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Do we need to see a major UK bank go under?

As the UK banking sector comes under yet more pressure some experts are now suggesting that the government needs to let one or more of the weaker UK banks go under in order for the rest to survive. While this will likely cause a crisis of confidence in the short term it may well allow the UK authorities to focus their funding requirements on those banks which have a solid financial basis and can eventually pick up the batten themselves and recover in due course.

We have already seen Northern Rock taken over by the government, Bradford & Bingley split up and partially bailed out by the government as well as the billions upon billions of pounds used to take strategic stakes in various UK banks. At some point the government will need to decide whether it is willing to fund the weaker banks on a medium to longer term basis or whether there is a need to focus funding on the banks they know will recover in due course.

The perfect scenario would be to support the whole banking system and see all UK banks recover in the short to medium term but the longer the problems continue the more likely that this will not happen.

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