High street banks are on the verge
of another credit crunch and taxpayers may be forced to plug a $39.6 billion-a-month
funding gap, an economic think-tank has claimed.
Faced with a huge financial black
hole, the New Economics Foundation (NEF) has said the banks could turn again to
the Government for support.
According to its report – Where Did
Our Money Go? – an estimated $1.9 trillion of state cash has already been
pumped into the banking system.
However, NEF has described a
“shocking” lack of information about how that money has been used and
demanded “urgent reform”.
The report warns that the industry
is on a collision course for a severe funding crisis when current financial
lifelines are withdrawn.
In particular, there are fears over
the Bank of England’s Special Liquidity Scheme – a vital source of money since
the credit crunch – which ends in 2012.
Despite the bleak claims,
Chancellor George Osborne has denied Britain is heading towards a second credit
“I am not expecting and have
had no indication that any British bank needs any further support. The banking
system in Britain is much more stable than the one in Ireland,” he said.
The NEF wants a range of changes,
including splitting retail operations from more risky investment banking and
the breaking up of “too big to fail” players.
It comes against a backdrop of
incoming regulation – such as the Basel III capital rules – that demand banks
put aside more cash to boost their capital strength.
Calling for reform, Tony Greenham,
head of the finance and business programme at NEF, said: “We are on the
cusp of a second banking failure.