Politics and banking – an unholy alliance

Politicians remain wedded to the importance of the financial sector to the UK economy despite the ongoing aftermath of the 2008 financial crisis

So the taxpayer bailed out “too big to fail” banks and is now being treated to the misery of an austerity drive unprecedented since the last World War.

Now in the aftermath of the Co-op bank pulling out of plans to buy more than 600 Lloyds branches and the resultant downgrading the Co-op bank to so-called “junk” status ratings agency Moody, it seems there never was much likelihood of the deal being finalised.

The trusty old Co-op is, it seems, no different from other over-exposed bigger banks.  It has suffered from defaults on loans acquired by its purchase of the Britannia Building Society in 2009 leading to a loss of £674m in 2012.

All of which has led BBC Business Editor Robert Peston to ask why the now-defunct FSA did not block the Co-op’s sizeable expansion plans and why Chancellor Osborne was so supportive of the proposal. http://tinyurl.com/bm4sx7n

It would seem that the FSA set the Co-op high capital targets but, according to one of Peston’s innumerable inside sources, that it did not feel it could block a proposal that had so much parliamentary support.

Apparently MPs’ love Mutuals and the Treasury hoped that the Co-op would provide competition to the big banks.

Politicians’ relying on hope and sentiment does not bode well for any rigorous effort to regulate the banks and prevent another crisis or to the likelihood of any meaningful support for those SMEs fighting to survive in a challenging market.

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