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Banks could be forced to pay for bailouts

Banks could be forced to fund their own capital of last resort insurance scheme to protect taxpayers from future bank bailouts.

Speaking at the Bank of Japan International Conference in Tokyo, Bank of England deputy governor Paul Tucker said: “It might be conceivable to establish a regime where the eventual cost of any bailout would be allocated back to the banking system rather than the general taxpayer.”

Tucker argued that if a public equity injection was necessary to preserve the banking system in the future, Government could provide the support but with a right to claim back the eventual cost from an increased insurance levy on the banking system after the crisis had passed.

Burwood managing director Peter Suttill says: “This is a good idea in principle but there will be costs that will end up with the customer. Will the cost be passed to specific risky groups such as first-time buyers or will it come out of higher interest rates?”

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