Quite why we intervened to save the banks is something many people asked at the time. And the answer is that we think that having a functional financial system is better than having a pile of smoking rubble where one used to be. Further, we're just absolutely fine with shareholders losing their money if a bank gets into trouble, bankers their jobs even. But we would like to make sure that the close down of a failed bank is orderly simply because of the risk to the greater system from a disorderly closing.
What this means is that when a bank does truly fail--that is, it is insolvent, not merely illiquid--then government needs to step in and take over some of the loan book in order to protect the deposit base. And the result of that will be that government then has financial assets which it must dispose of in future years. As they have just done with part of the loan book from the failed Bradford and Bingley:
The government has sold buy-to-let mortgages belonging to failed lender Bradford & Bingley for £11.8bn.
Insurance firm Prudential and investment firm Blackstone have teamed up to buy the loans.
The government took on the mortgages of Bradford & Bingley after rescuing the lender in 2008.
There's a reason this wasn't all sold off back in 2008. Conditions, uncertainty, were such that no one really knew what they were going to be worth. Were we going to see a massive property price crash? Would some to all of these mortgages default? Yes, English mortgages are recourse, meaning the bank can and will still come after you for money owed if you default, you can't just put the keys in the mail. But that's an expensive process and no one really wanted to take the risk to find out. These years later we're more certain about the housing market and thus the price offered for the loans is better:
The Government said the loans would be sold to Prudential and Blackstone and delivered 'value for money' for the taxpayer.
Hammond said: 'The sale of these Bradford & Bingley assets for £11.8bn marks another major milestone in our plan to get taxpayers' money back following the financial crisis.'
Someone, somewhere, had to take that risk and the only people it could be were the taxpayers:
UK Asset Resolution (UKAR) manages B&B and NRAM's closed loan books on behalf of the taxpayer. Allowing for the B&B transaction, UKAR's balance sheet now stands at £22bn, down from £37bn in September 2016 and from £116bn in 2010.
There's still a little bit left to go but we are actually getting there, finishing off on cleaning up the mess left by that near implosion of the banking system.
