Mutual bailouts

3 June 2009 By Hugo Dixon Follow @hugodixon

That s the intriguing idea being floated by a Bank of England deputy governor. Not only would such a scheme protect taxpayers; it might discourage banks from running into trouble in the first place.

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The banking industry could be required to pay for their own bailouts under an idea floated by Paul Tucker, a deputy governor of the Bank of England.

Speaking in Tokyo last week, Tucker said: If the authorities determined that a public equity injection was necessary in order to preserve stability, government could be authorised to provide the support, but with a right to claim back the eventual cost, if any, from an increased ‘insurance' levy on the banking system over a period of years beginning after the crisis had clearly passed.

Tucker said such a system would impose a greater share of the costs of bailing out banks on the banking system rather than the public purse. He also said that banks might have an incentive during peacetime to monitor the threats which their peers posed to stability.

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