The scariest thing of all

by Ed Bowsher on 23 December 2009  |  0 comments
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If the banks collapse again, the man on the street will be very reluctant to fund another bailout.

When I think about how things might go over the next couple of years, there's one scenario that scares me most of all. It's not a likely scenario, but it's not completely impossible either. 

What am I talking about? 

Well, it's a repeat of the banking crisis of autumn 2008. Except I fear that a big banking crisis would be even more painful second time around. 

Don't get me wrong, I'm not saying that another massive financial crisis is likely. Governments and regulators have insisted that the big banks strengthen their balance sheets; CEOs and finance directors should be monitoring the banks' high-risk activities much more closely this time round. 

But you can't completely rule out a crisis either. The banks are still carrying plenty of low-quality debt and you can't be certain that City whizzkids haven't come up with new ways of making big profits for themselves whilst bank shareholders take undue risk. 

And if a repeat crisis happened, I'd get really scared. In 2008 the banks were saved by a massive government bailout. In 2010 or 11, I suspect angry voters wouldn't allow politicians to carry out another rescue. They'd want to punish bankers for their reckless stupidity. 

But the scary thing is we'd all suffer. Banks are essential for the smooth running of the economy. I'd be terrified if the likes of Lloyds or Royal Bank of Scotland went to the wall. 

As I said at the beginning, I don't think another big banking crisis is at all likely. But whilst it's not impossible, I'll carry on being a little fearful.