Banking Regualtion.

[Fittster]

Halb said:

Hi Fittster, what would have happened to the UK if the banks had not been bailed out? Not a loaded question, I would like your thoughts on it.

Banks are liquidated and someone else steps into the market place to take their place. Pretty much the same as any other industry. I really don't buy the argument that banks are somehow a special case and must be protected at all costs. In the US over 100 banks have been allowed to go bust this year.

Look at the state of Japan where failing banks were propped up.

[rocksteadyeddie]

Fittster said:

Banks are liquidated and someone else steps into the market place to take their place. Pretty much the same as any other industry. I really don't buy the argument that banks are somehow a special case and must be protected at all costs.

Sadly this is not the case with banks of certain size, or those which are integrated into either the domestic economy or the world 'market' beyond a certain degree. To allow these institutions to go under would have catastrophic consequences as they took hundreds and thousands of viable business down with them. This is certainly the case in the UK with RBS and Lloyds. Northern Rock could have been allowed to go under, although arguably because of the perilous state of other banks at this stage this would have had the affect of tipping numerous others over the edge too.

Fittster said:

In the US over 100 banks have been allowed to go bust this year.

All of which were small and regional with the exception of Lehmans. The consequences of allowing Lehmans to go under are being felt today and will continue to be felt for many years to come.

Fittster said:

Look at the state of Japan where failing banks were propped up.

The difference is that these institutions were bust in all but name. Their capital structure was shot to pieces and like zombies they have staggered round for over 10 years since. The Japanese authorities turned a blind eye and allowed this to happen. The Western authorities have been very careful to ensure that the banks bailed out have rebuilt their capital structures, which should avoid the issues that have beset Japan for many years.

[Fittster]

rocksteadyeddie said:

Fittster said:

Banks are liquidated and someone else steps into the market place to take their place. Pretty much the same as any other industry. I really don't buy the argument that banks are somehow a special case and must be protected at all costs.

Sadly this is not the case with banks of certain size, or those which are integrated into either the domestic economy or the world 'market' beyond a certain degree. To allow these institutions to go under would have catastrophic consequences as they took hundreds and thousands of viable business down with them. This is certainly the case in the UK with RBS and Lloyds. Northern Rock could have been allowed to go under, although arguably because of the perilous state of other banks at this stage this would have had the affect of tipping numerous others over the edge too.

Well I don't agree with that view. I think healthy banks from other parts of the world would have stepped in and picked up the useful assets, while allowing the rest of the organisations to be liquidated.

If you feel that large banks can't be allowed to fail should they be allowed to exist in the first place?

[Fittster]

anonymous said:

[redacted]

[fido]

Fittster said:

Do you think nothing should change in the way banks operate?

Yes, but throwing the baby out with the bath-water isn't the solution. The insurance industry was in a similar situation in the mid-90s (because of a poorly regulated reinsurance market) but it has remained an important part of the financial services industry in the UK - thank goodness. I suspect we will see similar changes with CDS and they will become exchange-traded and margin-called in the same way as for other financial risk transfer products - it was Greenspan who blocked much of the reform that was originally proposed for the credit derivatives industry.
(Ref: http://www.nytimes.com/2008/10/09/business/economy...

[Fittster]

anonymous said:

[redacted]

From the Telegraph

"It also coincided with news that the combined effect of rescuing Britain's biggest banks is likely to increase the national debt by a staggering £1.5 trillion, instantly making the UK one of the world's most indebted countries."

http://www.telegraph.co.uk/finance/financetopics/f...

The banks take the QE money at very low interest and invest it elsewhere, asset price bubbles in stocks, back to the government via gilts at a nice margin or to fund the carry trade. QE certainly helps the banks but how much of it ends up as loans to the SME businesses is questionable.

Edited by Fittster on Saturday 7th November 15:58

[rocksteadyeddie]

Fittster said:

rocksteadyeddie said:

Fittster said:

Banks are liquidated and someone else steps into the market place to take their place. Pretty much the same as any other industry. I really don't buy the argument that banks are somehow a special case and must be protected at all costs.

Sadly this is not the case with banks of certain size, or those which are integrated into either the domestic economy or the world 'market' beyond a certain degree. To allow these institutions to go under would have catastrophic consequences as they took hundreds and thousands of viable business down with them. This is certainly the case in the UK with RBS and Lloyds. Northern Rock could have been allowed to go under, although arguably because of the perilous state of other banks at this stage this would have had the affect of tipping numerous others over the edge too.

Well I don't agree with that view. I think healthy banks from other parts of the world would have stepped in and picked up the useful assets, while allowing the rest of the organisations to be liquidated.

If you feel that large banks can't be allowed to fail should they be allowed to exist in the first place?

Which 'healthy bank' might have been able to step in and pick up say RBS (the world's largest bank by assets? This is the view that Hank Paulson took with Lehmans and look at the mess that left us in!

I think your second point has some validity, and the regulatory environment both previously and now has failed to address this. It's not just a size issue though, the markets in which a bank operates is also important.

[grumbledoak]

rocksteadyeddie said:

Which 'healthy bank' might have been able to step in and pick up say RBS (the world's largest bank by assets? This is the view that Hank Paulson took with Lehmans and look at the mess that left us in!

I think your second point has some validity, and the regulatory environment both previously and now has failed to address this. It's not just a size issue though, the markets in which a bank operates is also important.

To jump in, Lehman's European operations were picked up for $2, and though it is a headache for the new company's staff it hasn't cost the taxpayer a bean.

And, the regulatory environment worked fine from just after the Great Depression (when laws were changed to prevent a recurrence) until The One Eyed Wonder rolled back a lot of them...

If you want to understand why some banks were saved you need only look at their names...

Needless to say, I'm with Fittster.

[fido]

grumbledoak said:

rocksteadyeddie said:

Which 'healthy bank' might have been able to step in and pick up say RBS (the world's largest bank by assets? This is the view that Hank Paulson took with Lehmans and look at the mess that left us in!

I think your second point has some validity, and the regulatory environment both previously and now has failed to address this. It's not just a size issue though, the markets in which a bank operates is also important.

To jump in, Lehman's European operations were picked up for $2, and though it is a headache for the new company's staff it hasn't cost the taxpayer a bean.

Erm .. Barclays paid $2billion (though this was still a good price by all accounts) .. and Lehman retained the toxic stuff. So yes, if the host government takes on the bad assets and a sovereign wealth fund e.g Qatar provide the capital it can work out! Yes, they could have done this with RBS but i'd argue that it wouldn't be in the long-term interests handing over an otherwise good company to a foreign bank at a bargain-basement price (which at the time it would have had to). But agree with you about the 'S' bit in both banks - then again whoever did due diligence for Lloyds f8cked up in a big way!

Edited by fido on Sunday 8th November 10:57

[rocksteadyeddie]

fido said:

Erm .. Barclays paid $2billion (though this was still a good price by all accounts) .. and Lehman retained the toxic stuff. So yes, if the host government takes on the bad assets and a sovereign wealth fund e.g Qatar provide the capital it can work out! Yes, they could have done this with RBS but i'd argue that it wouldn't be in the long-term interests handing over an otherwise good company to a foreign bank at a bargain-basement price (which at the time it would have had to). But agree with you about the 'S' bit in both banks - then again whoever did due diligence for Lloyds f8cked up in a big way!

Did anyone?

[grumbledoak]

fido said:

Erm .. Barclays paid $2billion

Erm... The European (and Asian, in fact) bits...

[fido]

rocksteadyeddie said:

fido said:

Erm .. Barclays paid $2billion (though this was still a good price by all accounts) .. and Lehman retained the toxic stuff. So yes, if the host government takes on the bad assets and a sovereign wealth fund e.g Qatar provide the capital it can work out! Yes, they could have done this with RBS but i'd argue that it wouldn't be in the long-term interests handing over an otherwise good company to a foreign bank at a bargain-basement price (which at the time it would have had to). But agree with you about the 'S' bit in both banks - then again whoever did due diligence for Lloyds f8cked up in a big way!

Did anyone?

I'm assuming Lloyds went over the books so see what cr8p they were getting their shareholders into, but obviously they marked the toxic loan books a bit too generously, by £10bn or so. In fact, i can't quite believe they bought into HBOS, even if Winky did offer to suspend competition law etc.

http://www.dailymail.co.uk/news/article-1157747/Th...

grumbledoak said:

fido said:

Erm .. Barclays paid $2billion

Erm... The European (and Asian, in fact) bits...

Nomura bought the the equities and investment banking businesses (Europe and Asia) - there were no liabilities involved - basically it took over the building in Canary Wharf and some of the personnel. I'd say the biggest part of their outlay was fighting over the remaining staff with Barclays. In any case, they are moving back to the City.

Edited by fido on Sunday 8th November 21:20

[Fittster]

Britain's bank bosses are to meet the Chancellor George Osborne to put forward their views just days ahead of a new report recommending bank reforms.

Barclays (LSE: BARC.L - news) chief executive Bob Diamond will hold discussions with Mr Osborne on Friday and Santander UK head Ana Botin will meet him days later, Sky's City editor Mark Kleinman has learned.

The subject of the talks will be the forthcoming report from the Independent Commission on Banking (ICB) which is expected to advise the ring-fencing of banks' retail operations from investment activity.

Bank shares have meanwhile risen sharply following reports that any proposed shake-up of the sector will be delayed until after the planned 2015 general election.

"The desire of the bankers to meet Mr Osborne ahead of recommendations for the most far-reaching reforms to their industry in decades is unsurprising," said Kleinman.

"It's perhaps a little more surprising that the Chancellor has agreed to meet them so close to the publication date, given that the views of the bank bosses have been well-rehearsed during the 15 months since the ICB was established by Mr Osborne and Vince Cable, the Business Secretary."

On Wednesday Mr Cable accused banks of trying to use the turmoil in the eurozone to delay making the sector reforms he believes are urgent.

I'm sure our elected representatives will put our interests first and will disclose full details of the meeting.