In a recent opinion piece, John Kay argues that to secure financial stability, banks should be treated like fast-food outlets or supermarkets. What does he mean by this? Quite simply, financial institutions and banks should be allowed to fail. No bailouts and no nursing of bust banks. We don't necessarily care if our local fast-food outlet or supermarket fails since there are lots of competitors. The same should be true for banks, but Kay argues that the lobbying power of banks means that they are protected by governments. I broadly agree with Kay on this point. In my forthcoming book, I trace the evolution of bank bailouts and rescues in the UK and argue that these rescues far from saving the banking system have weakened it. Just let banks fail.........
