"The banks were in disbelief at the amount of capital they would have to raise but the figures were nonnegotiable, even for those shunning government investment. The result is that Britain’s banks will be the best capitalised in the world - against their wishes.
“Everyone knew this recapitalisation process could only happen once,” said one source. “You couldn’t have banks coming back to the government for anything else further down the line. Hector wanted to be sure the banking system was absolutely bombproof.”
That may sound like a good thing, but some in the City are beginning to question whether the scheme goes too far. Longer term, it may even damage London’s status as the world’s financial centre, heaping further woe on the economy.
“Armageddon may have been averted for now, but at a price,” said James Eden, an analyst at Exane BNP Paribas.
“By forcing UK banks to run with higher capital ratios than their international peers, they have potentially been placed at a competitive disadvantage because they may be unable to match prices offered by European competitors and still earn a commercial return.”
In practice, being better capitalised means that for every loan a bank makes, it has to store away more of its capital.
“There is a risk that the FSA is throwing a net over the hole once everybody has already fallen into it,” said one veteran bank adviser. “In previous downturns the way to get through the problem has been to relax capital criteria temporarily, and for the banks to give their problem customers a little more breathing space."
This recession is going to be longer and deeper than most believe possible and thanks to Gordon Brown's mismanagement of the economy the UK will find it harder to survive than most western countries.
Thanks Gordon...
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