Bill Carmichael: Banks must be allowed to fail

Sounds a bit risky, doesn’t it? Especially if the stakes are so enormous that you really can’t afford to lose.

Ah, but this is no ordinary betting shop – this is the British banking system.

If your high-risk bet comes romping home, you collect your winnings and walk away with riches beyond the dreams of avarice. If however, your sure thing falls at the first fence, there’s absolutely no need to worry, because the taxpayer will refund your stake money.

The problem at the heart of our broken banking system is that the banks are deemed “to big to fail”.

In other words, the failure of one of our large High Street banks would do long-term damage to our economy. As a result the state – in the form of hard-pressed taxpayers – effectively acts as a guarantor to the banks.

No matter how stupid or irresponsible the banks are – and we’ve plenty of evidence of both over recent years – kindly Mr Taxpayer is always on hand to bail them out, last time to the tune of £850bn.

And I’m afraid Project Merlin – a wizard agreement hammered out between the big banks and the government this week – does absolutely nothing to address this fundamental flaw.

Under Merlin the banks have agreed to restrain the bonus culture – so a mere £6bn in bonuses will be dished out to City fat cats in the coming weeks.

It also promises increased lending to small businesses and funding for a “Big Society Bank” – whatever that is.

All well and good, but it doesn’t address the roots of the problem.

Take for example bonuses. Although it sticks in the craw to see the buffoons who brought the banking system to its knees walk away with millions, it isn’t the real issue. Neither should politicians dictate to banks. That is what got us into this mess into the first place.

Banks in the US were bullied by left-wing politicians to lend to “non-traditional borrowers” – in other words people with no assets and unreliable incomes.

These “toxic” loans were then bundled up, or securitised, and flogged off to other banks. When the “non-traditional borrowers” predictably defaulted on the repayments, the entire house of cards came crashing down.

Banks should be free to lend money to whomsoever they think fit and pay their staff whatever they judge is appropriate.

But the banks should also carry the risk – and ultimately if they get it badly wrong they must be allowed to fail.

I’m not advocating a disorganised collapse. But if we introduced special bankruptcy codes for the banking system, we could ensure an orderly winding down and handing over of assets.

In the short-term, this would be bad news for employees and shareholders, but in the long-term it would be good for the country.

Mellowing with age

The Duke of Edinburgh is often criticised for his robust sense of humour that seems to offend the sort of people who delight in being offended.

So when the Oldie magazine invited him to London to accept an award to celebrate the achievements of the elderly, you might think the Duke would have responded with both barrels.

Instead, the Duke, who is 90 in June, replied with a charming letter of acceptance. “There is nothing like it for morale to be reminded that the years are passing – ever more quickly – and that bits are beginning to drop off the ancient frame. But it is nice to be remembered at all,” he wrote.

Polite, graceful, and brimful of self-depreciating humour – is he in danger of becoming a national treasure?