Douglas Carswell

10 FEB 2016

The markets are right: Europe's banks aren't safe

Yesterday, Europe's banks entered a new crisis as their shares plummeted. Why? Didn't central banks say the financial sector was safe? Our banking paper explains what's gone wrong.

The banking system was meant to be fixed after the financial crisis. We were told banks were holding more capital, making fewer risky investments, being more prudent.

Yesterday's market rout showed it's not true.

To understand why, just look at what prompted investors to panic now: the EU's decision to give up on taxpayer bail-outs, and force bank depositors and creditors to bail in failed banks instead.

Think about this for a second: the idea that the taxpayer might not be on the hook if the banks fail wouldn't bother markets unless the banks were at serious risk of failure. What this panic shows is that investors were counting on taxpayer bail-outs. In other words, nothing has changed since 2007.

A few months ago, UKIP in Parliament published a policy paper explaining why another banking crisis was inevitable. Capital requirements for banks are still far too low. Too many dodgy assets – like the sovereign debt of EU member states – are still being labelled risk-free. The Bank of England's stress test was far too lenient.

It's no surprise, though, that the banks haven't been fixed. Everything policymakers have done since the financial crisis has perpetuated the problem. Banks have been subsidised with low interest rates and public deposit insurance. They have been encouraged to take big gambles without bearing the risk.

The banking cartel needs to be broken. Banks should be genuinely competitive, not propped up by the public purse. We need an alternative to the failed Brown/Osborne consensus – as I wrote in After Osbrown.

Our paper points the way to real reform.

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