As the market continues to digest the £12 billion fund raising by Royal Bank of Scotland there are more rumours that Barclays are about to come cap in hand to shareholders for £3 billion of new funding. So what will the money be used for and who really benefits?

The sub-prime mortgage crisis which preceded the credit crunch has seen a great number of banks around the world suffer multi-billion dollar losses on some of their investments. This reduction in their asset base has reduced their ability to borrow money in the money markets due to limited available collateral. This is the situation which many experts identified, stating that even a return of confidence to the market would not see asset values pick up overnight – arguing that a much needed injection of capital was needed for many UK banks to allow them to go back into the money markets.

So who benefits from the fund raising?

While ultimately it will be the shareholders and customers of the banks who benefit, in the short term all shareholders are doing is bailing out the banks directors who have been a little reckless with their actions of late. It is the same old scenario whereby good markets attract more competition which cuts margins which pushes banks into more risky environments. Chasing the next major income stream, the next major profit has brought the banks to the situation we are in today.

If you look back to other recessions and banking sector problems of the past, they all have a very similar thread. Boom times, more competition, reckless lending and moves into riskier markets to bring in the next big income stream – these things are so predictable that it really is untrue!

Only this week we have seen the Bank of England come under renewed pressure after their quarterly report suggested that some UK banks had overstated the affects of the credit crunch and losses would not reach the nightmare figures which have been suggested. This seems a strange comment to make when you consider the banks recent suggestions and comments about the situation. Quite why they have affectively given the banks the green light to return to similar business practices in the future remains to be seen, but those comments may well come back to haunt the Bank of England.

While there are suggestions that we may well be over the worst of the credit crunch, those who are expecting a sharp bounce are very much mistaken. Asset values are still only a fraction of what they were, the housing market is falling in the UK and the economy is set to slow considerably over the next 12 months. We may well have seen off the worst of the credit crunch but the after affects are only just starting to hit home.

The UK economy is probably in a worse position than many around the world with the government taking on extra debt to cover their budget deficit. This is money which will need to be repaid and looks set to hold back the economy and investment into public services in the short to medium term. Things are not as rosy in the UK as many would have you believe.