Bailed out banks may be unstable, warns Osborne

Banks bailed out by the government could pose a risk to financial stability, shadow chancellor George Osborne has warned.

In a speech at the Royal Society of Arts in London last week, Osborne argued that big banks bailed out with taxpayers’ money may feel emboldened to take irresponsible risks.

He says: “Not only do bigger financial institutions do more damage when they get into trouble but their size and ‘too big to fail’ status may also encourage them to behave irresponsibly and take risks smaller banks dare not.”

Osborne says there may be a case for big banks to be broken up to mitigate risk.

He adds: “We should consider having smaller banks. It would be a bitter irony if we came out of this crisis with a banking system which is even riskier than the one we had before.”