Working The Weekend

17 January 2009 - Working the weekend 

UK Treasury officials and, more importantly, their myriad advisers are likely to be working all this weekend to find some sort of answer for when the markets re-open on Monday. An answer to stopping the shares of the high street banks falling even further than they did on Friday (yesterday). It is beginning to look more and more as if a so-called "bad bank" will be announced. If such a being is created it would be akin to the toxic fund idea referred to in yesterday’s diary entry and be close to the model adopted by Sweden in the early 1990’s. A new government owned institution would purge the high street banks of their bad loan assets. The idea is to restore confidence to those investors who provide the wholesale funding and encourage private capital back into the banking shares. Something drastic has to be done if only to stop the un-banned "shorters" from having a field day. The extreme example of last week’s bloodbath was our old friend Barclays whose shares fell 40%. It makes one wonder how comfortable those Middle-Easterners are.

From bad to good. In what would be a complete reversal of role, it is rumoured that the state owned Northern Rock might be trained to be the good boy on the block by lending where others fear to tread. In its formative days, this bank was in fear of EU rules on state aid and had to consciously limit what it lent out and also was tasked with paying back as much as possible of the £27bn received from the taxpayer. It would be a case of "look you lot who won’t lend, we have our own bank and will do it for you" sort of thing.

However one looks at it, state control of the entire banking sector is taking a step closer.