• Text size      
  • Send this article to a friend
  • Print this article

Co-op rescue applauded by BoE member

The rescue of the Co-operative Bank without a government bail-out was an "encouraging" sign for financial stability, according to the former Barclays chief, and now Bank of England committee member, Martin Taylor.

On whether there might be more skeletons in the banking cupboard to follow the Co-op and latterly RBS, Mr Taylor said: "I don't know of any more skeletons, but it would be a brave man who put his hand up and said 'this is the end'."

Mr Taylor ran Barclays from 1994 to 1998, sat on the post-crash Independent Commission on Banking, and is one of four external members of the central bank's Financial Policy Committee (FPC).

Speaking in Edinburgh yesterday, he said: "The fact that a bank that was insolvent survives and let's hope flourishes and the taxpayers haven't had to dip into their pockets, that is not entirely a bad outcome of what was clearly a very messy affair."

Mr Taylor was roundly critical of Barclays when the Libor scandal broke last year, but would not comment on the recent wave of allegations at RBS, which with Barclays yesterday agreed to pay EC anti-trust penalties totalling £616 million for manipulating Libor.

He said: "One of the difficulties of the banking industry is that when things go wrong, they can go wrong for quite a long period without people noticing.

"But given that this stuff seems mostly to pre-date the crisis, the passage of time ought to lead to fewer things coming out of the cupboard - I do hope so."

He went on: "It is important to stress that for all the reputational blows the banks have suffered, they are better capitalised and I think behaving more sensibly than for a very long time."

Mr Taylor, on one of the Bank of England's 'outreach' visits to Scotland, said the FPC had been determined to take modest but early action to head off any potential housing market bubble, as market movements "can become self-perpetuating".

He admitted any medicine was designed more for London and the south-east of England than the "patchy" price inflation elsewhere, and that the £600,000 ceiling for the government's Help to Buy scheme was seen by some bankers as too high.

Mr Taylor said: "It is not house prices that worry us, it is certain sorts of behaviour in the housing market that could threaten financial stability....one-way bets on borrowed money are not the sorts of things central banks should encourage."

Some countries had used controls on loan ratios or mortgage terms, Mr Taylor said, which could form the basis for future FPC tools.

But he said most banks were already enforcing tighter loan rules and stress-testing them against higher interest rates, while BoE governor Mark Carney's recent comments had been "simply a warning to people not to assume rates will stay low forever".

On the Funding for Lending Scheme, which only properly came into use in Scotland this autumn, Mr Taylor said credit conditions had clearly eased for business this year.

However, he indicated that the contribution of FLS was unclear, but "we don't feel the time is yet right to take it away from SME lending" until its finishing date next year.

On the capital framework for banks, Mr Taylor said much progress had been made.

However, there was a recognition of further work needed and Mr Taylor added: "We haven't yet reached a position where we say we could safeguard and resolve a very big bank without taxpayer support.

"It is very desirable we should get that, but we are not there yet."

The most recent FPC minutes suggested the body would not impose capital rules on banks until there was global agreement on what the regulations should be.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

198153