Could or should the city be sacrificed for good brexit deal??

[amgmcqueen]

SidewaysSi said:

amgmcqueen said:

kurt535 said:

amgmcqueen said:

SidewaysSi said:

This thread is hilarious. It's why the UK population should not have been asked to vote on something they have no fking clue about.

The whole thing is bloody ridiculous IMO.

If you are unhappy about the result there is only really one person to blame.

I very much doubt the greedy banks were at the top of the priority list for people voting Brexit.

I love that turn of phrase, greedy banks. banks have their rules set by organisations such as the FCA, previously the SFA, who essentially deliver rules and regs deemed appropriate. tony blair loved the banks and ultimately gave them the spare rope to hang us all. since the dump of 2007/8/9, bank liquidity and lending requirements have got tighter and tighter (try simply porting a mortgage to see how bad). worst thing was so much toxic debt generated from people not being truthful on their mortgage applications.

Who authorised PPI?

Those fking rich bankers. Brexit will show them. I work as hard as them and they do nothing for me.

It was a simple question unworthy of childish sarcasm. It's scandals like PPI which give the banking sector a bad image. Hence average Joe will see them as greedy, scheming and untrustworthy.

It's why they receive little sympathy from the public when things go tits up.

[Mr Whippy]

Does anyone have any stats on where your money goes once it's paid into a bank?

Ie, pay in £1.

Where does it go?

Ie, is it multiplied 10x, and then £3 to mortgages? £2 to buying bonds? £0.99 to buying ice cream futures?


I'd be intrigued to see the numbers, or the exposure, of a £1 deposit (credit) at an average UK high street bank.


Hmmmm

Dave

[limpsfield]

A digital Fiat, yesterday

[Mr Whippy]

Where does analog and digital and analog start and finish?

It's all analog to the person making it, and the person reading it.

[Wills2]

Mr Whippy said:

Whoozit said:

Mr Whippy said:

Everything else except digital fiat is becoming increasingly difficult to use or regulated out of relevance. That is a protectionist, or monopolistic position for the banks to occupy imo.

Hardly a fair comment given the dozen-odd challenger banks both Bricks-and-mortar and online established in the UK since the financial crisis, don't you think?

But they all use digital fiat don't they?

And none of them store your money, they just turn you into a creditor. Why?

Why doesn't the entire 'everyday' banking system work based on credit? All the money is there to be withdrawn by the credit holders if required?

That'd save the BofE needing to provide liquidity wouldn't it?

Surely all that money should exist?

The money doesn't exist though does it, we all found that out a while ago.

[Mrr T]

Mr Whippy said:

Does anyone have any stats on where your money goes once it's paid into a bank?

Ie, pay in £1.

Where does it go?

Ie, is it multiplied 10x, and then £3 to mortgages? £2 to buying bonds? £0.99 to buying ice cream futures?


I'd be intrigued to see the numbers, or the exposure, of a £1 deposit (credit) at an average UK high street bank.


Hmmmm

Dave

£1 goes in and a bank can lend £1. It simple accounting. Banks cannot create money.

[Mrr T]

Mr Whippy said:

Thanks for the relevant reply!

But they're still doing nothing for me.

They're just taking their money management cut for managing money. Just like the janitor gets paid to sweep the floors, the people tidying the accounts get their pay too.

So are the banking regulations broken then?

Why did companies like Tesco aggregating their revenue and investing their spare cash, and doing normal businesses as you noted, cause the 2008 crash?


So what activities also occur in the City that cause these economic crashes?

Something clearly occurs that makes these risks apparent. Tesco doing normal business shouldn't, should it?


Dave

My point is banks do a lot for large companies. These large companies are then able to offer you a better product/ service. So you benefit if indirectly.

Banking regulations are not broken.

As for the 2008 crash this was caused by 4 things Property, property, property and property. Assisted by a Labour government fixing the BOE monetary committee to avoid any rise in interest rates.

[stongle]

Mr Whippy said:

Does anyone have any stats on where your money goes once it's paid into a bank?

Ie, pay in £1.

Where does it go?

Ie, is it multiplied 10x, and then £3 to mortgages? £2 to buying bonds? £0.99 to buying ice cream futures?


I'd be intrigued to see the numbers, or the exposure, of a £1 deposit (credit) at an average UK high street bank.


Hmmmm

Dave

No, it's almost impossible. Banks don't function in uniform function. There are estimations of total bank balance sheet, so this will give you an estimate figure of how much leverage is created. I went through banks primary functions and interaction with leverage / Monetary policy a couple of pages ago, try reading stuff than leading with your cognitive bias.

As for crypto-currencies vs FIAT, the Ether hard fork may have set them back significantly given immutability (and I trade Ether / BTC). I don't see a real future for the native crypto currencies just the DLT (regardless being up 300% on Ether).

Edited by stongle on Tuesday 26th July 07:48

[Mrr T]

stongle said:

No, it's almost impossible. Banks don't function in uniform function. There are estimations of total bank balance sheet, so this will give you an estimate figure of how much leverage is created. I went through. Ann function a couple of pages ago, try reading stuff than leading with your cognitive bias.

If you mean banks can leverage by borrowing and lending a multiple of their capital then you are correct.

However, banks cannot create money do you think they get some sort of pass on double entry book keeping.

Can I suggest if you want to discuss first you need to define what you mean by money. That always sounds an easy question but it's not.

[stongle]

Mrr T said:

My point is banks do a lot for large companies. These large companies are then able to offer you a better product/ service. So you benefit if indirectly.

Banking regulations are not broken.

As for the 2008 crash this was caused by 4 things Property, property, property and property. Assisted by a Labour government fixing the BOE monetary committee to avoid any rise in interest rates.

Not really.

Whilst sub-prime and mortgage fraud may have been the initial spark, the fire was caused by:

1. the extension of bank balance sheet via opaque collateral chains (CDO squared etc and suspect rating policies - the assumption that ABS was correctly valued and issued)
2. reliance on short term overnight wholesale funding
3. too big to fail / contagion risks

Low interest rate policies, TARP, QE etc are all mechanisms to generate global economic growth caused by the GFC and uncertainties it created. Interesting Carney at Bank of Canada was super quick on Monetary Policy easing at Bank of Canada during 07/8.

Banking had been undergoing a massive metamorphosis since the late 90s. The use of collateral to credit risk mitigate (as much as 90% reduction in the extension of credit for banks), in some part hid the build up of concentration and balance sheet risks (in-fact there was no theoretical limit to it); as people gravitate to the performance metric given. It shouldn't have taken a genius to know that there was going to be a problem (watch the Big Short, but even at DrKW some of us were arguing to cut CDO squared in 2006).

Bank regulations may now focus on the 07/08 crash; not all do enough to prepare for the next one (particularly in Europe), they are largely working against Central Bank policy (Leverage ratio / risk cost loading) - and arguably leading to the growth in shadow banking. A huge part of the City's economic contribution to UK PLC is dealing in post GFC financial regulations and sorting out the transitory position of finance - particularly its basis in Law.

[stongle]

Mrr T said:

If you mean banks can leverage by borrowing and lending a multiple of their capital then you are correct.

However, banks cannot create money do you think they get some sort of pass on double entry book keeping.

Can I suggest if you want to discuss first you need to define what you mean by money. That always sounds an easy question but it's not.

You are joking right? I was quite specific in mentioning Bank Balance Sheet. NOT Money (I was pretty clear).

You need to go away and understand Repo & Collateral re-hypothecation? I could create leverage without RWA so no capital impact.

Edited by stongle on Tuesday 26th July 08:17

[Mrr T]

stongle said:

You are joking right? I was quite specific in mentioning Bank Balance Sheet. NOT Money (I was pretty clear).

You need to go away and understand Repo & Collateral re-hypothecation? I could create leverage without RWA so no capital impact.

Edited by stongle on Tuesday 26th July 08:17

Do you mean repo documented under the GMRA with daily margin, in a jurisdiction with a clean netting opinion. As for RWA for securities financing transactions are haircuts based on supervisory percentages, own account hair cut, or do you have VaR model approval?

So yes you can create more leverage with a secured transaction. I know of no repo market which operates at haircuts high enough not to create RWA.

[Mrr T]

stongle said:

Not really.

Whilst sub-prime and mortgage fraud may have been the initial spark, the fire was caused by:

1. the extension of bank balance sheet via opaque collateral chains (CDO squared etc and suspect rating policies - the assumption that ABS was correctly valued and issued)
2. reliance on short term overnight wholesale funding
3. too big to fail / contagion risks

Low interest rate policies, TARP, QE etc are all mechanisms to generate global economic growth caused by the GFC and uncertainties it created. Interesting Carney at Bank of Canada was super quick on Monetary Policy easing at Bank of Canada during 07/8.

Banking had been undergoing a massive metamorphosis since the late 90s. The use of collateral to credit risk mitigate (as much as 90% reduction in the extension of credit for banks), in some part hid the build up of concentration and balance sheet risks (in-fact there was no theoretical limit to it); as people gravitate to the performance metric given. It shouldn't have taken a genius to know that there was going to be a problem (watch the Big Short, but even at DrKW some of us were arguing to cut CDO squared in 2006).

Bank regulations may now focus on the 07/08 crash; not all do enough to prepare for the next one (particularly in Europe), they are largely working against Central Bank policy (Leverage ratio / risk cost loading) - and arguably leading to the growth in shadow banking. A huge part of the City's economic contribution to UK PLC is dealing in post GFC financial regulations and sorting out the transitory position of finance - particularly its basis in Law.

Obviously I was being simplistic. However, if you look at the UK the issue that sparked the crisis was a property boom (not sub prime just normal property) funded by low interest rates set by the BOE monetary committee. A committee the Labour party appointed only doves and supporter to. They even changed the inflation measure to remove any effect of rising house prices. When commodity futures rose sharply and predicted a rise in interest rates which was expected to create a fall in house prices and a rise in bank bad debts the panic started.

CDO's where a big issue in the US where the regulator's had not implemented Basle 2. So when Lehams failed it was a property company. In the EU CAD 3 meant you already needed to put capital against repo obligations.

[stongle]

Mrr T said:

Obviously I was being simplistic. However, if you look at the UK the issue that sparked the crisis was a property boom (not sub prime just normal property) funded by low interest rates set by the BOE monetary committee. A committee the Labour party appointed only doves and supporter to. They even changed the inflation measure to remove any effect of rising house prices. When commodity futures rose sharply and predicted a rise in interest rates which was expected to create a fall in house prices and a rise in bank bad debts the panic started.

CDO's where a big issue in the US where the regulator's had not implemented Basle 2. So when Lehams failed it was a property company. In the EU CAD 3 meant you already needed to put capital against repo obligations.

Depends what (type of) crisis you reference. Global timing points to more than the UK political bogeyman and overly idiosyncratic default analysis; but hey ho – takes your pick and all that.

Just like US, UK mortgage debt was repackaged, sold on and thus leveraged up (and in reality end up in Pensions, asset managers etc). Likewise, European banks were significant liquidity providers to US banks and their ABS, CDO, whatever books.

The UK banking crisis largely hit in Oct 2008 (after a rocky Sept & global fire-sale); following biggest falls in FTSE 100 and confidence in banks and bank balance sheet. Like TARP; without the UK Govt guarantee there was fears the UK Banks could not manage their day to day funding, M2M obligations etc. The GFC and failure of UK banks are 100% linked.

Yes, you can see BoE intervention / easing was seen very quickly in the housing market -

• BoE started rate cuts in 2007 around the same time that Bear (& Equity) looked shaky. Rate cuts accelerated significantly post Lehman’s (equity markets look very shaky).

• UK Property prices were already increasing despite BoE increasing rates from 2003-2007 (from Jul 07-Oct 08 BoE cuts rate c/ 1.25%; then drops them off a cliff in the next 7 months)

This and commodity prices (likewise the falls in Equity post June 2015 – reversal of Sovereign Wealth Fund behaviour) show significant globalisation trends impacting the City & UK PLC.

Which kind of gets back onto point. Regardless of Brexit, I don’t think the City of London’s position is that weak. Potential loss of Passporting is a blow, but the health and diversity of UK banks make them look a pillar of virtue compared to the Eurozone. Risk cost loading / mitigation (UK law & close out netting) will likely dwarf the economic benefits of passporting; it’s a fugazi.

Oh, and for the super nuanced; only under Leverage Ratio are you required to hold capital for all classes of Repo. Under BASEL2 (& standardised – which the regulators want a return too) transaction capital calculation, Sovereign Repo is 0% Risk Weighted (so zero capital buffered) for sensible credit. Or was last time I did the calcs.

[anonymous-user]

stongle said:

It shouldn't have taken a genius to know that there was going to be a problem (watch the Big Short, but even at DrKW some of us were arguing to cut CDO squared in 2006).

Plenty of people called it but very few people could stand the pain of carrying the position. Even at Lehman Gelband and Kirk called it and got fired for their trouble.

[Mrr T]

stongle said:

Mrr T said:

Obviously I was being simplistic. However, if you look at the UK the issue that sparked the crisis was a property boom (not sub prime just normal property) funded by low interest rates set by the BOE monetary committee. A committee the Labour party appointed only doves and supporter to. They even changed the inflation measure to remove any effect of rising house prices. When commodity futures rose sharply and predicted a rise in interest rates which was expected to create a fall in house prices and a rise in bank bad debts the panic started.

CDO's where a big issue in the US where the regulator's had not implemented Basle 2. So when Lehams failed it was a property company. In the EU CAD 3 meant you already needed to put capital against repo obligations.

Depends what (type of) crisis you reference. Global timing points to more than the UK political bogeyman and overly idiosyncratic default analysis; but hey ho – takes your pick and all that.

Just like US, UK mortgage debt was repackaged, sold on and thus leveraged up (and in reality end up in Pensions, asset managers etc). Likewise, European banks were significant liquidity providers to US banks and their ABS, CDO, whatever books.

The UK banking crisis largely hit in Oct 2008 (after a rocky Sept & global fire-sale); following biggest falls in FTSE 100 and confidence in banks and bank balance sheet. Like TARP; without the UK Govt guarantee there was fears the UK Banks could not manage their day to day funding, M2M obligations etc. The GFC and failure of UK banks are 100% linked.

Yes, you can see BoE intervention / easing was seen very quickly in the housing market -

• BoE started rate cuts in 2007 around the same time that Bear (& Equity) looked shaky. Rate cuts accelerated significantly post Lehman’s (equity markets look very shaky).

• UK Property prices were already increasing despite BoE increasing rates from 2003-2007 (from Jul 07-Oct 08 BoE cuts rate c/ 1.25%; then drops them off a cliff in the next 7 months)

This and commodity prices (likewise the falls in Equity post June 2015 – reversal of Sovereign Wealth Fund behaviour) show significant globalisation trends impacting the City & UK PLC.

Which kind of gets back onto point. Regardless of Brexit, I don’t think the City of London’s position is that weak. Potential loss of Passporting is a blow, but the health and diversity of UK banks make them look a pillar of virtue compared to the Eurozone. Risk cost loading / mitigation (UK law & close out netting) will likely dwarf the economic benefits of passporting; it’s a fugazi.

Oh, and for the super nuanced; only under Leverage Ratio are you required to hold capital for all classes of Repo. Under BASEL2 (& standardised – which the regulators want a return too) transaction capital calculation, Sovereign Repo is 0% Risk Weighted (so zero capital buffered) for sensible credit. Or was last time I did the calcs.

A few comments when I say interest rates where to low I mean 2000 to 2007. If rates had been 1 to 1 1/2 higher the property boom would have been limited and the outcome of the crash in the UK would have been much less serious.

As for CDO I think many misunderstood what happened in the crash. Yes prices crashed. Many said they should not have been AAA rated. They are wrong they just did not understand how rating worked. As an example look up Granate the NR issuance vehicles. While technically in default no capital has been lost by any investor. The price fall did cause a problem for businesses such as NR who replied on them for funding. The fall also caused problem for buyers who where desperate then to argue they where long term investments so as not to MTM. The real problem was the US investment banks. They where still able to hold much higher leverage than banks and where still on the Basle 1 rules for repo. So beside structuring the issues they discovered they they did not even need to sell the issue they could just hold it and fund on repo making more money. When Lehams failed it had become a property investment company.

As for RWA yes if you deal with a major sovereign then there is no capital because the default percentage is 0. However, repo in government debt is not RWA free. I was looking at trades with a major bank exchanging UK treasuries for long dated gilts the RWA costs where massive even on an own haircut model.

Finally back to Brexit. You are I am afraid very wrong many UK financial service job involve dealing with rEU clients.

[Hol]

A think a few people are forgetting/ excluding the credit companies when they talk about the banks.

When the person on the street buys a sofa, washing machine, or even a car on credit, the expectation of the lender is that he/she can afford it, and that interest then becomes a paper profit.

Because the credit companies signing people up, don't actually have the cash flow, to sell lots of things without receiving a penny for 6mths themselves, they pass that debt on to a global banking organisation to underwrite the loan.

To the bank, that underwritten loan is now an asset, which will create a profit at the end of e term (nobody at this point believes the guy buying the sofa will default). As an asset, they can package it up as part of a larger investment product (and get money from investors, which they can loan out).

[stongle]

Mrr T said:

As for RWA yes if you deal with a major sovereign then there is no capital because the default percentage is 0. However, repo in government debt is not RWA free. I was looking at trades with a major bank exchanging UK treasuries for long dated gilts the RWA costs where massive even on an own haircut model.

Finally back to Brexit. You are I am afraid very wrong many UK financial service job involve dealing with rEU clients.

1. Yes, but I was referring to sovereign as the counterparty credit (to illustrate the point in your earlier post was factually incorrect). If the RWA you are getting on GILT repo is high, your either missing close out netting or have a high risk weight C/P (or your model is screwed). Minimal h/c and market Vol add on for gilts should not return a high RWA unless you are dealing with a dodgy counterparty (Ukrainian pig farm?) or unusually long dated trade.

2. I won't be wrong on Brexit. Let's check back in 7 years and see (I suspect another one of your generalisations you'll be back tracking on).

[Mrr T]

stongle said:

1. Yes, but I was referring to sovereign as the counterparty credit (to illustrate the point in your earlier post was factually incorrect). If the RWA you are getting on GILT repo is high, your either missing close out netting or have a high risk weight C/P (or your model is screwed). Minimal h/c and market Vol add on for gilts should not return a high RWA unless you are dealing with a dodgy counterparty (Ukrainian pig farm?) or unusually long dated trade.

2. I won't be wrong on Brexit. Let's check back in 7 years and see (I suspect another one of your generalisations you'll be back tracking on).

The trade was covered by a netting opinion and was it's a bank name you would know. So ok CCR, one day close out, LOD 45%. Model does give high haircuts sometimes on long dated but only just above supervisory, 0 haircut. 2% return on RWA was 18bp trade was at 8bp.

I am fascinated why you think passporting does not matter. Talk to anyone who works in FS and outside the domestic arm of the banks they will tell you a large number of their customers are rEU based.

[stongle]

Mrr T said:

The trade was covered by a netting opinion and was it's a bank name you would know. So ok CCR, one day close out, LOD 45%. Model does give high haircuts sometimes on long dated but only just above supervisory, 0 haircut. 2% return on RWA was 18bp trade was at 8bp.

I am fascinated why you think passporting does not matter. Talk to anyone who works in FS and outside the domestic arm of the banks they will tell you a large number of their customers are rEU based.

Brexit will be the bogeyman that passes off all manner of ills to befall the city, but when it comes down to it job losses were coming anyway. Sure loss of passport (if it comes to that and I think at worst it's a 50/50 shot), won't make that much of a difference we will innovate and compete in different ways. IFRS9 kills the capital base of many European banks and they are being slow to adapt basic factors such as removal of AFS filters from their liquidity buffers (so avoiding MTM hits on their LCR assets). Many will need credit intermediation or rather credit mutualism via a CCP (would love to see what that does IM amounts, especially when the CCP hands are in their pockets anyway).

OTC trading is being killed by regs and IM / VM, so the clients and end user relationships are becoming less key. Areas where banks retract - gilt repo, are creating shadow banking and that's where the next Lehman is probably coming from. Just look at the recent mess of buy side to buy side securitisation.

Something else will give prior to passporting being an issue.

Maybe it's near retirement optimism, 3.5 more years and I'm done, but my career has seen me involved either in Business Management or trading of:

Barings
Russia 97 (including the off'd couriers with bearer bonds)
The Euro
Dot com
Japanese Big Bang (Roppongi for 18mths not all bad at 24)
Year 2k
Cum cum
Italian WHT scandals
Leasing schemes
Bear, Icelandic banks, Lehmans liquidation & credit close out
Greece
More dividend arbitrage
Regulatory arbitrage of EBA stress tests & BBRD
Etc

Really, the skies been falling so many times - passporting is just the latest wheeze to get excited about. Either that or I'm jaded.