“From the start of the crisis, central banks provided emergency loans but these amounted to little more than holding a sheet in front of the emperor to conceal the nakedness of the banks. They didn’t solve the underlying problem – banks needed not loans but injections of shareholders’ capital in order to be able to absorb losses from the risky investments they had made. From the beginning of 2008, we at the Bank of England began to argue that UK banks needed extra capital – a lot of extra capital, possibly £100?billion or more. It wasn’t a popular message.”
Sir Mervyn said the “bold action” to largely nationalise RBS and Lloyds Banking Group took another nine months.
“That bold action in October 2008 could have happened sooner,” he said. “Bailing out the banks came too late to prevent the financial crisis from spilling over into the world economy. The realisation of the true state of the banking system led to a collapse of confidence around the world and a deep global recession. Over 25?million jobs disappeared worldwide. And unemployment in Britain rose by over a million.”
Politicians: even when doing the right thing they manage to do it at the wrong time.
And stopping the banking system from falling over was indeed the right thing. Maybe more shareholders should have lost their money as well, but doing it 9 months late isn\’t very good, is it?