Biting the Bullet in UK

Bank bailouts are real headaches and expensive affairs. Don't believe? Ask the current UK government.

They have been paying plenty for bailouts. The current bank bail outs has hit £850 billion (RM4.7 trillion)but the final cost will only be known for years.

A Reuters Report dated December 4th has this to say.

"The independent National Audit Office (NAO) said today the government was justified in asking the public to shore up the shaken sector at the height of last year’s financial crisis — although lending to businesses was likely to miss targets.

“It is difficult to imagine the scale of the consequences for the economy and society if major banks had been allowed to collapse,” said the NAO’s head Amyas Morse.

“But the big question is what all of this will eventually cost the taxpayer.

“As the crisis begins to subside ... the authorities need to put formal arrangements in place to evaluate the effectiveness of the support provided to banks in order to inform future policy makers.”

Britain, along with other countries, partly nationalized some banks and offered guarantees, insurance and loans to the industry after the credit crisis pitched the world into recession in the wake of the collapse of the infamous Wall Street giant Lehman Brothers last year.

The government has put the potential loss to the taxpayer at between a paltry £20 billion to a median fallout of £50 billion, depending on losses on bad assets held by Royal Bank of Scotland and the price at which the state sells stakes in RBS and Lloyds Banking Group.

Sadly, the costs keep mounting. The finance ministry expects to have spent £107 million on advisers alone by next April, with Credit Suisse and Deutsche Bank each appointed on retainers of £200,000 per month for a year, the NAO said. Success fees could reach £5.8 million.

RBS and Lloyds have agreed to lend more to consumers and businesses as part of their bailout. But although both are on target for mortgage lending, lending to businesses is likely to fall short of targets, the NAO said.

RBS agreed to lend an additional £25 billion in 2009-2010, while Lloyds agreed to lend an additional £14 billion to help businesses and consumers weather the credit crisis.

The NAO is an independent body funded by parliament, rather than the government of the day. But it has limited powers and its role is largely to draw attention to cases where it feels public money has been misused.

Which figures do you believe? The Government's or NAO's?