Why bank failures can be a success

Let’s leave aside for a moment the new Barclays bonus bill of £2.4 billion, which is not just evidence that the big banks continue as dysfunctional as ever – it is also money which, in London at least, is being recycled into property prices, imprisoning the next generation in whatever rents the landlords wish to charge.

More on this in my book Broke: How to Survive the Middle Class Crisis.

But, as I say, let’s leave it aside for now, and concentrate on another piece of financial news today: a credit union on the Isle of Thanet has gone under.  Wantsum Credit Union has closed their doors.

This is not good news for the members, who have saved £100,000 there.  But what is fascinating about it is that they will get their money back within seven days.

This is not exactly bailing out Lehman Brothers, but it is brisk by UK standards and it is important that it should be.  Because one of the side effects of a diverse local banking system is that some new banks will fail, and must be allowed to do so – without compromising other institutions and without vast systems which spend years spinning out the process.

Bank failure resolution is therefore one of the most important new elements of the new entrepreneurial local banking culture we so badly need.

For the past three generations, we have been governed in the UK by a regulatory policy that regarded failure as unthinkable, and preferred not to allow any new banks to make failure virtually impossible.  That is what now has to change.

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