Bradford and Bingley it ain’t

It’s useful to look at the details of the guarantee that Alistair Darling gave Bradford and Bingley yesterday in comparison with Brian Lenihan’s dramatic announcement today.

7. The remaining assets and liabilities of Bradford & Bingley - principally comprising its mortgage book, personal loan book, headquarters and relevant staff, and treasury assets and its wholesale liabilities - has been taken into public ownership through the transfer to the Treasury of the company’s shares. HM Treasury and the Financial Services Compensation Scheme will recover payments in the wind-down of the remainder of Bradford & Bingley. To provide assurance to wholesale depositors and borrowers, and to preserve wider financial market stability in this case and maximise proceeds in the wind-down, the Government has put in place guarantee arrangements for six months to safeguard certain wholesale borrowings and deposits with Bradford & Bingley. It is the Government’s current intention to seek state aid approval from the European Commission to extend these guarantee arrangements as part of the restructuring of Bradford & Bingley. 

In other words, the guarantee of all liabilities including wholesale deposits was only given by taking the bank into public ownership to wind it down.  But the Irish government has given the same guarantee to every bank, covering all existing and ongoing liabilities, and with the banks operating as they are now.   This is a nationalizing of the banking system, except for the part about actually running the banks or taking a shareholding in them.  The risks are astonishing.  The dissonance with the talk of tough budgetary times will be a major political challenge.