Before we invent new rules, can't we just apply the existing ones?

From the BBC:

Conservative leader David Cameron has announced plans for a new tax on banks - even if other countries decide not to do so... The Tories, who have not yet provided any details of how their scheme would operate, hope that by adopting a more limited measure if the UK acts alone they will avoid driving banks into exile...

Mr Cameron said: "We had the biggest bank bail-out in the world. We can't just carry on as if nothing happened. In America, President Obama has said he will get taxpayers back every cent they put in. Why should it be any different here?" He said a Conservative government would introduce a new bank levy to pay back taxpayers for the support they gave and to protect them in the future.

So, no details as ever, but it's worse than that. Let's first look at how we got here:

1. The government used taxpayers' money to subscribe for more shares in RBS and Lloyds. Those shares were standing at a £34 billion loss at the moment. The share values might or might not rise to reduce this loss (fat chance).

2. The Bank of England lent the banks another £185 billion under the Special Liquidity Scheme in April 2008, which is due to be repaid in April 2011 (fat chance).

3. The Bank of England lent the Northern Rock £26 billion, which has been largely repaid. I'm not sure if it's the Good Bank or the Bad Bank half that will have to repay the rest. The overall net loss will probably be quite modest.

4. Then there is a £250 billion credit guarantee scheme, whereby cash only changes hands as and when loans go bad. The banks do pay a modest fee for this.

5. The above list is not exhaustive, and there may even be double counting. But the short answer is, UK banks owe the taxpayer "a heck of a lot", let's just add together 1. and 2. and call it £225 billion for sake of this discussion.

6. To be fair about all this, the Bank of England in turn owes the commercial banks about £144 billion as at December 2009, Table B1.1.1. This is what happened to the 'cash' that the banks got from selling back gilts to the government under the Quantitative Easing scheme.

So that's a net liability from commercial banks to the taxpayer of about £225 billion minus £144 billion = £81 billion (ignoring the money they wasted on repaying depositors in Icelandic banks, I think we can whistle for that). Can't we just collect this £81 billion* first and then busk it from there? Why should we invent a new tax to claw it back?
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Liberal Democrat economics spokesman Vince Cable said: "The other parties seem to be moving on to ground the Liberal Democrats have occupied for some time: banks must pay for the protection they enjoy from the taxpayer." Mr Cable said his party had been "very specific about how this crucial issue should be tackled, after extensive discussion with the City and others". He said it was "seriously worrying that both the Conservatives and the government still do not seem to have worked out a specific proposal".

7. Uncle Vince is going off at a bit of a tangent here; I think he's talking about the fee that the banks have to pay for the £250 billion guarantee scheme (bullet 4 above). Historically, the UK has guaranteed deposits, it currently guarantees the first £50,000 that a depositor has with each bank, which seems fair enough to me.

8. Whether that £50,000 is "too high" or "too low" is a moot point, and the insurance premium that the banks pay is probably "too low", but never mind.

9. Like most people, Uncle Vince doesn't seem to realise that no UK bank, however badly run, is in such a mess that its assets wouldn't be enough to repay ordinary, everyday deposits. Even Northern Rock back in 2007 would have had enough to repay depositors three or four times over. Sure, the banks have made losses, and that loss has to be borne by somebody, but why invent new rules?

10. Why not just make it clear that if a bank loses the faith of its depositors and has to turn to the government, that it will immediately be split into a Good Bank and a Bad Bank (which is what they did with Northern Rock after two years of messing about). The good loans, branches, assets, employees and deposits (up to £50,000, let's say) are moved to the Good Bank and the bad loans are transferred to the Bad Bank, which is owned by the shareholders and bondholders of the original bank in the same terms and conditions?**

This completely obviates the need for any sort of insurance scheme at taxpayers' risk (and hence Moral Hazard). The depositors' 'insurance' would be that they will always be given priority in repayment.

* Sure, some banks like Barclays and HSBC may be net creditors of the government, so the true figure must be higher than £81 billion, but I am trying to illustrate the principle.

** The Good Bank would also be set up with proper share capital (as a balancing figure) and these shares would of course belong to the Bad Bank, to be auctioned off to Bad Bank's shareholders and bondholders under a Dutch Auction system, thus breaking the link between the two new banks.