The personal is political, the private is now public…

December 28, 2008

UKFI-ed

Business Editor Robert Peston makes his predictions for our national fortunes in 2009 on his BBC blog.

“As a nation, our fortunes in 2009 will be conspicuously tied to the fortunes of our banks as never before.

First, an economic recovery rests on the ability of banks to support viable businesses during what increasingly looks like a severe recession.

Second, and as important, the balance sheet of the British public sector can be seen as the aggregated balance sheet of some substantial banks – because the state now controls three banks, Northern Rock, Bradford & Bingley and Royal Bank of Scotland, and will have a huge stake in a soon-to-be created fourth, LloydsTSB/HBOS.

It means that if the perceived credit-worthiness of our banks – with their trillions of pounds of assets and liabilities – were to deteriorate further, that would have an impact on the perceived credit-worthiness of the state.

As never before, it matters to all of us that the banks run themselves in a prudent way. In an extreme and highly unlikely case, if the markets viewed our banks as recklessly managed basket-cases, that would have an impact on the value of sterling and on the ability of the government itself to borrow.

So our prospects and welfare depend to a huge extent on an institution that was created a few weeks ago by the Treasury to manage its investments in the banks, UK Financial Investments (UKFI).

It’s probably no exaggeration to say that – for the coming year or two at least – UKFI will be as important to all of us as the Treasury, or the Bank of England or the City watchdog, the Financial Services Authority.”

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