Tonight:
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One of the few good things to come out of the Bradford & Bingley saga is the way it shows up the shortcomings of the Government's proposals to create a Special Resolution Regime to avoid bank failure in future - while there is still time to change them to something more sensible.
The nub of the proposed scheme is that the regulators would move in and take over a bank when in their view it was getting into difficulty and seemed unlikely to be able to solve its problems in the normal way by raising extra capital. On that basis, therefore, the authorities would not as yet have moved into Bradford & Bingley because - albeit at the third attempt - it now seems to have a watertight refinancing deal underwritten by its key shareholders.
Had the authorities moved in under new rules to confiscate the assets and take over the running of the bank before this stage, the existing owners would surely have had grounds to sue. But if the authorities were to leave it much later and sit on the sidelines through all the twists and turns of a story like this, can we really assume the depositors would still be sitting quietly and patiently for matters to be resolved? They would surely have begun to pull their money out well before.
They might have stayed calm, assuming they had faith in the guarantee that their deposits were safe. But even here there must be doubts going forward because the new plan in this area is hopelessly impractical. Inevitably perhaps, it has been modelled on the US guarantee scheme, but its architects seem to have had a total disregard for the different circumstances there - and have made no adjustment for the American hyperbole, which means that what is supposedly on offer is a lot less than customers actually get.
As an example, the US scheme is supposed to cover all banks. The reality is that it has $49 billion (£24.7 billion) in the pot while Bank of America alone has deposits of $690 billion. So it is of use only for those cases where a small local bank gets into difficulties. Anything bigger would have to be rescued directly by the government.
The scheme is also hopelessly naive because it specifies that all depositors in a troubled bank should be paid out within a week. Think about this for a moment. The large British banks (excluding the mutuals) held £586 billion of deposits at the end of May, each of the big five accounting for about £100 billion. If one of those big five went down, think of the logistical nightmare of paying off its millions of customers.
If they wanted cash, they could not get it because there are not enough banknotes in the system. If they were given cheques, in whose name would they be drawn? The failed bank? The Bank of England? And having got their cheques, where would they deposit them?
Equally, if the transfers were to be done electronically, which they surely would be, where would the funds transfer to?
Most customers, presumably, would not have another account, which means the surviving banks would between them have to open a million new customer accounts to accommodate the influx in less than a week. This would be a stretch at the best of times - and seems certain to provoke more pictures of people queueing at banks - albeit this time to pay money in.
And what about the money-laundering rules that require the banks to know their customer - and all that nonsense of two utility bills to prove residence, and a passport certified by a lawyer to prove identity. It is no easy job to open a bank account these days, and we have a system that is simply not geared up to react quickly enough. The sooner the authorities stop pretending we have, the better.
