Britain Shows the Way on How to Deal with Banks

During the recession, many British banks got substantial support from the government, which even acquired a stake in some of them. The government also introduced economic stimulus measures and special liquidity schemes that helped banks. More than one trillion pounds were invested to keep the banks afloat.

Now, the banks will have to return the favor, and help in funding various schemes for economic recovery. The government is slowly withdrawing its support as the economy has stabilized now. It is planning to sell its shares in several banks in order to recover the money it had invested – a move very similar to that of the U.S. Treasury, which announced a few days back that it would sell its stake in Citigroup.

Several measures have been introduced for getting contributions from British banks for supporting the economy. A one-time super tax of 50% was imposed on the bonus amounts received by bankers in excess of 25,000, which helped in government’s revenue collection.

Banks will also have to provide support to people who do not have bank accounts and encourage them to open basic accounts. Moreover, banks will have to give credit at favorable terms to families who are suffering because of the recession.

These measures aim to return the taxpayer money that was put into banks for saving them during the economic crisis. This will also help in stabilizing the economy and restoring investor confidence. Banks that needed extra support during the recession will have to contribute more to these schemes. For example, the government had supported the Royal Bank of Scotland at the height of the financial crisis. Now, the bank will have to provide credit worth 105 billion to home buyers and businesses in the next one year. However, critics claim that the rule would not have much impact as these banks were already lending a similar amount.

Some measures for preventing a similar economic meltdown in future are also being considered, such as giving greater say to shareholders in decisions relating to the remuneration of executives. An international risk tax on banking transactions, which will create a corpus for helping banks during a financial crisis, has also been recommended.

These measures have been criticized by some people from the banking industry, as they will increase the operational costs, which will have to be passed on to customers. They say that banks are already contributing a great deal to the economy and have paid back most of the taxpayer money.

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