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Toxic assets and their impact

While in theory many people may believe that toxic assets are just a short-term problem which will "go away" in due course, they could be in for a serious shock. In real life this is very much different because these toxic assets in many cases have formed the asset base of leading UK banks and financial institutions, which has allowed them to borrow more and more finance at better rates.

As these toxic assets effectively diminish their asset bases, many UK banks will see their finance costs increase because of the added risk and greater limitations on what they can borrow, again because of the reduced asset bases. What has in many cases taken decades to build up could quite literally be taken away in a short few months and take many banks back to their "pre-growth" days. As the Bank of England and the UK government step in to effectively insure these toxic assets they can then be taken into account when financial companies in the UK look to borrow money in the money markets. This should, in due course, allow them to turn around their businesses quicker than would normally have been the case.

Do not underestimate the power of toxic assets because they can literally take decades to recover from and seriously undermine the power and financial reputation of even the most reputable banking operations.

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