Banking bonus

THE return to profitability of Lloyds Banking Group, following its part-nationalisation and the emergency acquisition of HBOS, offers further evidence that the worst of the banking crisis has now passed. It also prompts one to consider what might have happened to the banks if Chancellor Alistair Darling had not acted so swiftly and decisively.

The challenge now for Lloyds is to continue its welcome return to financial parity – while ensuring that it lends money, at responsible rates, to those viable businesses that are still in desperate need of credit.

As Liberal Democrat Treasury spokesman Vince Cable pointed out, Lloyds' profits have come at the expense of those firms that are going to the wall because they have been starved of funds. The banking industry also needs to ensure that the bonus culture, one of the root causes of the global credit crunch, is never again replicated. That guarantee has still not been provided.

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This will, inevitably, require international political action – and will be one of the first priorities of the next government. A careful balance needs to be struck between public responsibility and the need for the banks, as the drivers of the economy to stimulate growth. The scale of this challenge was exemplified on Monday night when the US Senate rejected President Obama's plans. Another potential stumbling block is when the public's stake in banks, like Lloyds, should be sold. With the parlous state of the public finances likely to dominate the post-election period, it will be tempting for Ministers to order a quick-sale to counter the likely spending cuts.

Yet this would be as premature and foolhardy as Gordon Brown's decision to sell off a large chunk of Britain's gold reserves when that

particular market was depressed. A longer-term view will have to be taken, rather than short-term political considerations, to ensure that the interests of taxpayers come first for once.