The Big Bank Bailout, round two has begun,
The Bank of England has swung into operation its Extended Collateral Term Repo Facility (ECTRF). To you and me as taxpayers, that simply means a monthly regular bailout of all of the UK’s banks and building societies. Again.
In bits, so we don’t notice it as much; and so it doesn’t look so much like there’s a major panic on – which there is.
The Bank Of England will now, every month for the foreseeable future, offer at least £5 billion direct to banks to assist in their liquidity; every third Wednesday of the month, in fact.
The Bank of England is only allowed under the rules to operate the ECTRF where ‘actual or prospective market-wide stress of an exceptional nature’ is happening.
Essentially we were about this week to enter a severe credit crunch for our banks on the international markets (regardless of the Greek election result, by the way). The Treasury and the Bank of England has had to step in to prevent banking collapses in this country this summer, due to liquidity completely drying up.
Make no mistake, this intervention, by definition, means that we are in a real crisis.
We should not be confused by the other, separate, but equally telling, intervention into the banks this week: the “funding for lending” scheme.
This is designed jointly by the treasury and Bank of England for lending (effectively by taxpayers) of between £80 billion and £140 billion to the UK banks at below market rates; but trying to tie these to actual subsequent lending of those kinds of amounts into the real economy. Good luck with that.
This Funding for Lending scheme is above and beyond this new ECTRF monthly bailout. The UK banks are getting a double intervention from you and from me.
Repayments under effectively the same scheme (the SLS) were eventually repaid to taxpayers in January 2012.
So, in terms of liquidity measures, how long did the UK banks last without the Nanny State having to step in and save their sorry souls yet again? Four months!
Last time round, the National Audit Office tells us, we gave £1.2 trillion of loans and guarantees to the UK banks.
The latest NAO figures available show that we still have £500 billion of these loans and guarantees outstanding.
Of the actual physical taxpayers’ cash provided, the NAO tells us that less than seven per cent has come back to us from the banks. 93 per cent is still lying there, doing pretty much nothing for the economy; in Zombie banks.
So we are now planning below-market-rate loans of possibly £140 billion, added to at least £60 billion in monthly bailouts over the next 12 months. These are government and taxpayer subsidies to the financial industry.
Again, funny how we can find £200 billion from down the back of the sofa for bank bailouts?
So what will actually happen every 3rd Wednesday for the foreseeable? There will be an auction of at least £5 billion of Bank of England ready cash.
How do you get your hands on that lovely lolly? You have to bid. With what shall I bid? Er... dodgy debt.
The nasty stuff on your books at the bank which has been lying there unpaid and probably unpayable, and doing damage to your banks’ balance sheet can be offered for valuation and deposit at the bank in return for hard cash.
So the still festering credit card, sub-prime debt and commercial property and dodgy business investments from last time round (and the new stuff arrived since recession hit) can be offered up to the Bank of England in return for straight cash.
If you and I make a bad call on an investment we’re stuck with it, and, once bitten, are less likely to do it again.
If you’re a bank, you can just keep going back for more and (presumably) be as free, and as inclined, to issue the same kinds of dodgy debt again.
They must be laughing all the way to the... Oh, they’re already there.