When too big to fail becomes too big to bail

Just as hopes for UK economic stability and recovery were gathering momentum, this month has been plagued with speculation over the exposure to the UK and global economies with what happens next in Ireland, Spain, Portugal and Italy.

With RBS’ share price nose-diving since September and their Irish business, Ulster Bank, making a loss of £176m pounds in the third quarter, on the back of £286m of bad loans, it is difficult to see the UK’s exposure being limited to taxpayer bailouts and one has to wonder if we (the UK) may get dragged into the dreaded double dip by our Euro counterparts? And whether the Euro Zone itself will crumble?

As was cited in the wake of the UK bank bailouts, the interconnectivity of European and Global economies meant that some banks were deemed “too big to fail”? So, with Ireland, Spain, Portugal and Italy all needing stimulus, (Italy needs a £350bn funding gap plugged for 2011 and Spain £150bn) are we now going to just see the shockwave of more and more bailouts coming back to haunt us?

We can all testify both from personal experience and regular press that the last round of bailouts didn’t filter through to SME’s in the form of small business finance or mortgages and despite the taxpayer propping up the insolvent banks (and going against a free market ethos) we were all worse off. Furthermore, because of the economic collapse, financial implosion; and fiscal disaster (aka bailout) we are now in a time of ‘austerity’ (read: murderous and savage public services cuts) not seen since WWII.

If you take liquidity from Euro Zone SME’s which in turn as contributors to the local, national and Euro Zone economies account for millions of jobs and trillions of Euro’s of GDP and instead prop up failing banks are we not just denying a healthy business to prop up a dying one? It seems that ‘survival of the fittest’ in a free market economy when it comes to the banks is thrown out of the window. The problem is only made worse by the banks not passing on that liquidity to their customers and hoarding it for themselves as they shift their business models to reflect a more risk averse culture.

The Bank of England base rate has been at an all time low for 18 consecutive months now, yet business lending levels remain flat, interest rates to borrowers uncharacteristically high and security demands deemed to be obscene. And yet good, profitable and solvent SME’s are being denied finance to grow.

At least the banker’s bonuses are still getting paid though eh? Some consolation at least. One question that must be building in many peoples minds now is when does “too big to fail” become “too big to bail”?

Would we be better off having the UK government use the bailout billions to inject into growing UK businesses?

For more info on how North West based Factoring Finance can help you unlock the cash tied up in your invoices and improve your liquidity simply get in touch…

Factoring Finance has a UK wide, independent broker network able to source the best invoice discounting and invoice factoring deals from numerous small business finance providers.

**Also, if you have 3-4mins to spare in order to answer 12 quick ’survey’ questions on Small Business Finance, Banks and Bailouts, for a follow up report on the theme touched on in this blog then please click here to complete the survey


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