Can I 'make' a bank?
Discussion
Banks 'make' the money right?
Is there anything, apart from myriad red tape, that would stop me incorporating a bank?
I then borrow off who? The BoE presumably? Then lend to my customers at whatever rate I see fit?
Also, if the BoE rate is so low, why can I not borrow direct from them for my own purposes?
Light hearted discussion please?
Simple maths would suggest if I borrow £1,000,000 from BoE at 0.5% then lend £1,000,000 to customers, whom i've done some due dilligence on, and believe can pay, at a rate of say 2% (tracker only) I make £691 a month?
Okay, it's a lot of effort, and, you'd make more putting a million in a bank, but I don't have a million right? So making £600 a month from someone else (we're ignoring taxes etc at the moment) lending me the money seems simple enough right? Hence banks are so rich?
Is it just the red tape?
Forgive the lack of understanding. It's really just a muse to provoke some discussion
Is there anything, apart from myriad red tape, that would stop me incorporating a bank?
I then borrow off who? The BoE presumably? Then lend to my customers at whatever rate I see fit?
Also, if the BoE rate is so low, why can I not borrow direct from them for my own purposes?
Light hearted discussion please?
Simple maths would suggest if I borrow £1,000,000 from BoE at 0.5% then lend £1,000,000 to customers, whom i've done some due dilligence on, and believe can pay, at a rate of say 2% (tracker only) I make £691 a month?
Okay, it's a lot of effort, and, you'd make more putting a million in a bank, but I don't have a million right? So making £600 a month from someone else (we're ignoring taxes etc at the moment) lending me the money seems simple enough right? Hence banks are so rich?
Is it just the red tape?
Forgive the lack of understanding. It's really just a muse to provoke some discussion
You need what is known as regulatory capital.....i.e. an equity cushion to absorb losses on your loan portfolio. Then you need a credit rating, banking license etc etc
Strangely enough it's actually very hard to do which is why the likes of Tesco used white label RBS products initially.
Strangely enough it's actually very hard to do which is why the likes of Tesco used white label RBS products initially.
You'll need a call centre about a million miles away where people have only a 50% grasp of English and 5% grasp of what they're supposed to be doing. And some cheerful multi-ethnic actors pretending to be branch staff who care about your customers, for the advert. And offer inflation-x% savings accounts with words like extra, plus, gold, super-saver and so on in their titles. And put 10 small windows in the front of your house with a little blind or 'closed' sign in 9 of them.
If you're recruiting, I think I might be just the person you're looking for...
If you're recruiting, I think I might be just the person you're looking for...
Banks don't borrow money from the BoE, they either use money from their customers' deposits or go to the capital markets (there are other methods but lets keep it simple).
When they borrow from the markets the reference rate in the UK is normally LIBOR. On top of the LIBOR rate the bank has to pay what's is known as a spread. The spread is a margin that represents the market's appetite to lend to that particular bank.
In recent years the LIBOR rate and especially market spreads haven't always been correlated to BoE movements.
There is a load of red tape to setting up a new bank but some new ones have launched recently.
When they borrow from the markets the reference rate in the UK is normally LIBOR. On top of the LIBOR rate the bank has to pay what's is known as a spread. The spread is a margin that represents the market's appetite to lend to that particular bank.
In recent years the LIBOR rate and especially market spreads haven't always been correlated to BoE movements.
There is a load of red tape to setting up a new bank but some new ones have launched recently.
-Pete- said:
You'll need a call centre about a million miles away where people have only a 50% grasp of English and 5% grasp of what they're supposed to be doing. And some cheerful multi-ethnic actors pretending to be branch staff who care about your customers, for the advert. And offer inflation-x% savings accounts with words like extra, plus, gold, super-saver and so on in their titles. And put 10 small windows in the front of your house with a little blind or 'closed' sign in 9 of them.
Gassing Station | Finance | Top of Page | What's New | My Stuff