UK bank rescue: Bagehot revisited

Walter Bagehot said that, in a banking crisis, the authorities should lend freely but at penal rates. The current banking mayhem means the UK authorities have a chance to update this 19th Century economist’s dictum. The new motto should be: “provide capital freely but at penal rates”. Most of the UK’s banks, along with banks elsewhere in the world, are undercapitalized. They do not breach capital adequacy rules. But they have taken so many risks and have such leveraged balance sheets that they ...