Leading article: Nationalisation of our banks edges ominously closer

The markets will not tolerate many more losses like those of HBOS

Share
Related Topics

The massive losses announced by the Halifax Bank of Scotland at the end of last week have done nothing to lift confidence in our battered banking sector. The Lloyds Banking Group, which absorbed HBOS last year, is in serious trouble itself. A third of its value was wiped off in the stock market last Friday. And more punishment could come today.

There is a bitter irony for Lloyds here. The bank was in reasonable shape compared with its peers when the credit turmoil struck in the autumn of 2007, having not over-extended itself in the boom. But now there is speculation that Lloyds might need to follow RBS into majority public ownership. The Government, which encouraged the Lloyds takeover of HBOS, waiving competition rules in the process, stands accused of facilitating this latest disaster. The shadow business secretary, Kenneth Clarke, says the merger should never have taken place.

But while it seems difficult to justify now, it is worth bearing in mind the circumstances in which the takeover deal was done. HBOS was already in serious trouble last summer. The Government believed that encouraging a takeover by the healthier Lloyds group would prevent it going the way of Northern Rock. And keeping the bank in private hands was widely perceived to be preferable to another nationalisation. Then in September the massive American investment bank Lehman Brothers collapsed and the global financial system suffered the equivalent of a heart attack. The weaker members of our banking sector suddenly faced going under completely.

Over a tense few days in October, the Government agreed to inject £37bn of capital into RBS, HBOS and Lloyds to reassure investors and depositors that these banks would be able to meet their considerable liabilities. The formal Lloyds takeover of HBOS proceeded in the weeks following this unprecedented Government rescue.

Should the Government have called off the merger after the recapitalisation? It is true Lloyds would be in better shape now if HBOS had stood alone. But HBOS itself would almost certainly be in complete public ownership if it had not been absorbed by its competitor. Lloyds' shareholders might have a case against the Government were it not for the fact that they themselves voted for the deal, persuaded by the argument of the bank's management that the merger would put them in a commanding market position when the recovery came. The principle of caveat emptor would seem to apply.

But what of the taxpayers' interest? From this perspective, there is not much difference between a hobbled Lloyds and a wholly nationalised HBOS. Both are equally unpalatable. The dispute about the merger is actually something of a sideshow. The important question is not whether the merger was a mistake, but whether outright nationalisation of the banks is the only way to prevent our economy entering a prolonged slump. As Mr Clarke pointed out yesterday, the October recapitalisation has not succeeded in unblocking the credit taps. Businesses are still being squeezed as the banks seek to shrink their balance sheets.

It is possible that the only way to ease the flow of credit to the wider economy will be to take the entire sector into temporary public ownership. At the moment, ministers keep repeating that the banks are best kept in the commercial sector. And the Government quite clearly has no appetite for further nationalisations. But any further losses like last week's and the markets might well give the Government no choice.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Read Next
Yvette Cooper campaigning in London at the launch of Labour’s women’s manifesto  

I want the Labour Party to lead a revolution in family support

Yvette Cooper
Liz Kendall  

Labour leadership contest: 'Moderniser' is just a vague and overused label

Steve Richards
Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine