Wednesday, 8 October 2008

The taxpayer will be putting money into the riskiest financial institutions

The details of the government's financial package for the banks makes the situation quite clear - it is inevitable the taxpayers money will go into the riskiest institutions.
Financial institutions will be entitled to apply for injections of taxpayers share capital of up to a total of £50 billion. The outcome of this is clear. Sound institutions will not apply for such capital, both to avoid having doubt case on their solvency and to avoid the conditions attached. Those institutions in the worst state will apply. That is the taxpayers money will be selectively funnelled into the riskiest institutions - those with the greatest capacity to lose taxpayers money.
This policy is completely irresponsible. The position that should be applied is that if a financial institution collapses the govenment should step in, as with Northern Rock and Bradford and Bingley, to safeguard deposits and ensure the orderly running of the banks. Shares in this case will be acquired by the taxpayer for zero cost - and therefore with no risk of downside.

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