'Too big to fail' banks land £30bn subsidy

The New Economics Foundation (NEF) said the firms effectively got a £30bn handout in the form of lower interest rates on their borrowing from the financial markets because investors "assume the government will step in" and bail them out.

It said Barclays, HSBC and state-backed RBS and Lloyds benefited to the tune of £34.4bn.

"If 2013 brings another financial crisis there is a risk of a second taxpayer bail-out." the researchers said.

"The draft Banking Reform Bill will not address this - banks will still be too big to fail."

The report came out just before the blast from Parliament's banking standards commission report on the Bill, which said banks needed firmer handling and regulation.

NEF's report added that in addition to competitive advantage over smaller banks the lower rates increase the banks' reliance on "short-term and more risky funding instead of customer deposits.

"It masks cost inefficiency and excessive executive remuneration by flattering the financial performance of banks.

"It also creates a clear barrier to entry for new competitors and discriminates against smaller banks."

NEF head of finance and business Tony Greenham said: "The 'too big to fail' subsidy is a key barometer of whether taxpayers have been taken off the hook for the failures of bankers - and the judgement of the financial markets is that nothing has changed.

"For all the hustle and bustle on banking reform, fundamental flaws remain completely unaddressed."

Researcher Lydia Prieg said: "There is no good economic rationale for allowing oversized banks to benefit from subsidised borrowing costs.

"These figures throw into sharp relief the privileged position of the big banks.

"Despite an enormous taxpayer bail-out and on-going implicit government support there has been no quid pro quo."