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Tuesday, 11 October 2011

British Taxpayers Will Have to Bail Out Banks Again

British Taxpayers Will Have to Bail Out Banks Again “Before End of the Year”

British taxpayers will be called upon to bail out at least one High Street bank before the end of this year, a leading banking analyst has warned in the wake of the credit rating downgrade of 12 major banks and building societies.

Ralph Silva, of the Silva Research Network (SRN), famous for his analytical work on the BBC, CNN and financial networks, made the prediction after credit rating agency Moody’s lowered the ratings of Lloyds TSB Bank, Santander UK and Co-Operative Bank by one notch. The Royal Bank of Scotland (RBS) and Nationwide Building Society had their ratings lowered by two notches while seven smaller building societies had downgrades of between one and five notches.

The lowering of the credit rating means that Moody’s (a respected financial institution which analyses the ability of borrowers to repay their debts)believes it less likely that the government will bail out the banks should their financial situations worsen.

Mr Silva, however, was quoted in the media as saying that the downgrades were “an over-reaction,” and that the Government “will probably have to provide further support for RBS by the end of the year.”

The Royal Bank of Scotland and the Lloyds Banking Group are already 82 and 40 per cent owned by the UK government, which makes it even less likely that they will be bailed out once again should the need arise.

The Financial Times quoted an anonymous Treasury source as saying that the Government had already taken steps to inject more cash in to RBS to keep it afloat.

Earlier, Bank of England Governor Mervyn King announced that the current financial crisis was the worst the world had ever seen and was even more dangerous than the Great Depression. Simultaneously, the Bank of England announced that £75 billion more cash is to be pumped into the economy by means of Quantitative Easing (the modern equivalent of printing money).

It is likely that an impending default by the Greek government on its debt will further shake the international financial institutions. Even though Britain is not part of the eurozone, its crisis will affect this country, particularly through exposure to the euro via Ireland.

* The term “credit rating” as used by Moody’s is an assessment of an institution’s financial stability based on creditworthiness and its ability to repay debt. Ratings range from AAA, the safest, down to D. Ratings of BBB- or higher are considered safe.