How much would you lend a bank in need? - 21/07/2009 12:14

Tuesday, 21 July 2009 12:14

If a friend came to you and needed financial help, how much would you lend them?

And if you had to borrow money to make sure they were ok, how much would you borrow?

Would you borrow £141.3 billion to help a friend sort out their finances?

Why £141.3 billion? This is the amount the UK has borrowed to cover intervention in the financial sector, according to public sector net debt figures released by the Office for National Statistics (ONS) today.

Is it a big price to pay?

The UK government had to step in and help Northern Rock, Royal Bank of Scotland and Lloyds Banking, because of HBOS losses. Without government support some of these would have failed.

The collapse would have caused mass panic about finances, and even create insurmountable mistrust in banks for a generation.

But is the price worth it?

Hopefully we shall be able to get some money back when we eventually sell off our shares in the banks. But will we get back £141.3 billion?

A sale of Northern Rock could come as early as next year, but dealing with RBS and Lloyds Banking may take longer.

The Conservatives yesterday stated a vague intention to cut up the merged Lloyds TSB and HBOS if they take power next year. At the heart of the proposal is a Competition Commission investigation to see the effect on the market of such great beasts slumping over the high street.

Although not mentioned directly, this could include Santander's triumvirate of Alliance & Leicester, Abbey and Bradford & Bingley, as well as the big boy Lloyds Banking.

But a major question would be what gives us, the 43 per cent owners of Lloyds Banking, better value. Selling off arms and legs of the lender here and there where we can? Or dripping our shares onto the market over a number of years?

And as Lloyds Banking has been quick to lose around 8,000 staff in merging the two firms to save money and dropping elements like Cheltenham & Gloucester, how costly would bankectomy be?

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