Jill Treanor,    Monday 4 October 2010

 

Britain’s banks may soon demand a further bailout from the public purse despite £1.2tn already being put at risk to prop up the system, a leading economic thinktank warns today.The New Economics Foundation said the government needs to do more to address the borrowing requirements of the high-street banks, which still rely on funding from the Bank of England two years after the collapse of Lehman Brothers. Many of the emergency funding schemes put in place during the crisis run out by the end of 2012, which means that banks need to find or replace £750bn of funding.

 

NEF calculates that the banks will need to raise £25bn a month – up from £12bn a month now – to plug the funding gap. If they cannot, they may need more help from the government to keep operating.”We believe the public sector is likely, once again, to be asked to bail out the banks for the emerging funding gap,” the foundation said.

 

The thinktank calls on the government to separate high-street banking from speculative trading in investment banking divisions and break up the big banks so that the failure of one institution would not jeopardise the whole economy.The report may resonate with the Irish, where the €35bn bailout of Anglo Irish Bank is equivalent to 22% of national output, and rescuing the entire banking system will leave the country with a debt-to-GDP ratio of 32% next year.

 

“The financial crisis resulted in a massive socialisation of losses after decades of private gain,” said Tony Greenham, head of the finance and business programme at NEF and co-author of the report, entitled Where Did Our Money Go?.

 

“The public have already paid for the failure of the banks twice, first by bailing them out, and then by suffering a programme of drastic cuts to public services to appease the financial markets.”We need urgent reform of the banking system to ensure that bailed-out banks are not allowed to repeat their failures.”

 

While NEF is concerned about how banks will plug their funding needs, Lloyds – which has a £132bn gap – is making progress. The bank, in which the taxpayer owns a 42% stake, last week said it had raised £25bn of fresh funds on the markets more quickly than it had expected to.Andrew Simms, co-author and policy director at NEF, said that “for all the talk of learning lessons, the banks have been left largely untouched”.

 

He added: “They appear no more transparent or accountable, and scant new regulation has been implemented to prevent a repeat of the crisis.”The report points out that although banks are being propped up by the taxpayer, lending has stagnated and interest rates on loans for businesses and households are in some instances higher than they were before the banking crisis.

 

NEF has previously published a manifesto for better banking in which it calls for a Post Office bank based on the existing post office network to be created and the setting up of a green investment bank to finance low carbon projects.The thinktank also supports controls on bonuses and a tax on financial transactions, known as the Robin Hood tax.

 

Source:The Guardian