UK banks confronted the unintended and costly legacy of quantitative easing on Friday, a confrontation that cost them £6.4 billion in market value. The legacy in question is a £22 billion annual public expense, which a new report argues is a “windfall” to banks that should be taxed, sparking fears of a government cash grab.
The report from the IPPR thinktank laid bare the modern-day consequences of the post-2008 crisis policy. The interest paid by the Bank of England on reserves created under QE has become a massive liability. The IPPR’s proposed solution—a new bank levy—was interpreted by investors as a direct threat to the sector’s future profitability.
This interpretation led to a significant slump in share prices. NatWest, Lloyds, Barclays, and HSBC all saw their stocks fall as investors fled the sector. The £6.4 billion valuation drop reflects the market’s snap judgment on how a new tax would impact the banks’ ability to generate returns for shareholders.
The situation underscores the long and unpredictable tail of major economic interventions. A policy designed to save the economy over a decade ago has now created a new set of political and financial challenges. How the government chooses to resolve this legacy could have profound implications for both the banking industry and the wider UK economy.