British banks 'may ask for additional bailout funding'

4 October 2010

The British banking sector may soon be in need of further government bailouts, a new survey has warned.

According to a report from the New Economics Foundation (NEF), high street banks are still overly reliant on funding from the Bank of England.

Many of the emergency schemes put into place as a result of the financial crisis are due to come to a close by the end of 2012, with banks needing to replace or find £750 billion ($1,186 billion) by that date, reports the Guardian.

By the NEF's calculations, financial institutions in the UK need to raise around £25 billion a month to meet the deficit, up from the current level of about £12 billion.

The body predicted that banks will again have to turn to the public sector for bailout funding in the likely event that they are unable to address the funding gap on their own.

Tony Greenham, head of the finance and business programme at NEF and co-author of the Where Did Our Money Go? report, said that the original effects of the financial crisis and resulting round of bailouts resulted in a "massive socialization of losses after decades of private gain".

He predicted there will be an angry reaction should the financial sector need to go to the state again to keep its operations afloat.

"The public have already paid for the failure of the banks twice, first by bailing them out and then by suffering a program of drastic cuts to public services to appease the financial markets," said Mr Greenham.

"We need urgent reform of the banking system to ensure that bailed-out banks are not allowed to repeat their failures."

However, a report from the International Monetary Fund last month described the British economy as "on the mend" and said that the health of its financial sector is improving.

By Claire Archer