Tim Worstall

Unity Trust Bank

The Sunday Times has noticed that Unity Trust Bank has lent money to the Labour Party.

A BANK owned by trade unions has helped to bail out Labour with a £4m
loan, raising fears that the party is becoming too dependent on the
movement’s barons.

Unfotunately, they’ve missed the most important points, as laid out by Guido. The sum, was in fact more than 10% of teh bank’s capital and thus very much against the various banking codes. Banks really are not supposed to lend 10% of their capital on unsecured loans to near bankrupt organizations.

In

2 responses

  1. Andrew Zalotocky Avatar
    Andrew Zalotocky

    The political implications could still be pretty important. It could give the unions the leverage to force the party back towards Old Labour policies, which would be much less attractive to voters. That might make enough of a difference to get the Conservatives into power – even if they would be little different to New Labour. The threat of this would push state funding of political parties to the top of the government’s agenda, as the Blairites scrambled to find a source of money that they controlled.

    Reply
  2. dsquared Avatar
    dsquared

    It’s not “against the banking codes”. Large exposures are monitored and reported, but there is no blanket prohibition of loans >10% of capital. The hard limit in the Large Exposures Directive is 25% of capital. You can’t have >10% exposures which in aggregate exceed 800% of capital, but a single >10% is not illegal, though it would be good practice for the regulator of a small bank to require regular monitoring of it.

    Reply

Leave a Reply

Discover more from Tim Worstall

Subscribe now to keep reading and get access to the full archive.

Continue reading