There are a couple of things to say about Britain’s banks. They still pose a serious threat to the nation’s long-term stability and prosperity. They rely for their profits – and for the huge bonuses paid to senior staff – on the fact that taxpayers are underwriting the risks. Thus public subsidy is turned into private profit.
Add to the mix the banks’ pivotal role in the global financial crash, and it is unsurprising that bankers are today less popular than second-hand car dealers and journalists. Nationalisation of the banks’ losses has left most British households facing cuts in their standard of living as steep as any since the 1920s. The banks have responded by reinstating big pay-outs for top executives and traders.
Mervyn King puts it well. Britain, the Bank of England governor says, has not solved the problem of “too-important-to-fail” banks. Reckless risk-taking and extravagant rewards are a consequence of the moral hazard that allows bankers to gamble with taxpayer’s money. In Mr King’s commonsense judgment, the idea that some businesses cannot be allowed to fail “should have no place in a market economy”.