Breaking up UK banks would involve a loss for a major shareholder, the UK government. So what?

UK Financial Investments (UKFI) is the UK Government body responsible for looking after the Government’s current large bank shareholdings. The latter came about as a result of rescuing the banks during the credit crunch.

According to a Guardian article*, UKFI told the Treasury select committee that if the Too Big To Fails (TBTF) were split up, the value of the shareholdings would decline. Well, talk about a statement of the obvious.

Being a TBTF has clear advantages, for example it involves the well known TBTF implicit subsidy. That is no doubt good for the share price.

But half the point of government is to consider what is RIGHT, not what is profitable. If government just wants to make a profit on its bank shares and is not concerned about what is right, why doesn’t it let banks engage in extortion, protection racketeering, murder, you name it?

The above point about share values is just one of the guns which the banking industry worldwide holds to governments’ heads. The message is, “If you don’t let us return to the pre-crunch status quo, you’ll lose on your shareholdings, which means you’ll have to beg taxpayers for more money, which will make you unpopular.”

* “State would lose in bank split” by Jill Treanor, 28th Jan 2011.