Banks could need second bail-out, warns think tank

HIGH street banks are on the cusp of a second credit crunch that threatens to spark another wave of taxpayer bail-outs, a think tank claimed today.
By The Newsroom
Published 4th Oct 2010, 00:53 BST
Updated 4th Oct 2010, 00:53 BST

The New Economics Foundation (NEF) warned that banks will face a 25bn-a-month funding gap next year and could be forced to seek further State support.

Its report, Where did our money go?, estimated that at least 1.2 trillion of Government cash has been pumped into the banking system.

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But NEF said there had been a "shocking" lack of information on how the money has been used, with little sign of any benefit to taxpayers as borrowing rates remain high and credit availability has failed to ease significantly.

It called for urgent reform of the sector and cautioned that results of the current inquiries – such as the Independent Commission on Banking (ICB), which kicked off last Friday – will come too late.

The industry is heading for a severe funding crisis when the current financial lifelines are withdrawn in the coming years, according to NEF.

There are fears in particular over the Bank of England's 185bn Special Liquidity Scheme (SLS), which has provided a vital source of funding since the credit crunch, but will not be extended or replaced when it ends in 2012.

Tony Greenham, head of the finance and business programme at NEF, said: "We need urgent reform of the banking system to ensure that bailed-out banks are not allowed to repeat their failures."