Manish Singh is an Investment Director at SG Hambros Bank Limited (part of Société Générale Group). He is also the Head of the Conservative City Future Research Group. Manish is a graduate of Indian Institute of Technology in Mumbai (IIT) andan associate member of the CFA Society of the UK.
After talking up the idea of a ‘bad bank’ last weekend, the Government decided to create an insurance scheme that exposes taxpayers to all the downsides and no upside.
In my opinion, insuring the banks against potential losses from toxic debt is a solution but not an optimal one for Britain.
I have long argued that setting up a 'bad bank' on lines of Swedish experience is the correct way to directly deal with toxic assets and still believe so. That is why I am surprised this Government gave up on the ‘Bad Bank’ idea after talking it up last weekend. I hope there is a very good reason; however the reason seems only political.
The political opportunism is ignoring the right response. The reason the Government is not setting up a 'bad bank' is because 'price discovery' will blow some of the banks away, and the Government will have to commit huge sums of additional taxpayer's money up front - an outcome which is not politically favourable to the Government given that the PM has already claimed to have ‘...saved the world...'