Cost of Saving the Banks so far = £38.4bn
Discussion
The Government will have to sell its stakes in the part-nationalised banks for an £8bn profit if it is to recover the full cost of the financial sector bail-out, the Office for Budget Responsibility (OBR) has revealed.
Protecting the taxpayer from a loss appears a dim prospect, though, as the state's holdings in Royal Bank of Scotland (RBS) and Lloyds Banking Group are currently worth £30.6bn less than was paid, the OBR added. In total, the taxpayer is currently £38.4bn out of pocket on the rescue.
The OBR provided revealing new figures that give a fuller picture of the cost of the bank rescues. To inject £66bn into RBS and Lloyds, and £1.4bn into Northern Rock, the Government had to raise funds in the market. In addition, it secured a further £57bn to provide loans to the stricken sector – predominantly Northern Rock.
For the first time, the Treasury has revealed to the OBR that "the additional costs of financing the funds raised to support the interventions... have amounted to £12.8bn to date". The total cost will continue to rise as long as the Government has shares in, or is lending to, any bank.
http://www.telegraph.co.uk/finance/newsbysector/ba...
Protecting the taxpayer from a loss appears a dim prospect, though, as the state's holdings in Royal Bank of Scotland (RBS) and Lloyds Banking Group are currently worth £30.6bn less than was paid, the OBR added. In total, the taxpayer is currently £38.4bn out of pocket on the rescue.
The OBR provided revealing new figures that give a fuller picture of the cost of the bank rescues. To inject £66bn into RBS and Lloyds, and £1.4bn into Northern Rock, the Government had to raise funds in the market. In addition, it secured a further £57bn to provide loans to the stricken sector – predominantly Northern Rock.
For the first time, the Treasury has revealed to the OBR that "the additional costs of financing the funds raised to support the interventions... have amounted to £12.8bn to date". The total cost will continue to rise as long as the Government has shares in, or is lending to, any bank.
http://www.telegraph.co.uk/finance/newsbysector/ba...
Something's not right here - either the OBR or the Public Accounts Committee have cocked up.
The OBR state that "In the past the Treasury has not provided an estimate of the additional costs of financing the funds raised to support the interventions. We have now asked the Treasury to produce this estimate, in line with the recommendation of the Public Accounts Committee."
Except they did in last year's National Audit Office report (Maintaining the financial stability of UK banks: Update on the support schemes) - the same report from which the PAC subsequently made their recommendation (apparently ignoring that it was already there)
According to the NAO, as of December 2010, the figure for additional financing costs was £10 billion - around £5 billion a year. A year later, OBR are saying it is £12.8 billion for 39 months (perhaps reflecting lower gilt yields).
But what the NAO also included last year, and what the OBR hasn't mentioned, was the fee income the Treasury was receiving from RBS and Lloyds in paricular for the various support schemes (now RBS alone as Lloyds have exited the Asset Protection Scheme). Last year the fee income was £9.91 billion so extra cost was really only £90 million.
The OBR state that "In the past the Treasury has not provided an estimate of the additional costs of financing the funds raised to support the interventions. We have now asked the Treasury to produce this estimate, in line with the recommendation of the Public Accounts Committee."
Except they did in last year's National Audit Office report (Maintaining the financial stability of UK banks: Update on the support schemes) - the same report from which the PAC subsequently made their recommendation (apparently ignoring that it was already there)
According to the NAO, as of December 2010, the figure for additional financing costs was £10 billion - around £5 billion a year. A year later, OBR are saying it is £12.8 billion for 39 months (perhaps reflecting lower gilt yields).
But what the NAO also included last year, and what the OBR hasn't mentioned, was the fee income the Treasury was receiving from RBS and Lloyds in paricular for the various support schemes (now RBS alone as Lloyds have exited the Asset Protection Scheme). Last year the fee income was £9.91 billion so extra cost was really only £90 million.
That might be the monetary cost so far, but in my view it doesn't scratch the surface.
The real cost is that we have made a defacto promise that banks won't be allowed to go bust. Next time the conditions are right, the bubble will be even bigger and the bust even more calamitous, all in the certain knowledge that banks don't go bust.
And if banks, why not any other industry that can prove it's worth to the government of the day. What if a train operator, insurance company or a utility company runs into trouble? Will they be allowed to go to the wall?
One of the few good things that the Labour government did was allowed Rover to finally go bust. 30 years after it probably should have done, but better late than never.
It just makes no sense at all that a few short years later they poured countless billions into rescuing other failed companies.
And to preempt a few common arguments
Contagion
Yes, the whole banking system might have collapsed. Tough. Any bank that was exposed to that level of risk deserved to go down, and savers/borrowers/lenders will get burned when a bank goes down. That's the nature of a market, and what we learn from it is progress.
Maybe we'll make a profit
Yeah, and we'll all be millionaires on the back of nationalised banks, like Emiratis with our oil money. Or just maybe it will be another stitch up that we pay for and someone else benefits from.
It was the government's fault in the first place for messing up the regulations
No, banks lent the money it was their fault. That's like saying it's the 70mph speed limit's fault I skidded on sheet ice at 2am this morning.
If bad businesses don't go bust, they survive and in the long run that is always worse for the economy than whatever the consequences of keeping them alive.
The real cost is that we have made a defacto promise that banks won't be allowed to go bust. Next time the conditions are right, the bubble will be even bigger and the bust even more calamitous, all in the certain knowledge that banks don't go bust.
And if banks, why not any other industry that can prove it's worth to the government of the day. What if a train operator, insurance company or a utility company runs into trouble? Will they be allowed to go to the wall?
One of the few good things that the Labour government did was allowed Rover to finally go bust. 30 years after it probably should have done, but better late than never.
It just makes no sense at all that a few short years later they poured countless billions into rescuing other failed companies.
And to preempt a few common arguments
Contagion
Yes, the whole banking system might have collapsed. Tough. Any bank that was exposed to that level of risk deserved to go down, and savers/borrowers/lenders will get burned when a bank goes down. That's the nature of a market, and what we learn from it is progress.
Maybe we'll make a profit
Yeah, and we'll all be millionaires on the back of nationalised banks, like Emiratis with our oil money. Or just maybe it will be another stitch up that we pay for and someone else benefits from.
It was the government's fault in the first place for messing up the regulations
No, banks lent the money it was their fault. That's like saying it's the 70mph speed limit's fault I skidded on sheet ice at 2am this morning.
If bad businesses don't go bust, they survive and in the long run that is always worse for the economy than whatever the consequences of keeping them alive.
Whose wrong me or the rest of the world.
I bought a house 10 years ago for £120k, 2years ago it was worth £300k but now £240k.
Th papers will tell me I've made a £120k profit, an economist will tell me I've made a £60k loss.
I may well be worth more but until I've sold it I've made neither a profit or a loss.
These bank shares are the same can't we hold the until they go back up in price (they look undervalued to me) then SLOWLY sell them back.
Disclaimer: I understand personal finance but economics seems to be counter intuitive.
Personal finance when in debt stop spending
Economics when in debt spend more to get out of it
I bought a house 10 years ago for £120k, 2years ago it was worth £300k but now £240k.
Th papers will tell me I've made a £120k profit, an economist will tell me I've made a £60k loss.
I may well be worth more but until I've sold it I've made neither a profit or a loss.
These bank shares are the same can't we hold the until they go back up in price (they look undervalued to me) then SLOWLY sell them back.
Disclaimer: I understand personal finance but economics seems to be counter intuitive.
Personal finance when in debt stop spending
Economics when in debt spend more to get out of it
What a suprise. You inject capital into a distressed business and it's not instantly worth more than your investment. These "investments" unfortunately by their very nature are hugely correlated with the UK economy.....so if and when the are actually in "profit" we'll care an awful lot less about it because the economy will be in a much better state anyway.
There's a good chance we'll never see a profit in the stakes in Lloyds and RBS....both are effectively in run off and will probably become what Lloyds was i.e. a boring clearing bank/depssit taker) which can't grow because it already has too much of the market (MMC issues) so the stock market will value it quite cheaply....there might be a nice dividend but that's about it.
There's a good chance we'll never see a profit in the stakes in Lloyds and RBS....both are effectively in run off and will probably become what Lloyds was i.e. a boring clearing bank/depssit taker) which can't grow because it already has too much of the market (MMC issues) so the stock market will value it quite cheaply....there might be a nice dividend but that's about it.
voyds9 said:
Whose wrong me or the rest of the world.
I bought a house 10 years ago for £120k, 2years ago it was worth £300k but now £240k.
Th papers will tell me I've made a £120k profit, an economist will tell me I've made a £60k loss.
I may well be worth more but until I've sold it I've made neither a profit or a loss.
These bank shares are the same can't we hold the until they go back up in price (they look undervalued to me) then SLOWLY sell them back.
Disclaimer: I understand personal finance but economics seems to be counter intuitive.
Personal finance when in debt stop spending
Economics when in debt spend more to get out of it
Put a bunch of economists in the same room to discuss the present global financial situation, not one will agree with other, either the extent or how to fix.I bought a house 10 years ago for £120k, 2years ago it was worth £300k but now £240k.
Th papers will tell me I've made a £120k profit, an economist will tell me I've made a £60k loss.
I may well be worth more but until I've sold it I've made neither a profit or a loss.
These bank shares are the same can't we hold the until they go back up in price (they look undervalued to me) then SLOWLY sell them back.
Disclaimer: I understand personal finance but economics seems to be counter intuitive.
Personal finance when in debt stop spending
Economics when in debt spend more to get out of it
AJS- said:
Contagion
Yes, the whole banking system might have collapsed. Tough. Any bank that was exposed to that level of risk deserved to go down, and savers/borrowers/lenders will get burned when a bank goes down. That's the nature of a market, and what we learn from it is progress.
At the time of the bailout, how much savings did you have to potentially lose?Yes, the whole banking system might have collapsed. Tough. Any bank that was exposed to that level of risk deserved to go down, and savers/borrowers/lenders will get burned when a bank goes down. That's the nature of a market, and what we learn from it is progress.
Caulkhead said:
Caulkhead said:
What was the opportunity cost of not saving the banks?
Anyone like to take an educated guess for me?I have no idea but my guess would be at least 20% of GDP...probably much more. Any company that had significant deposits or used a bank for clearing would be pretty much out of business for a month or two at the very least...if they survived it. Let's say for example BT,Vodafone,British Gas,Tesco and Marks and Spencer, train operators utilities etc used Lloyds or RBS for banking....imagine the effect of that.
Then you have all the indiivduals who suddenly don't have a bank account and probably couldn't get access to their savings for many months (those protected by the deposit protection scheme would have to wait to get their money back). Obviously that money protected by the scheme would be paid for byt the taxpayer anyway.........
Cheib said:
Any company that had significant deposits or used a bank for clearing would be pretty much out of business for a month or two at the very least...if they survived it. Let's say for example BT,Vodafone,British Gas,Tesco and Marks and Spencer, train operators utilities etc used Lloyds or RBS for banking....imagine the effect of that.....
I doubt a bank would be removed from the clearing system overnight, and BACS (Bankers Automated Clearing Services) have the capability to divert funds destined for accounts at one bank to another.bobbylondonuk said:
So roughly....we spent a 1 year's deficit on the banks in total? No more blaming the debt pile on the banks then. The way people go on about the deficit and banks...it would seem that we put in a trillion!!!
Man alive....You could build some ships and mine some coal and make some trains and make some steel and a whole s
t load of textiles for 34 billion.Thats £34,000,000,000.00 that we as taxpayers gave to the banks.
Camoradi said:
Cheib said:
Any company that had significant deposits or used a bank for clearing would be pretty much out of business for a month or two at the very least...if they survived it. Let's say for example BT,Vodafone,British Gas,Tesco and Marks and Spencer, train operators utilities etc used Lloyds or RBS for banking....imagine the effect of that.....
I doubt a bank would be removed from the clearing system overnight, and BACS (Bankers Automated Clearing Services) have the capability to divert funds destined for accounts at one bank to another.Based on this article....it doesn't sound like being part of the clearing system is the main priority. Legally the need is to protect creditors.
http://news.bbc.co.uk/1/hi/business/7115252.stm
One thing is for sure depositors wouldn't see their money for a long time.
BACS might be able to divert funds in one off cases but 25% of the banking system ? No chance. Legal minefield for one.
ArmaghMan said:
Thats £34,000,000,000.00 that we as taxpayers gave to the banks.
...or 65% of the 2009 tax contribution by the UK financial services industry ( http://www.cityoflondon.gov.uk/Corporation/media_c... ). Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff