Nationalisation of the British banking system

THE ARGUMENTS FOR

Nationalisation safeguards the banks' future, which is crucial for the financial well-being of the country. They can be monitored closely by the government on behalf of the taxpayer, and so prevented from making the same mistakes which got them into trouble in the first place.

Government attempts to support the banks through taking piecemeal stakes have not worked, so it is vital to implement a comprehensive nationalisation programme as quickly as possible. Any further delay will only succeed in making the situation worse. In addition, it is less expensive to nationalise and clean up the banks than to keep throwing money for recapitalisation at them

The banks have started to increase their lending to consumers and businesses due to government pressure. If lenders were wholly owned by their customers they would be compelled to make even more credit available to those who need it.

Complete ownership of the banks could be a profitable move for taxpayers - when they are on an even keel again there is the enticing prospect of selling stakes or even reprivatising them at some point.

In previous banking crises the solution has usually been to nationalise at least part of the banking system. This allows the government to avoid the pitfalls of having to value "toxic assets" and of deciding which loans they will purchase from the banks. Major financial figures like Alan Greenspan and Paul Krugman advocate bank nationalisation now, in a bid to emulate the successful experience of the Nordic countries in the 1990s.

If the government were to take ownership of the problem banks, they would have complete control over bonus payments and be able to stop the unjustified pay-outs to executives which have been the focus of so much public disapproval.

THE ARGUMENTS AGAINST

History is littered with failed nationalisations - it is no coincidence that state enterprises have been privatised over recent years to allow them to be managed with more commercial success. Many billions have been wasted trying to save outdated companies which had no place in the modern world.

Politicians are not the right people to run the banks. They don't have the commercial skills necessary to run such important and complex financial institutions. If experienced veterans of the banking industry failed to avoid the pitfalls of recent years, inexperienced government figures are very unlikely do any better.

Why should the government stop at nationalising its banking sector? The thousands of staff and millions of customers of failed chainstore Woolworth's may well question why banking jobs are being saved while bankruptcy sweeps through the retail sector.

Many of the assets belonging to the banks are overseas loans - in the case of Royal Bank of Scotland, more than half its balance sheet. It is difficult to justify the British government taking so many overseas assets on to its books that are irrelevant to the British taxpayer.

RBS is already 70 per cent government-owned and virtually nationalised - spending more public money on buying the other 30 per cent would merely be an exercise in throwing good money after bad.

Forty per cent of the UK economy is state-controlled. There needs to be a limit to the size of the country's public-sector, which tends to be beset by red-tape, quangos and over-regulation. Nationalisation also rides roughshod over the rights of investors.