UK banks still vulnerable to a “toxic cocktail” of taxpayer bailout risks


TSC chair and Conservative MP Andrew Tyrie is launching a new inquiry into the sector, stating that the public has a right to know of the risks they are facing despite measures which were designed to stop banks becoming “too big to fail”, reports City AM.

Tyrie will announce an inquiry this week into whether the latest regulatory measures are tough enough to avoid future government bailouts of banks in the event of another financial crisis.

After the 2008 crash the UK government was forced to bail out banks including RBS, Lloyds TSB and HBOS, to avoid a full-blown collapse of the banking industry.

Tyrie said: “The public was forced to foot the bill – and a large one – when the banks got into trouble during the crisis. They are still footing the bill now, with the profitable disposal of RBS looking like an ever more distant prospect.”

“The public have a right to know whether they are now adequately protected,” he added.

In the wake of the banking crisis, regulators around the world responded by requiring banks to hold more capital and ensuring that high street banking capital was separate from riskier investment bank operations. This so-called ring-fencing will come into effect later this decade.

However, serious concerns remain on banks’ vulnerabilities. RBS failed all of the Bank of England’s most recent stress tests, indicating that it would collapse or need to be bailed out in the event of another major financial crisis. Standard Chartered and Barclays also failed parts of the tests.

“It is vital this problem be solved,” said Tyrie. “The assumption that failing banks would receive public support was part of a toxic cocktail of misaligned incentives which contributed to the financial crisis.”

The inquiry – which will take evidence until March – will also investigate the implications of Brexit on the UK’s banking stability.