Co-operative Bank News Update: Would Failure Be Best?

co-op failure best?

Co-operative Bank News Update: would failure be best? A piece appeared recently that asked if given the problems that the bank meant failure was an option.

It asked if a voluntary agreement could not be reached, then the alternative, then would take over of the bank by the Bank of England’s Special Resolution Unit, be such a bad thing? Although the piece admitted that this would be embarrassing and no doubt painful for the owner of the bank the Co-operative Group and some of the creditors from a wider perspective, it might be the most sensible solution.

The reasoning behind this is the fact that if this were to happen the bank would at least survive as a going concern. This would protect the depositors who have been very loyal and supportive through the uncertainty and would mean they would not lose their money. The commentator also thought that this eventuality would set a precedent. It would make those who had been the providers of the equity and debt responsible for the entire costs of the rescue with no burden being passed to the taxpayer. This precedent would be useful in bringing home to those investors and institutions that lend to banks that they could not rely on a state bail out if things went wrong.

Co-operative Bank News Update

This would balance the experiences of the recent crash when the taxpayer was drained almost of all funds to save banks that had been reckless. Professional investors would need to take into account the consequences of any possible failure and the resultant rescue that might be necessary when they applied interest rates to the loans that they made in the banking sector. There would be short-term financial costs as well as benefits if banks had to pay the proper rate for the loans that they took on.

The Bank of England is in a position to affect a rescue of the Co-operative bank along with the core functions while forcing the hand of the holders of £1.3bn of its preferred shares and bonds if that proved necessary. Whether this step will be needed is not clear although clearly a voluntary deal to rescue the beleaguered Co-operative bank would be by far the preferred option. The Co-operative group is in favour of a plan in which one billion pounds is deposited in the bank and in which retains a majority sake holder position. It will be interesting to see what the outcome will be.

If you are a member of the Co-operative group and would like more information regarding anything detailed here, contact the customer services department using the contact details provided on the following link

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