£512 billion propping up banks!

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Banks are relying on the taxpayer for £512 billion support this year, the House of Commons Public Accounts Committee reported yesterday.

The parliamentary committee was also astonished at the inability of the Royal Bank of Scotland (RBS) and Lloyd’s to assure the Treasury that their assets were not linked to criminal activities.

It also condemned taxpayer funds being used to pay multi-million pound bonuses and dividends to bankers.

It declared: ‘There must be an end to the dependence of the banks on taxpayer support,’ which has decreased from nearly £1 trillion in 2008 to £512 billion.

It added: ‘The Treasury must continue to work towards the orderly removal of this support which will depend in particular on the success of the sale of the shares in RBS and Lloyds.

‘The Treasury faces the challenge of balancing the taxpayers’ interest on the public investment in the banks, with the wider imperative of maintaining financial stability.

‘Those banks that have not received capital cash injections from the government still benefit substantially from an implicit expectation of taxpayer support.

‘Currently, the arrangements available for winding-up failing banks would not be able to cope with the failure of a major bank.’

Margaret Hodge, MP, chairman of the committee, said: ‘Contracts entered into when state support was put in place have allowed some of these gains to be used to pay bonuses to certain bank staff and dividends to shareholders, rather than enhancing the financial sustainability of the sector, and this causes us and the wider public much concern.

‘This committee feels that it is inappropriate for banks dependent on taxpayer support to be generating excessive incomes, unnecessary bonuses or dividends at the expense of exiting public support.’

The government launched an Asset Protection Scheme in January 2009 to protect banks against further exceptional losses on their assets.

As part of the scheme, Lloyds and RBS agreed to meet published targets for lending to households and businesses.

The committee’s report on the issue stated: ‘It is alarming that two of the UK’s major banks (RBS and Lloyds) were simply unable to provide sufficient data to assure the Treasury that their assets were not linked to fraud or other criminal activity.’