Haldane of the Bank of England calculates this subsidy to have been worth around £100bn in 2009 for the giant banks alone - and £57bn per year on average over 2007-9 for all British banks.

So not a trivial subsidy. If he's right, the subsidy is significantly bigger than the annual global profits of all our big banks combined.

Unsurprisingly the banks think he has overstated the subsidy. They commissioned the consultancy firm Oxera to do an assessment.

Oxera estimated the annual value of the taxpayer guarantee at a much smaller £6bn per year. Which most of us would still see as a fair old pile of wonga - but more of a Mount Snowden of cash than an Everest.

Who's right, Oxera or the Bank of England?

Interestingly, the Independent Commission on Banking finds more fault with the assumptions built into Oxera's analysis than with those employed by Haldane.

In particular Oxera seems to make the error which so many banks themselves made in their own risk-control models in the run-up to the crisis of 2007-8 - which is to put too low a probability on the occurrence of extreme events (such as banking crashes).

And, says the commission, Oxera also places no value on the very real possibility of a bank receiving state support because of problems purely of its own making, rather than problems generated by a systemic crisis.

Making these adjustments means that the Oxera model would calculate the subsidy as being worth not far off £30bn a year, according to an economist much brainier than me.

Which would be equivalent to more than the combined statutory profits of all our big banks.

However, the commission itself isn't so precise. It says that the public guarantee for banks reduces bank funding costs "by considerably more than £10bn a year".

Now, "considerably more than £10bn a year" is a very substantial sum, in anyone's money.

So is it a useful subsidy?

If the banks deployed it to provide socially useful loans - mortgages for key workers, credit for entrepreneurs providing employment in the poorest parts of the country - most of you would probably say hooray.

If however the subsidy was pocketed by investment bankers in the form of enormous bonuses, you would probably say boo hiss.

Right now, of course, bankers' bonuses are rather more visible than banks' socially useful lending and investment.

But that's not the main argument against the subsidy.

The two strongest reasons for trying to eliminate the subsidy are:

1) that the subsidy is biggest for the biggest banks (for reasons explained above), which stifles competition and is therefore very bad for consumers (us) - since it puts smaller banks at a substantial commercial disadvantage; and

2) that if banks are able to borrow copious amounts at a rate that does not capture the proper commercial risks they take, they will tend to lend at a rate and in amounts that also do not properly capture the risks of what they do.

That second concern may well be the more important - in that we are not exactly short of evidence of banks going on a reckless lending and investing spree in the years leading up to the great crash of two and a half years ago.

And it was this lending and investing spree, the credit bubble, that was one of the more important causes of the crash that in turn sparked the worst recession since the 1930s.

So to put it another way, it would be a good thing if the taxpayer subsidy were eliminated - because banks and bankers that know they are not going to be bailed out by taxpayers are much less likely to behave in the kind of gung-ho way which could end up forcing taxpayers to bail them out (if you see what I mean).

In fact if we don't eliminate the subsidy, if we don't convert the banks like RBS and Barclays that are too big to fail into banks that can fail without the need to be rescued by taxpayers, we may find that our banks have become so big and bloated that they are too big to save.

This is not some scary bedtime story. It happened only the other day, in Ireland and in Iceland.

In both those countries, the losses of the banks were too great for their respective governments to bear - which is why Ireland has been bailed out by the EU and IMF and is why the UK and the Netherlands felt obliged to underwrite the offshore deposits of Icelandic banks.

Which brings me to the conclusion that won't be seen as cheery by all.

It would probably be a very good thing if the banking commission were to succeed in its aim of reducing the taxpayer subsidy for big banks.

But we should not pretend that it is only the banks that will feel pain if the subsidy shrinks.

Were the commission to succeed, there would almost certainly be an increase in the price of credit for all of us and a reduction in the supply.

Plainly what matters therefore, as and when that happens, is that the loans and investments which fall by the wayside are the froth of little fundamental economic value - which should happen to an extent, but can't be certain.

Comments

Page 1 of 3

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    No.

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    Better to pay the increased interest rates of sensible lending, than the monster bailout costs of reckless lending.

  • Comment number 5.

    What, Oxera behaving like those rating agencies that gave all that financial instrument dross tripple 'A' ratings? Who'd have thought it? Let's get that 'firewall' built asap, so that we can get our money back before it all disappears into some bankers only tax haven, just like that NHS PFI deal.

  • Comment number 6.

    > the subsidy is significantly bigger than the annual global profits
    > of all our big banks combined.

    Whoa - banks are costing us lots of money - big news, huh?

    Look, we've known all that for many years, so why don't we just give banks the same treatment meted out to all subsidised national industries by Mrs Thatcher; i.e. closure and extinction? What's the difference between a loss making, subsidised British Steel and a loss making, subsidised RBS/Lloyds/Barclays etc.?

    Author Scargill may have been replaced by some bloated, City fatcats but the mantra is the same - it's too big to fail, so pay up. Well sorry, fellows, but it's way too late for that. It's time for the chop, so line up and get ready. It will hurt!!

    It's time for some Thatcherism in the City.

  • Comment number 7.

    There are folk that hold bankers in awe.
    There are folk that cannot understand why folk hold bankers in awe.
    Then there are bankers that cannot understand why they are held in awe.
    But they take the subsidies while the going is good/bad.
    Then there are dim bankers who just think they are owed a living.
    The real sharks are those bankers who cannot understand why folk put up with them but pretend that they are doing gods work and are benefiting society.
    All the while they are actively ripping everybody off.
    And the politicians just want an easy life so they aid and abet the bankers.
    They make the £10bn subsidy look acceptable.
    No wonder folk hold bankers in awe.
    Quite simply they have sidestepped moral hazard.
    Loaded it onto the taxpayers.
    Awesome.

  • Comment number 8.

    > there would almost certainly be an increase in the price of credit for all

    We're paying the subsidy, not them. So we'd get to keep our money, and we'd be better off. Jeez - lets use some simple common sense - this econobabble has gone to far and some of the people here are willing to suck it up. Give them a break, would ya?




  • Comment number 9.

    Odd thing about the free market and international trade is that there should be no government subsidies, so only the other day Boeing got it in the neck for receiving US government subsidies and the CAP has been a constant problem. At least, the CAP encouraged farmers to put necessary food into people's mouths - more than can be said for banks - but the subsidies were anti-competitive and that was the end of that.

    Why should there be one law for the banks, especially banks who cannot be bothered with carrying out due diligence and thus run risks which go way beyond the realms of prudence, and another for everyone else? And why should there be whopping bonuses for those who do not even seem to know how to spell 'due diligence'?

    It's all very well talking (as banks will) about how the banks smooth the way of commerce but when they cock it all up as completely as they have done for themselves and everyone else, they are frankly not worth tuppence.

    And, if they cannot be trusted with other people's money (deposits) which has long been their core business with the ability to invest that money profitably but securely being only a spin off, then they are probably operating outside the law as it applies to fiduciaries.

    What an abysmal example to their stakeholders, to the unions and everyone else.

    But then in the early 1970s I remember being advised by the chairman of a company in which I held a handful of shares (50 to be precise) that I really should understand that companies were for directors not shareholders. Nor depositors of course. Nor other stakeholders like SMEs who rely on banks to keep going. The responsibility of banks to society does not feature on their agendas.

    Time they were brought to heel.

  • Comment number 10.

    Do banks use 10bn billion annual subsidy wisely?

    No of course not!

    I would use it wisely, you might but banks no way! Of course it rather depends of what is meant by 'wisely' - stealing the bread from the mouths of the poor is a wise move for the banks as that is the only way they can survive.

    The biggest tragedy is that the people have been so hoodwinked by the banks and their fellow travellers as to be widely seen that they cannot be allowed to fail.

  • Comment number 11.

    The fact that people supposedly well educated in financial matters differ so widely on what should be a reasonably easy calculation if you have the same starting figures , shows just how mind numblingly complicated the system has become....it needs total rationalisation, at the present time major banks balance sheets are not worth the paper they are printed on, they do not show what the real position of the bank is, it wouldnt be so bad if they were paying a proportionate amount of corporation tax to the insurance they receive but as we have seen the pitiful figure they do pay is laughable and even then they threaten to go elsewhere as they feel hard done by.

    In hindsight we would have been far better off having a few weeks of mayhem and letting them all go under than being bled dry by the measures needed to support these parasites, i will applaud the the first bank to turn around and say we no longer need the support of any government, that is the moment i will take anything they say seriously again, perhaps what we should say to them all is the maximum support you will ever get from the British tax payer will be a multiplier based on your previous years tax returns.

    the news about HSBC and the pfi fiasco although not unexpected really brings it home what the system is all about other banks are no doubt doing exactly the same we should set about renegotiating all these deals and taking a long hard look at what the benefits actually are........

  • Comment number 12.

    So, boys and girls, start moving your money out of the too big to save banks!

  • Comment number 13.

    Who is right?

    Well let the BoE pull the plug... if Oxera is right the banks will survive......

  • Comment number 14.

    The Report of the Commission has avoided discussions about the global operations of the universal banks and their tax affairs and the fact that 'the subsidy' has been paid to some of the Universal banks as if all of their operations were domestic to the UK.

    In other words, 'the subsidy' has been paid to the benefit of all of the Universal banks' operations in all of their tax jurisdictions and not just those in the the UK.

    That is another reason why the Report of the Commission is a sinister and insulting FUDGE.

    tax payer subsidy - v - tax revenues UK and global?
    tax payer subsidy - v - capital under management/capital moved overseas.

    Some of the much needed critical analysis has been carefully avoided by the Commission ...

    What else would anyone expect from a bunch of banking cheerleaders?

  • Comment number 15.

    The banks profess to be champions of the free market, but are massive beneficiaries of support from the nanny state they profess to revile, and hang on to that undeserved support with a parasitic determination.

    Internal separation of retail and investment banking activities is indeed a bottling out by the Vickers Commission – the activities are too complex for the insertion of such internal walls, and the financial industry has in any case consistently shown itself incapable of the mature self-discipline needed for such walls, Chinese or otherwise.

    Glass Steagal separation is essential to avoid the continuation of the current setup which simply diverts profit from the deserving to the undeserving, thereby draining vitality from the economy.

  • Comment number 16.

    "Were the commission to succeed, there would almost certainly be an increase in the price of credit for all of us and a reduction in the supply."

    Many have already commented, in this and Stephanie's blog, that the UK has yet to prick its property bubble which was fuelled by the whole credit bubble binge.

    Do we keep postponing this day, pretending it may not have to happen? Or do we get on and get back to a sustainable set of economics. It will be painful either way. But better we, who collectively created this mess, pay the price than we leave it for our children and our children's children.

    In any case, delaying the event leaves us vulnerable to the next wave of economic trouble to hit.

    Two(ish) years ago, when reality collided with the pretend world we had been living, I looked over the cliff edge into the chasm that awaited us. I was in favour of the bail-out; anything was preferable to falling into that chaotic mess that would have strained the social fabric beyond repair. It also bought us time to take stock.

    But I was amazed at how few people saw the same depth and darkness in that initial moment - at how few did actually take stock. And I continue to be amazed at how few have reined in their spending, used the interim wisely to pay down debt, set their businesses on new courses, etc.

    Perhaps the hole does not look so deep and dark anymore - I'm not sure anyone can see what it holds for us. But better we face it now than leave our children the worst of all heritages.

  • Comment number 17.

    for the avoidance of doubt; Yes the UK Taxpayer subsides the banks and in more ways than you mention in the article. Additionally, the problem does not lie with banks lending and borrowing money, it lies with the way the currency is created, out of Debt. The Governor of the Bank of England even told us as much, I quote Mervin King: "Of all the ways of organising banking, the worst is the one we have today”:- (source: "inquiringminds.cc/of-all-the-ways-of-organising-banking-the-worst-is-the-one-we-have-today.").

    That says it all. It is not just Banking Reform that needs addressed, it is Monetary Reform. Our currency must be created and spent into circulation Debt Free at the point of Origin, which should be the Treasury.

    At present it is the banks which dictate whether or not currency is created. The currency required to operate Government and all Public Services of all kinds including the Natural Monopolies should be created by the Bank of England for the Treasury to spend..

    This is not Socialism or Communism, it is common sense. Our economy only grows if banks want to lend. Period. The whole International Banking System is a giant pyramid scheme really. They have to keep creating more debt to keep the system a-float, and that's when the government stepped in and said, OK, we'll bail you out. But did they? The UK Government's 'debt' was backed-up by the TaxPayer, but ultimately the taxpayers and the government will have to go in to more debt to service the debt. I see a huge problem with that and it has to stop.

    I urge everyone to read all about the "positivemoney" website and solutions this to this mad system and its defacto position which leads everyone in to Economic Slavery.

    This my friends is why the American Colonies fought the British Crown/Monarchy for Independence (from debt currency) although in 1913 they succumbed to it again in the form of the Federal Reserve Act.

  • Comment number 18.

    @ 15. At 20:05pm 12th Apr 2011, donc1 wrote:

    > The banks profess to be champions of the free market, but are massive
    > beneficiaries of support from the nanny state they profess to revile, and
    > hang on to that undeserved support with a parasitic determination.

    You're not wrong there, pal. At least with the Scargill and his miners, we got some coal. And they had to work had. This shower down the City would die if they ever did a hard days work!

  • Comment number 19.

    Robert,

    Benjamin Disraeli definitely referred to you when talking about statistics....

    Gross profits of the banks were more than £30bn so you are talking about net profits so after tax and NI so which are not insiginificant. We also have "taxpayer" bank RBS paying for its bad loans cover, deposits with the B of E and the fact that banks are large holders of gilts and take a substantial portion of any new issue.

    The subsidy of banks is nowhere near as simple as you try to make it and as others have highlighted other industries get subsidies and tax breaks too.

    Ironically the stronger banks are paying more than those who failed in terms of tax and new bank levy's and all banks have to pay into the deposit protection scheme.

    Simple statistics and soundbites make good news but please if you are going to say that banks add no value please assess the full picture and have balanced rather than a jaundiced view.

  • Comment number 20.

    banks are what is commonly known as fireproof

  • Comment number 21.

    Robbie, is HM Gov. allowed to subsidise our banks' running costs like that in the long term without the EU or similar complaining (rightly) of unfair international competition?

  • Comment number 22.

    17. At 20:15pm 12th Apr 2011, Archytype wrote:

    'This my friends is why the American Colonies fought the British Crown/Monarchy for Independence (from debt currency) although in 1913 they succumbed to it again in the form of the Federal Reserve Act.'

    .................................
    ???
    Actually the main issue was 'taxation without representation' ....as in their case of 'non-represenatation' ... the British colonists in the US did not like paying extra taxes to the British Crown in order to subsidise the British army fighting their colonial French neighbours.

    Looks like we should all now rebel with good cause! Yeehaaaaaaaagh!

  • Comment number 23.

    @17 Archtype...

    "This my friends is why the American Colonies fought the British Crown/Monarchy for Independence (from debt currency) although in 1913 they succumbed to it again in the form of the Federal Reserve Act."

    This is a re-write of history which does not stand up to scrutiny. Most of the quotes you will have read regarding this that are attributed to Franklin have no primary source evidence and are likely to be bogus. Quotes that are attributable to Franklin with primary source evidence actually paint a different picture.

    The currency act of 1764 were undoubtedly a contributor to the War of Independence but primarily as yet another restriction of sovereignity that the colonies desired - not because the US system had some magic currency system that the British wanted to take away.

  • Comment number 24.

    "Were the commission to succeed, there would almost certainly be an increase in the price of credit for all of us and a reduction in the supply."

    Good - it was the low cost of credit and excessive supply that caused the financial crisis in the first place.

  • Comment number 25.

    Interesting how we have to 'put it another way' in order for it to be understood. How indicative of the problem.

    "Were the commission to succeed, there would almost certainly be an increase in the price of credit for all of us and a reduction in the supply."

    Increasing the price of credit is not necessarily a bad thing in my view, however painful the transition may be.....oh and supply will soon find a way, have no fear.

    As with any sector that practices protectionism and has become powerful enough to deploy it, alternative measures are always presented as an argument full of mutually exclusives. The banks, especially those on the bonus payroll bandwagon need to feel the pinch of their own risk taking if anything is going to change.

    The rhetoric of the Banks and the consultation between them and the politicians between now and the Commission’s final report will be fascinating if not unsurprising.

    Of course, this is a global problem and if the Political will is real, then the Politicians should be banging their heads together by way of international consultation instead of National interest in the soporific manner that we have become accustomed to.

  • Comment number 26.

    I always thought the Rebel Colonies rose up against King George III because at long last he wanted to make a reasonable profit out of the investments he and his predecessors had made. However, this sensible and rational capitalist contrivance on his part was tripped up by a group of slave-owning hypocrites who oddly believed in happiness and manifest destiny. It was all a terrible mistake for which the Native Americans paid for with the blood of their children.

    I think this proves there are limitations to the human mind and we are embracing another of those historical moments when we get to see the lies behind the fantasies and the nakedness of the powerful.

    The banks are just another interest group who have overplayed their hand, been caught with a delicate part of their anatomy jammed in the till and are using every artifice to avoid the doom they selected for themselves the very first day they set out to deceive.

    So much for free markets? So much for investment and return? So much for secure income? So much for vanity and foolishness.

    It is time to begin to close down this chapter in our history. The banks have no moral or intellectual credibility left to them. It is time to draw down the curtain on this expensive play and get outside in the fresh air before the National Anthem is played. The fat lady has not only sung: she is dead!

    The Banking Commission have put up their ideas. They do not go far enough to my mind. A firewall is not good enough. We cannot trust the bankers. There needs to be full separation between retail banks which the taxpayer can guarantee, and the casinos. I cannot understand why the casinos don't like this idea? Just think they can then pay themselves whatever they like. Only they will then lose everything if their risk-taking genius backfires. Too risky, guys? Tough!

    Banking is a public utility or it is nothing. As a public utility there is a good argument for a taxpayer guarantee. There may also be arguments for closer public supervision of the other utilities, such as gas, electric, telephones and so on.

    This country needs a stable platform on which it can build its new economy of manufacturing, product development, engineering and design. This is where we should put our money. We should not use it to prop up a load of broken bank run by the feckless and the ungrateful.

  • Comment number 27.

    Interesting post and contributions.

    Taxpayers were subsidizing both lenders and borrowers by payng the risk premium for easy credit to both parties.This inclined them to risk which eventually led to a banking collapse.

    However,if credit becomes more expensive, this will reduce investment and consumption and lead to further economic crises.There are signs of this now,Credit is restricted because banks are concerned about getting their money back,so investment has fallen. As a consequence, consumption is also falling.Prices are rising faster than earnings because the supply of labour is greater than the demand.

    One solution would be to nationalize the banks,ie. the taxpayer`s subsidy,but also nationalize the profits as an insurance against failure.

    The solution of the stand alone bank without the taxpayer guaruntee ignores the critical role the banks play in a modern economy to both depositors and borrowers.
    Even prudent banks would need to be saved because the security of their assets depends on the stability of the economy as a whole.As the study of "Black swans" cited by Mr.Peston show,they are more frequent and more damaging than most economists envisage.

  • Comment number 28.

    Excellent, clear blog article.
    The "hidden subsidy" scam still hasn't sunk in for a lot of people.

    We still need to reinforce the message with the "insanely greedy stupid bankster parasites" and "corrupt politicians" type of arguments.

    And direct democratic action.

    Break 'em up.

  • Comment number 29.

    Good Evening Robert,

    In answer to your question, Yes - of course they do. Any educated person knows that. I can't thing of any better companies to benefit from £10bn subsidy. Certainly not a credit union, they are just glorified loan sharks. The banks make good profits that fund UK pension schemes and they fund UK businesses. Enough said.

  • Comment number 30.

    Isn't use of the term 'subsidy' misleading? It implies a transfer of money from taxpayer to banks. And apart from the initial purchase of shares in RBS, Lloyds and Northern Rock there isn't any transfer.

    Isn't it a free benefit to all parties? Knowledge of government backing doesn't cost the government anything but enables banks to operate effectively.

    And now I've read the report itself I think it's not nearly as bad as various bloggers have implied. It's full of relevant academic references, it contains hard facts and numbers and it seems focused on genuinely trying to minimise systemic risk.

    The only thing that probably disappoints many posters is that its not punitive enough. But the real twerps who messed up in 2008 (Goodwin, Hornby et al) have gone. Should have been punished but weren't. The ones in office now are trying to get some shareholder value back into their banks.

    I can't help thinking how sick Lloyds shareholders must feel. First they get stitched up by Gordon Brown who persuaded them to buy HBOS - which destroyed their balance sheet. Now they get told they can't even keep the good bits because they've got too much market share. So GB has conned a perfectly good bank (Lloyds) into committing corporate suicide.

  • Comment number 31.

    I am always amazed at what directors get paid to ruin perfectly good companies. I could have ruined these banks for a fraction of what these characters received. The point has still not been grasped that banks, unlike other businesses, are protected by a human shield, namely me and thee, whose living nightmare is that one fine Monday morning we may find our ATMs sealed, and the bank's doors locked. Until the rules are changed so that bank directors face personal ruin if they default on the loans made to them by their retail customers nothing will change. The rewards for failure are simply too high and too tempting and there is no downside for those in charge,

    Yours Aye,

    Graucho

  • Comment number 32.

    Excellent post, Graucho @31. I like the human shield analogy.

  • Comment number 33.

    @26.

    "Banking is a public utility or it is nothing. As a public utility there is a good argument for a taxpayer guarantee. There may also be arguments for closer public supervision of the other utilities, such as gas, electric, telephones and so on."

    absolutely correct.

  • Comment number 34.

    "It would probably be a very good thing if the banking commission were to succeed in its aim of reducing the taxpayer subsidy for big banks."

    Let's be blunt: there's no way that the payment of *any* subsidy to privately-owned banks can be justified. It confers a special privilege on their owners and employees which is enjoyed by no other privately-owned businesses and which violates every principle upon which a capitalist system is supposed to be founded.

    But let's not be confused, either. For so long as the institution of fractional reserve banking continues to be permitted, the central bank will be required to stand behind the commercial banks as "lender of last resort", and that means that the taxpayer is enlisted, willy-nilly, in underwriting the survival of those banks. The existence of a lender of last resort is the keystone of a fractional reserve banking system and there is no way of getting around that: fractional reserve banking cannot be sustained (other than in the short term) without a lender of last resort to guarantee it will always be supplied with enough liquidity to ride-out "cashflow insolvency" (bank runs, if you like). That lender can only be the central bank, behind which stands the power of the government to tax.

    This applies even if the mega-banks were to be split up. Assuming for the sake of argument that the investment-banking part were to be "allowed to fail" (highly improbable but never mind), unless the retail part were required to keep 100% reserves it could not be assumed that liquidity crises would never occur which demanded because of the havoc that would ensue otherwise that the central bank save them from insolvency. This is virtually guaranteed to be the case if the payments system is not split away. ring-fenced and backed 100% by cash reserves at all times. The Commission is proposing nothing of that kind - the reverse in fact - and is thereby ensuring that these banks would continue enjoying the same subsidies from the taxpayer as now, indefinitely.

  • Comment number 35.

    Tried to place this comment much earlier but website would not work. Of some interest is the actual cost of bailing out the banks – the loss of GDP, the additional interest that is attributable to the loss of economic activity, the loss of interest to savers because of the absurd interest rates needed to cushion the recession, and so on. Although there may be increased charges for credit the banks would have to pay more to savers assuming the savers guarantee is removed although this could be done selectively discriminating in favour of ‘good’ banks.

    We would not need this discussion if we controlled what the banks do (supervision not regulation) and if a major player continued in state hands.

  • Comment number 36.

    I sometimes wish Robert, that instead of creating discussion, that you would just find out some stuff and reach a conclusion. Then maybe, try and do us common folk some good.... It feels like you are gradually showing us the truth as if we are on some magical quest for the holy grail: A bank that actually does its job and doesn't rip off the country.

  • Comment number 37.

    "And for the avoidance of doubt, this promise was real: at the height of the banking crisis at the turn of the year between 2008 and 2009, aggregate support in the UK for banks via loans, guarantees and investment provided and underwritten by taxpayers was around £1.2 trillion "

    And there lies the problem in valuing a suitable premium for the tax payers support. It was only AFTER the banking crisis could an estimate of the taxpayers support be established . Before this point No ONE knew the extent of the liabilities .

    Therefore to suggest £10 billion is a sufficient premium for the tax payers UNLIMITED insurance is truly pathetic



  • Comment number 38.

    It is true that banks do not use money wisely but they use it much more wisely than governments use taxpayers' money. Banks have competitors to beat and shareholders to answer to every year. Governments just need to lie to millions of gullible people once every four or five years.

  • Comment number 39.

    @27
    "However,if credit becomes more expensive, this will reduce investment and consumption and lead to further economic crises.There are signs of this now,Credit is restricted because banks are concerned about getting their money back,so investment has fallen. As a consequence, consumption is also falling.Prices are rising faster than earnings because the supply of labour is greater than the demand.'

    Which is exactly why the Capitalist system is doomed to fail, christ, Marx worked that out over a hundred years ago.
    This isn't just about Banking.
    Today, 40,000 men, women and children starved to death, just they did yesterday and will tomorrow and yet where ever I go I am encouraged to buy more for less, borrow more for less......something is very wrong. I realise 'fairness and equalty' are not laws of nature but rather, they are human concepts but isn't that the point, we'er not animals, we do have the capacity to reason, a moral and ethical conscience. Well, some of us..........

  • Comment number 40.

    36. At 22:31pm 12th Apr 2011, Pete wrote:

    "...I sometimes wish Robert, that instead of creating discussion, that you would just find out some stuff and reach a conclusion..."

    ++++++++++++++++++++++++++++++++++++++

    This seems to me to be agonisingly true of BBC journalism in general.

    Even when it's blindingly obvious to any sane person what a reasonable conclusion would be, the BBC dredges up some contorted counter-position, ostensibly in the interests of "balance" or "impartiality".

    It is nothing of the sort. Who wants "balance" between a loathesome disease and a credible cure, for instance?

    Didn't someone once mention a "Ministry of Not Getting Things Done?"


  • Comment number 41.

    In some countries the poor, whom it is deemed are too irresponsible to be trusted with real money, are given welfare tokens with which to buy food etc.

    Since the banks have demonstrated they too cannot be trusted with this stuff, perhaps they should be given coupons with which they can only buy, gilts, say...


  • Comment number 42.

    A catchy but rather disingenuous article,Robert.
    Firstly the "subsidy", in the form of loan guarantees costs the government nothing ,in fact the banks have being paying heavily for them.
    Secondly,if the bulk of those subsidised loans are in fact with government owned or part owned banks, then actually the whole thing is a win-win situation, for the government, the banks, ,the taxpayers, and the banks' customers who get better rates and are not forced into idiotically low mark-to market valuations and NAMA-style selloffs.
    So who on earth is the loser?
    Absolutely no-one, so your points are misleading and trivial, and worse, are damaging to our vital financial services industry which is a major invisible exports earner, taxpayer and employer.
    And if the government, at no expense, makes the nationalised and part-nationalised banks more profitable and therefore ready for re-selling and re-privatising then jolly good work and well done.
    Shooting our financial services in the foot suits no-one, least of all the economy, the taxpayers and the customers.

  • Comment number 43.

    Yes, well this needs to happen - the cost of debt definitely needs to go up, because its price has been artificially held down.

    But here's a thing - when the cost of debt goes up, the cost of equity will come down, which will be a good thing!

    And then, when you include, in addition to the subsidy that you have calculated here, the tax subsidy we give each and every loan a bank makes to a UK company (by making the interest payable by those companies tax-deductible) you realise we've made debt even more ridiculously cheap.

    Could you kindly make some estimates of the value of this, in addition to the value of the 'too big to fail' subsidy?

  • Comment number 44.

    29. At 21:21pm 12th Apr 2011, Sam_From_Hendon wrote:

    “The banks make good profits that fund UK pension schemes and they fund UK businesses. Enough said.”

    I think you’ve got your carts before you’re horse’s young person!

  • Comment number 45.

    The subtext of this piece is that thing which exercises Mervyn King so much - moral hazard, which Robert clearly shows in yet another brilliant blog.

    If, as King states, this really is the worst possible way of organising banking, then how did that come about as it is not in the normal run of commerce for the 'worst' method to come out on top, it is usually the exact oposite; the most efficient method that prevails.

    Perhaps one of our more enlightened bloggers can explain but superficially, going with King, we would state that 'banking' as currently constructed is generally a malfunctioning market system.

  • Comment number 46.

    Robert in your own numbers lies the incompleteness of your argument. If the subsidy is greater than the combined global profits of all UK banks where has it gone?

    Well the populist claim would be no doubt in bankers' bonuses. But if that were the case we might have seen even higher bonuses at the height of the crash when the subsidy according to Haldane was £100bn. The more prosaic truth is likely that this subsidy available to all the major banks has largely been competed away in lower loan rates or increase savings rates. Indeed at the height of the crisis this subsidy no doubt ultimately helped to sustain prices in UK's overheated housing market - the ultimate beneficiaries being many of us rather than banks themselves.

    None of this makes the subsidy a good thing. Indeed the ICB makes proposals to tackle it. But we should be more honest and, rather than indulge in more bank bashing, recognise that it is many of us rather than banks who have benefited. Even if as UK taxpayers we were largely subsidising ourselves!

  • Comment number 47.

    Now imagine you were a fifty something year old banker on 250k a year and had been in the bank for thirty years.
    By 2007 you had 2 million pounds in bank shares and by 2009 you had 20 thousand quid.
    You continued to work like a dog for the bank.Should you though? And why?
    Should the bank cut your bonus in 2010 and 2011?
    Bank bonuses need to be seen in this light, because the bank staff suffered a massive hit on their lifetime savings in the crash, and the idea that they just carried on regardless and were blind to the the poor performance of their banks ....is an oversimplification.And unfair, because they were victims too.
    And I am not a banker, by the way.

  • Comment number 48.

    Morning Robert,
    Do banks use billions in subsidies wisely?
    The commercial company Bloomberg had to go to the Supreme Court to find out what the Fed did with taxpayers money during the TARP bailout. This was resisted fiercely by the business interests but the FED eventually had to comply with the Supreme Court's ruling that "the people had a right to know what was done with their money".
    The results of this disclosure were in some cases shocking so the need for secrecy was revealed.
    So too with our bank bail out money. In the last 3 years NOT ONE Journalist has asked the question "what happened to the £60 Billion that was given to the banks"?
    We know that it all disappeared, but where to?
    Mr Darling, Mr King, Mr Brown, Mr Turner are saying nothing. Why not? Did not these same people hide from Parliament a further secret loan to the banks for fear of market contagion?
    This was the real taxpayer subsidy on top of the insurance guarantee given for all of the declared dodgy loans. How many loans were not declared for insurance? Why did Lloyds back out of the scheme?
    There are still many unanswered questions here and one only has to look at the recent write-downs of AIB in Ireland to realise that all banks have been economical with the truth about the real debt situation so far.
    I think everyone involved is hoping to keep matters of public interest quiet until after the 2014 watershed and I think that you should ask some of your banking and Treasury chums where did the money go?

  • Comment number 49.

    What we have not seen is an analysis of the impact that making money harder to borrow will have on the cost of money and on the broader economy.
    So if banks are made to increase their deposits-to-loans ratio by 50% is it not reasonable to expect say a fall in lending of 25% or more?
    Is that what we really want?
    Is there any point in that?
    If money supply is scarcer then money will cost moreand less will be lent out.
    So why would anyone want to do this when mortgages are at a record low?
    Is it not reasonable to suppose that if the Brown's main crime was to De-Regulate and therefore balloon-up Borrowing during the boom, it is equally likely that the regulators after the crunch will Over-Regulate and overshrink borrowing during the post-crunch slump?
    The answer to too much Ying is not too much Yang!

  • Comment number 50.

    Lets all become bankers !

  • Comment number 51.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 52.

    If Robert is right in his assertion that the subsidy is greater than the profits made by banks, then we have reached a profound point in the economic epoch - the rate of profitability has now got so low that the state has to take money off its people to prop the finance sector up, so it is no longer the case that the banks are free enterprise companies, but are simply an extension of the state - and a VERY expensive one in direct subsidy AND in the damage they are doing to our economy overall through excessive charges and low lending rates to small businesses and home owners.

    If banking is therefore no longer viable as a private sector activity without state aid, it needs to be treated exactly the same as every other so-called "lame duck" industry - coal mining, ship building, steel making, motorbike manufacture - the list goes on.

    And as all we need from our banks is a core deposit taking and responsible lending service, the current arrangement is HUGELY expensive and as we are endlessly told, UK PLC is living beyond its means.

    The other critical point Robert highlights is the market distortion this subsidy creates removing competitive pricing to consumers - so we have a bloated unsustainable banking system that is dysfunctional, hugely risky and vastly expensive - THIS MUST END!

    The answer must be to switch to a mutual model of smaller regional providers and to encourage diversification like more building societies, credit unions and the dismemberment of the big banks as soon as possible - the axe must come down just as hard in Canary Wharf as it did in the Yorkshire pit villages, or we will know that the Conservative Party isn't about economic reality, it's simply a smokescreen to hide the fleecing of the British people by their friends in the banks.

    The current position is immoral, unsustainable and unless we take firm action now to begin to reverse the process started by "Big Bang", like a vampire in the night the banking industry is simply going to suck the lifeblood out of the British economy until we join the PIIGS economies with the begging bowl out to the IMF.

    The way to start the process is to force the banks to recognise the true trading position in their accounts - and use that analysis in determining bonuses - which will cease to exist in terms of profit-related, because there are only loses once you factor in the subsidy.

    Secondly we need to start forcing the banks to pay the real cost of the subsidy through imposing a much tougher insurance regime on them that builds up a central pool of cash that is there to reinvest in the banks if they need to recapitalise in the future, whilst we start the process of breaking them up and mutualising as much as we can.

    Getting the likes of Tesco and Sainburys etc. to bolt on financial services to their core business is OK because the banking part then has the "floatation" device of the main company to cross-subsidise it if it makes loses, rather than the taxpayer doing it, but the key IMHO is to prevent ANY bank getting larger than 10% of the market, so they can be allowed to go bust without threatening the entire system.

    Let's be clear about this - the banks don't MAKE anything - they only exist as a service industry to provide a conduit between those with savings to invest and those wanting loans to invest for homes, businesses and to aid their cashflow. Their judgement has been dreadful - their willingness to make outrageous gambles resulted in most losing their shirts - they distort the market and are a major dead weight on business by failing to provide finance at a fair price on reasonable terms, particularly to small businesses and first time home buyers.

    In many ways simply formalising the state's holding in them into full blown nationalisation and taking out all the duplication and layers of management to provide a no-frills British Community Bank with a basic product range of retail and B-2-B services at very competitive margins would provide a massive shot in the arm to the UK economy right now by ending the excessive profits being made - BoE base rate @ 0.5% and commercial bank loan rates @ 9% - and free up the logjam in levels of lending.

    If the Coalition doesn't square up to this challenge and be every bit as hard on the banks as they are on the public sector and the Tories were on so much of British manufacturing industry in the 1980s (industry we now desperately need to restore), then we'll know what their real motivation is and that the Conservative Party is totally in the pockets of the bankers, but we should not be surprised at that because they are joined at the hip to the City which now provides most of their funding, jobs for ex MPs and their families.

    The British people are being asked to pay a heavy price for the banking collapse in cuts in their living standard and public services whilst the subsidy to the banks dwarfs the amount being taken from them.

    This cannot continue.

  • Comment number 53.

    RP you never mention this but you know full well its the truth and the main underlying reason a gte exists;

    If the government did not not provide a gte (of any sort, implicit or explicit) and a bank went bankrupt, depositors would lose a large % of their money (I actually don't know where they sit in the creditor waterfall, I think at the bottom but maybe someone knows....). The resulting removal of that depositor confidence would have a profound affect on the role of money itself and is polictically its unacceptable.

    But from a birds eye view, we (the public) place money in a bank then we gte that that money is safe (via the govt).

    In a situation where the gte is removed, then depositors are at risk, so in a way the public gte in an insuranc policy for ourselves. We can take it away but then my granny needs to do proper due dilligence on her bank, i'm not convinced she has the skillset to do this......

  • Comment number 54.

    RP Wrote:
    "To put it another way, if banks were perceived to be normal commercial entities, able to go bust like any other company, the cost for them of borrowing would be much higher.

    In other words, taxpayers provide banks with an interest-rate subsidy - and the subsidy is disproportionately largest for the biggest banks."

    Interesting - to me it looks like is a theoretical amount that has been conjured up as a headline grabber,

    One of the reasons banks will be paying lower rates is because funding is generally based on LIBOR, so if LIBOR is low because of low base rates, then of course the cost of funds will be lower that normal. Likewise, if you look at publicly disclosed information you will see that there is a wide spread on the cost of funds for each bank as investors are still looking at the overall stability of the banks they are investing in, not whether they are likely to get a government guarantee. Check out bloomberg and you will see that RBS and Lloyds are paying a lot more than HSBC or Barclays

    So I should think the theoretical cost, based on low LIBOR, is around the 6-10bn mark rather than the headline grabbing 100bn

  • Comment number 55.

    #52 Richard Bunning

    Excellent post sir!

  • Comment number 56.

    36. At 22:31pm 12th Apr 2011, Pete wrote:

    "...I sometimes wish Robert, that instead of creating discussion, that you would just find out some stuff and reach a conclusion..."

    If that were the case, then it would not be classed as unbiased reporting, it would have to be classed as biased opinion for not everyone would agree with the opinion. Granted it is always slanted, but it just passes the test of not being an opinion piece.

    Back on topic, the subsidy spoken of is theoretical only and not a cheque that is written by HMG to the banks in any way. The £1.2trn mentioned was the worst case scenario assuming all banks went bust. They did not.

    Some were at the point of collapse and I still think that they should have been allowed to fail accordingly. Govt stepping in and getting it wrong - GB's own admission - have caused more problems that it has solved so governments should keep out of business until the day we get a govt that consists of people who have run their own companies.

  • Comment number 57.

    Robert

    We have Roubini's Zombie Banks. Dependent for survival on tax payer backing and marking assets to self invented values. These Zombies are dragging down the rest of the economy by restricting lending and setting their interest rates too high.

    On the face of it this report seeks to balance giving these Zombies a chance to recover and insulating the public purse and economy from their failure.

    That's nonsense. The structure proposed is so easy and quick to put in place, it can mean only one thing. Govt has decided we can't afford Zombies.

    It's not a co-incidence that talk of greater competition, de-regulating to allow new entrants and services, is on the agenda.

  • Comment number 58.

    34. At 22:20pm 12th Apr 2011, torpare wrote:
    Max Keiser was saying yesterday, that the American banks have reserves of 1% or less, and that if the value of their investments/assets, fall by 1% then they are effectively bankrupt. So at any one time the banks are merely one step away from bankruptcy all as a result of FRB. And as we all know, and its drummed into us, the value of investments can rise and FALL. The system is daft, and downright dangerous. Papering over cracks is all that we see. It wont work, and the next collapse will be the big one.

  • Comment number 59.

    Who's right, Oxera or the Bank of England?

    - Well there's only one way to find out, FIGHT!

    The Banks should go back to what they did originally, stopping the rivers from flooding and housing small rodents. We obviously do not need banks and they should be scrapped and the government should just create their own money like Zimbabwe. As I write this I have a pair of underpants on my head and two pencils up my nose.
    Out of interest, how much does the health system get subsidised every year? (Clue it's more than £100bn).

  • Comment number 60.

    52. The difference between the BoE base rate and the commercial rate (your example 9%) represents the risk of default. In your world who would determine how that risk is priced? e.g. and who loses is they get it wrong or benefits if they get it right?

    That is where the planned economy argument falls apart. I'm not saying the incentives are right now but if there are no incentives then it will never work.

  • Comment number 61.

    30. At 21:42pm 12th Apr 2011, JustKBO wrote:

    > Isn't use of the term 'subsidy' misleading? It implies a transfer of money
    > from taxpayer to banks. And apart from the initial purchase of shares in
    > RBS, Lloyds and Northern Rock there isn't any transfer.

    The guarantee has a value to banks (they can get cheaper loans). It also has a negative value to taxpayers (they would have to pay the promise if the banks go broke). The taxpayers give this valuable guarantee to the banks for free. You'd normally have to pay for insurance. It is not misleading to us - if you insure things for free, we call that a subsidy.

    Or did you think that insurence is free?

    In this case, the bill would be £57bn - we give banks far more than they make back. They are gigantic albatrosses that need to be shut down for the good of Britain.

  • Comment number 62.

    #13. NonLondonView - nicely put.

    If you want a pithy dissection of the system I can recommend a recent Daily Mash article on Bank Reforms 'to make it look as if something is being done'

    Ok boring bit too - as to the NHS/PFI issue that crops up in these discussions, whilst I am not a fan of how the banks have treated the funds they are recouping from the exercise, I'm a little concerned at the presentation of PFI lending as a zero-risk activity. The loan is provided as essentially venture capital in the first instance lending against an as-yet unbuilt asset. Any risk of failure during the design/planning/construction phase is ultimately borne by the Senior Lenders (banks). This is mitigated by risk pass-down to the builders (the PFI delivery vehicle is not capitalised to bear the risk) which means that the level of risk is directly related to the robustness and capability of the builder. So not zero risk. That said, the manipulation of the process to avoid paying a fair quantum of tax on the revenue stream is atrocious.

  • Comment number 63.

    18. At 20:17pm 12th Apr 2011, Jacques Cartier wrote:
    @ 15. At 20:05pm 12th Apr 2011, donc1 wrote:

    > The banks profess to be champions of the free market, but are massive
    > beneficiaries of support from the nanny state they profess to revile, and
    > hang on to that undeserved support with a parasitic determination.

    You're not wrong there, pal. At least with the Scargill and his miners, we got some coal. And they had to work had. This shower down the City would die if they ever did a hard days work!

    - Erm, didn't Scargill make the miners strike? (Illegally remember) so we didn't get any coal. It was only due to the brave Nottinghamshire miners that the lights remained on.

  • Comment number 64.

    @Robert Peston
    "Were the commission to succeed, there would almost certainly be an increase in the price of credit for all of us and a reduction in the supply."

    That is not certain at all. The subsidy is there at the moment to provide re-insurance for the banks to speculate on the global finance casinos of this world. The copmmission proposes that the mortgage, personal finance and small and medium company market would be split off into a retail bank. An independent subsidiary. That sector would be well protected by a 10% capital provision, as the Independent Banking Commission recommends, and will continue to receive government re-insurance.

    It could well be that the new retail subsidiaries are so flush with cash, (as nobody want to risk their money with the gambling investment banks and deposit their money only with the 'safe' retail banks) loans will become a lot cheaper.

    There is absolutely no way of knowing - I think loans will become cheaper rather than more expensive! Gambling by investment banks will become a lot more expensive! So, well done, banking commission.

  • Comment number 65.

    It's an unfortunate headline, because it tends to give the mistaken impression (as is evident in some of the comments above) that we, via our government, are giving the banks £100bn a year in a sense that actually costs us taxpayers £100bn per year. We are not - we are committed to bailing the banks out when they need it, and the net cost to the taxpayer of the bailout (net meaning after loans are repaid, fees collected, equity sold) is nowhere near £100bn pa.

    So the question boils down to the extent to which this lower cost of borrowing (valued at £100bn per year) is passed on to customers in the form of higher interest rates on savings and lower interest rates on loans, than would otherwise be, versus the extent to which it causes bank profits and banker pay to be higher than it would otherwise be. As is mentioned in the OP, the figure of £100bn is greater than bank profits, so at first pass there is reason to think the subsidy is being passed on to us.

    The effect on bankers' pay is a very difficult question to answer, because the implicit guarantee thanks to the fact we have a small number of very large banks that we cannot allow to fail. To remove this 'subsidy' we'd have to break the banks up (and sever connections and dependencies between them) such that we could allow them to fail. But we would expect bankers' pay and profits to differ in a situation where there are lots of small banks in comparison to a situation where there are a small number of large banks anyway, for the usual reasons of market power (monopoly power), quite aside from any affect of lower borrowing costs. I think that means it's almost impossible to say, even in theory, that this 'subsidy' is increasing bankers' pay and profits by £X, because getting rid of the 'subsidy' would also mean radically changing market structure, that would also change pay and profits.

  • Comment number 66.

    NEF puts the subsidy much higher at over £30bn, plus benefits of QE:

    http://www.neweconomics.org/press-releases/are-british-banks-getting-billions-in-hidden-subsidies-asks-nef

    Also, banks are claiming that they contribute £54bn to the tax purse. On the face of it this sounds great, but manufacturing contributes over £200bn and they don't need to leverage liabilities of 5 times GDP to achieve this!

    "Manufacturing creates 59% of our nation’s direct tax take by employing about one third of our wealth. Whereas Financial serives generate only 12% of tax by employing nearly one and half times our nation’s wealth.

    It seems that the ROCE of the financial sector is about one tenth of manufacturing's contribution. And I don’t see them paying ridiculus bonuses or holding the tax payer to ransom."

    http://forensicstatistician.wordpress.com/2011/01/13/is-the-finance-sector-good-value-for-money/

  • Comment number 67.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 68.

    #47 wrote

    Now imagine you were a fifty something year old banker on 250k a year and had been in the bank for thirty years.
    By 2007 you had 2 million pounds in bank shares and by 2009 you had 20 thousand quid............. the bank staff suffered a massive hit on their lifetime savings in the crash, and the idea that they just carried on regardless and were blind to the the poor performance of their banks ....is an oversimplification.And unfair, because they were victims too.
    And I am not a banker, by the way.

    .................................................................................

    If those earning enough from banking to save millions before the crash were so financially naieve as to place all of their investment eggs into one basket (and I remember one particularly aggrieved former Northern Rock employee in this position who was very vocal about the unfairness of his loss) then it may help to explain how we got into this mess in the first place.

  • Comment number 69.

    60

    How is it that pre-crash the spread was a 2-3 %, but now it's 8 %+ ?

    How is it that the profitability of UK banks is now much higher than it was then?

    Also the banks are now taking a charge on the homes of small business people for business loans and they are much tougher on mortgage borrowers too in terms of % deposit and loan to value ratios, so the truth is that they are managing the risk through collateral cover and loan appraisals rather than simply pricing it into the loan rate, but they have still virtually trebled the margin as well!

    This is EXACTLY why the banks are not only uncompetitive, they are in effect anti-competitive for the rest of the economy and are causing huge damage by choking off lending and extracting much larger profit margins under the smokescreen of "risk mitigation", whilst at the same time bringing in a lean on collateral more reminiscent of a protection racket than a legitimate business.

    We are simply not going to buy these excuses any more and pay through the nose to prop the banks up, only to pay through the nose AGAIN as their customers.

    Banking is the business of assessing, managing and trading in risk, but the banks allowed their greed to override common sense and now expect us all to pick up the bill.

    At least the Mafia don't pretend to be anything other than a bunch of crooks out to take your money - but we have to contend with this sort of veneer of legitimacy from the UK's banks as they take us to the cleaners through our taxes AND our bank charges.

    The game is up - we see through you - your days of milking the rest of us are numbered - and if the coalition won't bring the curtain down on this fiasco, an incoming Old Labour government will.

  • Comment number 70.

    63. At 09:36am 13th Apr 2011, Lindsay_from_Hendon wrote:

    > It was only due to the brave Nottinghamshire miners that the lights remained on.

    Errr - didn't those brave Nottinghamshire miners get sacked as well? Brave but stupid, eh?

  • Comment number 71.

    So it's like this then...

    Bail out the TOO BIGS TO FAIL today.
    Bail out UK PLC tomorrow.

    Yes Robert, I get it...You have made a very good point and a good argument to ensure that no bail outs are required in the future.

    So we require to get our money back ASAP (With Interest) from these giant rogue banks and prevent a similar situation occurring in the future.
    Both will be extremely difficult to do with the present Government and the enormous influence that the City of London has over the London Government....
    Note the common factor...LONDON....Is that not where all the wealth is concentrated, whilst the rest of the UK pays for it....Plain to see....

  • Comment number 72.

    @ 65. At 09:37am 13th Apr 2011, Luis Enrique wrote:

    > It's an unfortunate headline, because it tends to give the mistaken
    > impression (as is evident in some of the comments above) that we,
    > via our government, are giving the banks £100bn a year

    Are you another of those who think the insurence we provide should continue to be a free subsidy? You got another think coming, Luis Enrique - it is you who is creating a mistaken
    impression.

    It's time for the banks pay their bill to us, or shut down. We can't prop up the losers forever.

  • Comment number 73.

    At 00:36am 13th Apr 2011, UnionRep wrote:
    29. At 21:21pm 12th Apr 2011, Sam_From_Hendon wrote:

    “The banks make good profits that fund UK pension schemes and they fund UK businesses. Enough said.”

    I think you’ve got your carts before you’re horse’s young person!

    ----------------------------------------------------------------------------

    Quite right!

    These banking apologists, can't get anything right.

    As for comparing Credit Unions with Loan Sharks, well it just proves the weakness of the argument.Enough said.....


  • Comment number 74.

    Banks should not be allowed to trade for their own account, let them set up a separate business for the purpose.

  • Comment number 75.

    SIFI big banks must pay a commercial rate for we citizen's interest rate subsidy support. Or not have it and relocate to North Korea, hyperspace or wherever. SIFIs have benefitted from past support and are still benefitting from that past support. Therefore they must pay now in the form of socially useful loans. If SIFIs complain, the smaller banks will compete to provide fair credit in the market.

  • Comment number 76.

    #47
    Now imagine you were a fifty something year old banker on 250k a year and had been in the bank for thirty years.
    By 2007 you had 2 million pounds in bank shares and by 2009 you had 20 thousand quid.
    You continued to work like a dog for the bank.Should you though? And why?
    Should the bank cut your bonus in 2010 and 2011?
    --------------------------------------------------------------------------------
    If your being paid £250,000 to do a job- you should do your job, thats what your being paid for! If your bank isn't making a profit (or less than in previous years) of course a bonus should be cut, although i accept a bankster would expect it to increase year on year regardless!!!!

  • Comment number 77.

    I thought bankers loved the free market economy and despised state subsidies to industry.

    Funny how they don't think that when their handouts get threatened!

    So, don't listen to their bleating - split them up and introduce more competition into this highly complacent sector that is no longer fit for purpose.

  • Comment number 78.

    Jacques @72

    no, I think it's reasonable to charge banks a fee for the insurance that we provide. Evidently I did provide a 'mistaken impression' in you, at least.

  • Comment number 79.

    59. At 09:12am 13th Apr 2011, Lindsay_from_Hendon wrote:

    > how much does the health system get subsidised every year?

    The health system is approved of by Britons. Bankers are despised.

  • Comment number 80.

    70

    If we really must talk about the miners, we should at least make some effort to learn from history. Scargill was like many leaders who elbowed their way to the top of their particular sphere of interest - a more than somewhat flawed individual whose experience of gaining power was to be deeply paranoid about backstabbing, betrayal and petty rivalries.

    His political reference frame was pure class war, which was way beyond most of his membership's understanding. As far as he was concerned, everything was the concious attempt by the ruling class to do down the miners - everything was the product of the toffs' conspiracy - simple as that - naive, simplistic - choose your epitaph - what he did was to provide Mrs T with the ideal punch bag that justified her equally ludicrous libertarian experiment that wrecked so much of British industry.

    Scargill got two things fundamentally wrong.

    Firstly he used the Byzantine bureaucratic processes of the NUM to stiff those opposed to going on strike rather than trying to win the argument through a democratic decision.

    Secondly he wildly UNDERESTIMATED the coming decimation of the coal industry, which led the Notts NUM to think that they were safe from closure, so were not willing to take industrial action - they were wrong and paid the price.

    Scargill was therefore responsible to not only destroying his own union, but also allowing the UK to become dangerously dependent on N.Sea gas to generate electricity AND allowing the UK's 500+ years of coal reserves to become unusable as the geology underground is now too dangerous to reopen in many areas.

    We could cut our CO2 emissions, cut the price of electricity, reduce our import bills and create new jobs if we adopted "Clean Coal" and carbon sequestration which would buy us time to develop renewables instead of nuclear, but the greed of those who made vast amounts of money out of the privatised energy companies and the stupidity of Scargill has left us sitting on fuel reserves we can't get at - and we no longer have the mining skills to work it anyway.

    This is the legacy of the 1980s - lost opportunities, wasted communities, short-sighted greed and political stupidity. The City got fat on profits from the privatised utilities whilst the consumer picked up the bill - and still does.

    So here we are in 2011 - no change there, then!

  • Comment number 81.

    richard bunning @ 69 asks how is it that the profitability of UK banks is now much higher than it was then (pre-crash)?

    The simple answer is that the Government has engineered it such that the damaged banks have this higher level of profitability in order to repair their balance sheets.

  • Comment number 82.

    Time for a national savings and loan bank, a government backed agency fronted by say the post office, or what have you. Purposes.... To provide a savings and loan facility to individuals, facilitate trade credit and personal mortgages for principle house purchase out of deposits and to compete with commercial banks for this business. No need to split big banks from their risk. Provide an entity that is not allowed to carry on business outside that above and lends out of reasonable multiples of its deposits. The customer can then decide where to put his day to day cash used for the business of living and personal savings. Dare you!

  • Comment number 83.

    34. At 22:20pm 12th Apr 2011, torpare wrote
    But let's not be confused, either. For so long as the institution of fractional reserve banking continues to be permitted, the central bank will be required to stand behind the commercial banks as "lender of last resort", and that means that the taxpayer is enlisted, willy-nilly, in underwriting the survival of those banks.

    Lets' not be confused. Torpare does not have a clue what he is talking about!

    He believes that he is supporting socialist reform when he is actually supporting a return to serfdom. If he wiped out all debt tomorrow he would also throw into direst poverty anyone who had no savings or job and remove the possibility of that they could borrow to improve their lot or eat.
    He does not understand either that hyper deflation would result as more wealth was divided into a finite amount of money nor does he realise that should he fail to convince China that wiping away the US debt to them etc etc would be super he would create a living nightmare.
    Go and live in the middle ages Torpare or set sail for the edge of the world and fall off

  • Comment number 84.

    This sounds like some sort of communism gone mad.

    We, the Taxpayers/Investors/Depositors/Pension Fund holders are the owners.
    Because of we are confused about our ownership, we do not control the Workers (Bankers) efficiently.

    The Workers/Bankers take advantage of the situation by taking huge risks and overpaying themselves.

    If we are not careful some Fascist will step in with a big stick.
    And history repeats itself.

  • Comment number 85.

    81

    So you are saying that in breach of EU competition law, in breach of the UK Restrictive Trade Practices, Competition and various other Acts, the UK government and the banks are all guilty of a massive conspiracy to artificially inflate bank profits?

    You may well be right - I'd go further - the banks must at some point have been trading when knowingly insolvent, but nothing was done about this until the bailout happened, so not only are banks above the ordinary law covering us mere mortals and ordinary businesses, they are also incapable of ever going bust because they have their hands firmly in our wallets via the BoE as the lender of last resort.

    A society that allows an elite to be above the law and take what they want from society has a very clearly defined name.

    It's a tyranny.

    But for tyrants to be able to operate they require not only financial power - they must have political power too via the State in order to be able to suppress opposition.

    I now see the role of the Conservative Party a lot more clearly, don't you?

  • Comment number 86.

    47. At 01:43am 13th Apr 2011, onward-ho wrote:
    Now imagine you were a fifty something year old banker on 250k a year and had been in the bank for thirty years.
    By 2007 you had 2 million pounds in bank shares and by 2009 you had 20 thousand quid.
    You continued to work like a dog for the bank.Should you though? And why?
    Should the bank cut your bonus in 2010 and 2011?
    ----------------------------------------------------------------------------------------------------------------------------------------
    Well pass the tissues, please, I've just come over all weepy.

    The answer to your specific question, why should this person keep on working, is really quite simple. He is being paid what is by most people's standards a big fat £250k per annum. If I paid someone that amount, I would expect them to work very hard indeed. But then maybe banking really is different? What an outrage!

    And please consider that the reason this hypothetical poor suffering banker lost money on his shares is because of the total, gross, incompetence displayed by the jokers who "earned" these shares in the first place.

    I feel sympathy for local branch staff, and other minions working in banks for "normal" salaries. I am sure a lot of them lost a lot on their employee share schemes. But they don't have to look far to see who is to blame- and that's the 250k per annum types, who found gambling with other people's money quite a jolly jape- until it all went pop. And all bank staff, atb all levels, should show some gratitude to the government which stepped in to stop them losing everything- shares, bonuses and jobs. Do I sense that sense of gratitude at any level in the UK banking sector- well, no, I don't. They are just desperate to get back to the "good old days asap, courtesy of every other poor sucker in the country, of course.

  • Comment number 87.

    No is the answer to your question Robert.

    Also i do not believe the profits are real. Over charging retail customers while hiding losses yet to come is simply a slippery action carried out to allow bankers to carry on taking huge bonuses while destroying the economy and politicians to pretend we are out of recession.

    People are getting poorer day by day.
    Standards of living are falling day by day.

    Inflation is set to spike still further over the coming months and the Bank of England are trapped into their head in the sand 'inflate away the debt' plan.

    People simply stop repaying debts before they stop buying food.
    Given a vote the people will vote not to repay the national debt before they accept further austerity - see Iceland.

    Take the money back from the bankers is a better sollution all we need is a government that has the will to do it.

  • Comment number 88.

    78. At 10:43am 13th Apr 2011, Luis Enrique wrote:

    > no, I think it's reasonable to charge banks a fee for the insurance that we provide.

    Good. Some greedy bankers have been around, trying to convince people that we should continue to dole out free insurance, as if it's not real. The fee has been set at £57bn per annum. When do you think we should collect their first payments (backdated, of course)?

    £57 bn will help us sort out the deficit - this is great news.

  • Comment number 89.

    The real question is what is the true contribution of the banking industry to the British economy. It always seems to come down to the liquidity but what is the optimal level for liquidity? The bankers would seem to have us believe that inventing new fiscal magic tricks always adds benefit but does it? I seem to recall that only a small percentage of money circulating around the financial system ever gets out to end parties as loans to actually do something, most of it occurs within the financial system. The contribution therefore of banks to GDP consists of a significant amount of internal number juggling and doesn't contribute to anything that you can construct, live in, wear or eat. No tears for the big banks.

  • Comment number 90.

    richard bunning @ 85

    I see the role of the Labour, Lib-Democrats and Conservative Parties in our England as operating on very similar principles as the 'big four' banks do.

    That is, working in concert as very powerful vested interests to lock out any meaningful competition.

    And that behaviour is very much against the interests of the people of England.

  • Comment number 91.

    @19. 19. At 20:19pm 12th Apr 2011, Joff wrote:Joff wrote:

    "Simple statistics and soundbites make good news but please if you are going to say that banks add no value please assess the full picture and have balanced rather than a jaundiced view."

    You are right: banks (and hedge funds, and the rest of the financial sector) do indeed add value - with one hand.

    With the other hand they subtract more value (and not just in money terms) than they add. They divert investment from productive and socially-useful activities into an ever-greater variety of fancy financially-engineered vehicles, the sole purpose of which is to syphon money into their own coffers. They hoover-up a disproportionate share of the best young talent from our universities, lured by the prospect of obscenely-high bonuses away from pursuing a career that might actually benefit the community at large. They grossly distort the UK's economy and help to cause our country to be governed more in the interests of the financial sector than in those of our society as a whole...

    Need one go on?

    Jaundiced if you like, but justifiably so IMO.

  • Comment number 92.

    69
    The answer is on your question:

    'How is it that pre-crash the spread was a 2-3 %, but now it's 8 %+ ?'

    Do you not think that there could be a relationship?....the rate is a price, as i'm sure you know if something is oversupplied then the price goes down.....some might have said that credit was oversupplied in the crisis.....

    In a perfect market the rate should represent the % chance of loss + normal return on capital. Clearly we are not in a perfect market now nor pre-crisis. Difficult to comment on you 8% example but for unsecured medium term debt for a small firm in the UK with sig leverage, that would seem fair. Let me know the default rate for type of firm in your example and i'll show you the calc...without that by the way no way you can comment.....

  • Comment number 93.

    80. At 10:47am 13th Apr 2011, richard bunning wrote:

    > we no longer have the mining skills to work it anyway.

    Point of Ayr colliery closed on 23 August 1996. Hundreds of the miners are still in the county. Now they fit double glazing and kitchens.

  • Comment number 94.

    I never cease to be amazed at the faith that Mr Peston continues to place in the veracity of the published numbers.

    Surely the one thing that we have learned from the crisis is that the numbers being produced were not correct, assets were overvalued and liabilities understated.

    Commentators are trying to be too clever by asking tricky questions, attempting to justify their own existence.

    The first question must surely be - how do we know we can trust the numbers?

    Once we are satisfied that we can trust them then we can move on to all the stuff on this blog.

  • Comment number 95.

    83. At 11:00am 13th Apr 2011, Abysmillard wrote:
    34. At 22:20pm 12th Apr 2011, torpare wrote
    But let's not be confused, either. For so long as the institution of fractional reserve banking continues to be permitted, the central bank will be required to stand behind the commercial banks as "lender of last resort", and that means that the taxpayer is enlisted, willy-nilly, in underwriting the survival of those banks.

    Lets' not be confused. Torpare does not have a clue what he is talking about!

    He believes that he is supporting socialist reform when he is actually supporting a return to serfdom. If he wiped out all debt tomorrow he would also throw into direst poverty anyone who had no savings or job and remove the possibility of that they could borrow to improve their lot or eat.
    He does not understand either that hyper deflation would result as more wealth was divided into a finite amount of money nor does he realise that should he fail to convince China that wiping away the US debt to them etc etc would be super he would create a living nightmare.
    Go and live in the middle ages Torpare or set sail for the edge of the world and fall off

    ..........
    Its funny when someone runs out of constructive arguments and evidence to support them they simply turn to insults. Sounds like a bad loser to me. There are points of weakness in Torpare's arguments you could pick up on, but you seems to lack the knowledge to do so. That demonstrates your arguments are based on rhetoric.

  • Comment number 96.

    It is said that no single person on the planet can explain all the workings of a mobile phone and that's clearly true. Same goes for the working of "an economy" but that don't stop us all attempting to master it. Hidden subsidies be they £10B or £100B are so well hidden in the absurdity that is the value given to "our" property portfolio in the UK and most of the developed world. When the Estate Agent (Yesterday's banker style hate figure - remember them?) added 20% to the value of your house was he not placing that money directly into the banks for them to instantly multuply manifold into countless further debts. Someone earlier mentioned the insane property bubble. It's still gotta go bang, yes?

  • Comment number 97.

    Reykjavik-onThames @ 92

    Correct me if I am wrong but as I understand it, the banks are borrowing from the BoE at the base rate and then lending it out at what ever they can get away with, which is considerably more than 0.5%.

    Thus the banks margins are artificially boosted and their balance sheets are being repaired more rapidly than would otherwise be the case (in a non-rigged market).

  • Comment number 98.

    @ 86. At 11:10am 13th Apr 2011, abune wrote:

    > Do I sense that sense of gratitude at any level in the UK banking sector- well, no, I don't.

    Any normal, well-balanced person would thank his lucky starts that the Great British public saved their industry and propped him back up. But oh, no - not bankers. Most of them have either forgotten what they did, are still trying to forget what they did or never realised what they did in the first place.

    That is how unfit those dunderheads are to run any form of business. It's like having doctors who would profit when all their patients become more sick and die because of the treatment they dole out!

    Look, all that's got to change – bankers who are public liabilities will be barred from practise. And the ones we have now are evidently so riddled with greed and false entitlement that they have to be got rid of first. It's the only answer.

  • Comment number 99.

    87. At 11:12am 13th Apr 2011, RedHairedGirl wrote:
    Given a vote the people will vote not to repay the national debt before they accept further austerity - see Iceland.

    - Who do you think the Government owes? Government debt is issued through gilts (Government bonds). Previously (the rules changed recently) at 75 one had to use one's pension pot to buy an annuity. Annuities buy gilts. Many did so on retirement despite no compulsion to do so. If HM Government reneges on the debt, then pensioners will have no income.

    Fact is, you've never had it so good. If you don't believe me, ask your Grandma!

  • Comment number 100.

    30. At 21:42pm 12th Apr 2011, JustKBO wrote:

    Isn't use of the term 'subsidy' misleading?"

    No. But your attempt at obfuscation is.

    Subsidies can come in many forms. They all have the common, defining, characteristic that they confer financial advantage upon the recipient which the recipient has not earned and has not contributed towards. They directly or indirectly cause profits to be greater (by an amount up to the gross value of the subsidy) than they would have been without it.

    "if it walks like a duck..."

 

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