I numeri del salvataggio made in UK

Here's a jaw-dropping measure of the failure of the banking system over the past nine months.

Through just one funding initiative, the Bank of England's Special Liquidity Scheme, taxpayers have pumped a staggering £185bn into 32 British banks and building societies - according to figures released a few minutes ago.

The Bank of England has provided this £185bn in the form of Treasury Bills - which are short-dated government bonds that can easily be turned into cash. And in return it has received £287bn of collateral from the banks, in the form of loans made by those banks.

All of those loans received from the banks have been securitised or turned into tradable securities. And most of them are residential mortgages converted into mortgage-backed securities.

So the best way of seeing all this is as a three-year loan of £185bn to the banks, made by all of us as taxpayers, for which we've received £287bn of assets.

And, what's more, we've received a fee of 1.15% for our trouble.

For British taxpayers, that doesn't look such a terrible deal. The risk of loss to us, given that we've lent £102bn less than the face value of the collateral we've been given, looks pretty small.
But it shows you quite how serious it was that the commercial market for mortgage-backed securities had collapsed and quite how desperate the banks were to raise cash.

The banks were prepared to pay through the nose for our money, because without taxpayers' financial support they would have collapsed.

Here's another number that gives me the willies.

The Bank of England says that as at 30 January 2009 it values the £287bn of collateral at £242bn.

That implies that the value of these mortgage-backed securities has fallen by £45bn or nearly 16%.

Or to put it another way, the Bank of England calculates that our banks and building societies have lost £45bn on just these mortgages and loans.

Which is a scarily big number - and may explain why the Governor of the Bank of England has consistently refused to rule out the possibility that some of our biggest banks may yet have to be fully nationalised (though the Treasury's new scheme to insure the banks against some of these losses may prevent nationalisation).

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