Friday, April 18, 2008

Banks must not have their losses nationalised

Commenting on yesterday’s announcement that lenders will be able to swap mortgages for government bonds, Liberal Democrat Shadow Chancellor, Vince Cable said:

“It is obviously necessary for urgent action to be taken to unblock the mortgage market and to break the crippling effects of the credit crunch.

“However, we cannot have a situation where the banks are able to privatise their profits and nationalise their losses.

“Since the mortgages from the banks are of inferior quality and higher risk than the Government bonds which they are replacing, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right.

“We need urgent reassurances from the Government that the exchange is taking place on a discounted basis so that the banks and not taxpayers carry any losses.

“In return for bailing out the banks, the Government must now insist on an orderly programme for identifying the losses in the banking system to ensure the banks themselves cover those losses by stopping dividend payments and raising money from their shareholders.

“The cost of Northern Rock is quite enough without the Government taking on all the other risks and losses of the banking sector.”
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