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Banks to be nationalised

In his comments to the Treasury Select Committee's enquiry into the crisis yesterday, the Governor of the Bank of England, Mervyn King, said that banks should avoid lending and weakening their capital base individually but that, collectively, this could seriously damage the economy:

"Individually, it makes sense … to behave defensively and reduce the
size of their balance sheet.  Collectively, it makes no sense at all because if all banks
behave in that way not only will the economy go into a steep recession but
the banks themselves will see even bigger losses on their pre-existing
loans.  The challenge we have to confront in dealing with the banks is to find a
way in which their individual incentives do not lead to a collective outcome
that is clearly adverse."

This is the heart of the herd mentality and the lemming culture

Banks all do the same thing and run in the same direction. 

This is the issue the government has to deal with today, and Mr. King appears to be proposing nationalisation.

Nothing wrong with nationalisation, except for the shareholders who lost all or most of their investments.

I also wonder which banks Mr. King is thinking of nationalising.

All of the sector? 
A bit of the sector? 
Banks and Building Societies? 
Only the big banks who have zero capital?

This isn't easy.

Meanwhile, Mr. King's sidekick said: "It may well
turn out that further capital injections are required."

How much?
Paid for by whom?
For how long?

Is this cheque book unlimited?

It's time to think of shareholder guarantees and re-injecting shareholder confidence to avoid this panic situation of tactical reactions to each time the banks lament their balance sheet losses, lack of liquidity and inability to lend.

Oh yes.  Mr. King's sidekick is Mr. Bean, the new Deputy Governor and replacement for Sir John Gieve.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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