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Do the banks have the government over a barrel?

The last few months have been amongst the most volatile ever seen in the UK banking sector. We have seen major banking institutions struggling, with some losing the fight, we have seen others rescued and we are on the verge of implementing a major rescue using tax payer's money. But have the banks regained the upper hand? Do they now have the authorities over a barrel?

Despite all of the bravado in the newspaper about the government controlling the banks, telling them what to do and basically leading from the front, this is all turning into a bit of a sham. First we saw many banks refusing to pass on interest rate cuts to the mortgage market then we saw Lloyds TSB bosses promise workers that they would still get their bonuses and now there is a string suggestion that the banks have the government over a barrel.

Despite the fact that the authorities have threatened UK banks with serious action if they flout any of the rescue bid terms, those terms are being openly ignored even before any money has actually changed hands. The bottom line is the fact that the government cannot allow the UK banking sector to collapse and now that the funding is on the way it looks like we may see some serious muscle flexing.

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