So, I'm going to try and provide some evidence that the result of allowing bailed out banks to continue to exist was harmful to the economy.
Firstly, credit was restricted post 2008 to SMEs, with a
disproportionate effect on low and medium risk SMEs. The report I linked appears to form the basis of this
UK government report on the subjectThe tightening in credit since 2008-9 has disproportionately affected low and average risk SMEs (based on Dun and Bradstreet credit scores). However there was no significant change over this period in the likelihood of rejection for SMEs rated as above (e.g. greater than) average risk. This suggests banks viewed lending to the safer categories of SMEs as relatively more risky in the period after the financial crisis than they did before, although the pattern is also suggestive of a partial withdrawal from SME lending as an asset class. After 2009 there was also an increase in the proportion of SMEs rated as above average credit risk due to the effects of the recession on sales, profitability and asset prices.
The
Tomlinson Report details how, post 2008, RBS and Lloyds (both banks which had been bailed out) were profiteering from the deliberate destruction of SMEs through the Global Restructuring Group.
In addition, the massive injections of liquidity did next to nothing to revive the inter bank lending market, as this
European Central Bank report indicates.
Neither the recent massive money injections, the coordinated lowering of interest rates
nor the use of public funds to recapitalize banks have done much to restart interbank
lending. This action did not solve the underlying problem preventing interbank lending:
extreme information asymmetry.
Financial Times, November 9, 2008
The enforced low interested rates, deemed as necessary to revive the economy and prevent depression, have had
several negative effects on the lives of people in the UK. These include the reduction in the viability of ISAs and other government backed savings programs, and the continuation of 95% mortgages backed by the Government's Help to Buy scheme, which promotes buy-to-let purchases more than it does new buyers.
From what it appears, the bailout of the banks did little or nothing to achieve the stated aim of reviving the inter-bank lending market, which was also subject to
common manipulation, allowed banks to continue to exist and operate in ways counter to the interests of the economy as a whole, and placed the public finances in a state which allowed a Conservative government to push an agenda of public service cuts in response to the massive quantity of public expenditure used on the banking sector, liquidity that has been very slow to be released into the economy.