The price of unintended consequences was paid by UK banks on Friday, as the long-term legacy of quantitative easing (QE) came back to haunt them, costing their shareholders £6.4 billion. A policy designed for one economic reality has created a massive fiscal problem in another, and now the banks are seen as the ones who should foot the bill.
The unintended consequence in question is the £22 billion annual loss the public purse is making on the QE program now that interest rates are high. A report by the IPPR has framed this as a “windfall” for banks and called for a new tax, effectively asking the sector to pay the price for this policy flaw.
Investors reacted immediately to the prospect of being charged for this consequence. The sell-off in banking stocks was a direct result of the market pricing in the risk that the government would agree with the IPPR’s assessment. The £6.4 billion loss represents the estimated cost of this new political and financial liability.
This episode is a stark reminder that major economic interventions can have unforeseen effects years down the line. The debate now is who should be responsible for these costs—the government that implemented the policy, or the private sector entities that have, through no action of their own, benefited from its flawed design.