HSBC - falling apart?

[ATM]

loafer123 said:

ATM said:

Kent Border Kenny said:

ATM said:

Because they are run by greedy idiots who get paid an absolute fortune maybe. I don't know.

You are tying yourself in knots now.

If they were run by greedy bds they’d never let them go bust. The banks could simply lent to their senior staff, on a 1,000 year term with interest payable at maturity.

I dont know why they go bust. Is that better?

Until you get past the idea of banks making up money you can't possibly truly understand what the credit crunch was all about. They started making up too much money too quickly. That is it.

The GFC was driven by banks creating huge balance sheets against too little capital and poor credit control.

Instead of 10% of their balance sheets being shareholder capital it fell to low single digits.

If you have capital of £10m and 10% capital you can have a lending balance sheet of £100m.

At 3%, that is £333m.

At that level of leverage, it only took a few loans to go bad for banks to be unable to pay their own debts, and this created a spiral of default and collapse.

The point I am trying to get across to the none believers and people calling me a troll is this - if the banks couldn't just make up money there would have been no credit crunch. This has been going on for years. Just because people don't talk about and it is not common knowledge doesn't mean it doesn't go on. It sounds a bit conspiracy theory when you first hear about it. I get that. Maybe I shouldn't have brought this up. Maybe people don't want to know the truth. Back to cars then....

[loafer123]

I haven’t called you a troll, and I don’t believe you are - I think you have grabbed hold of an over simplification in an article and conflated it into the whole financial system.

I have got myself hugely confused about aspects of the financial world in the past, so know where you are coming from.

I know you still believe that money is created from nowhere, but rest assured that, for every pound that is lent by a bank, it has to come from somewhere, be it deposits, loans to the bank or money from the BoE.

A loan officer might be able to “create” money by advancing a credit limit, but there will also be someone somewhere in the banks Treasury department who ensures the books balance at the end of the day.

[DanL]

loafer123 said:

I haven’t called you a troll, and I don’t believe you are - I think you have grabbed hold of an over simplification in an article and conflated it into the whole financial system.

I have got myself hugely confused about aspects of the financial world in the past, so know where you are coming from.

I know you still believe that money is created from nowhere, but rest assured that, for every pound that is lent by a bank, it has to come from somewhere, be it deposits, loans to the bank or money from the BoE.

A loan officer might be able to “create” money by advancing a credit limit, but there will also be someone somewhere in the banks Treasury department who ensures the books balance at the end of the day.

This. I’m always open to the idea that what I think may be wrong, as I might learn something new that way.

Edited by DanL on Saturday 24th October 11:16

[klan8456]

KAgantua said:

Think I need to move TBH. I am a premier customer and to be fair they used to be pretty good.

I dont get banks - I used to work at another bank similar size (Not directly - contractor) and they poured loads of resources and cash into DR testing and contingency planning.

How can they *not* cope or did they just plan for very binary 'single building outage' scenarios?

I dont get how a move to a WFH scenario for Customer facing staff can be such a problem in the 21st centrury?

Plenty of staff in India, Philippines etc don’t have rock solid broadband at home, or indeed proper WFH kit

[klan8456]

Kent Border Kenny said:

They are based in Canada Square, Canary Wharf. Right opposite my flat, as it happens.

The Tower of Doom

[67Dino]

ATM said:

Just because people don't talk about and it is not common knowledge doesn't mean it doesn't go on. It sounds a bit conspiracy theory when you first hear about it. I get that. Maybe I shouldn't have brought this up. Maybe people don't want to know the truth. Back to cars then....

If you’ve never worked in a lending institution then it probably does seem strange, but I can assure you it’s true. I used to be on the Exec Board of a Credit Card company and the truth is that when a £10k credit limit is created (your example) it really is not easy. A lot of work goes in to balance it with deposits and the wholesale market.

It would have been lovely if we could have created an unlimitedly large credit book out of thin air, but actually it takes time, effort and skill to grow a lending book and it is heavily limited by lots of factors.

In fairness, we do have an economic system that generates value (‘money’) that wasn’t there earlier, which does seem like magic. But if you can understand how a little girl selling lemonade on a stand can sell it for more than the cost of sugar and lemons, you can understand how banking works. It only seems weird because what’s being bought and sold is access to money.

[ATM]

There is a common idea – even taught in many economics textbooks and academic papers – that banks are simply middlemen (‘intermediaries’) between savers and borrowers. But this is inaccurate.


https://positivemoney.org/how-money-works/proof-th...

[ATM]

There are several conflicting ways of describing what banks do. The simplest version is that banks take in money from savers, and lend this money out to borrowers. This is not at all how the process works. Banks do not need to wait for a customer to deposit money before they can make a new loan to someone else. In fact, it is exactly the opposite; the making of a loan creates a new deposit in the customer’s account.

https://neweconomics.org/2012/12/where-does-money-...

[ATM]

Commercial banks create the money that they lend.

https://www.quora.com/Where-do-banks-get-the-money...

[ATM]

Commercial banks create money by using book entries. Take the example of an individual, Mister X, who takes out a consumer loan. When issuing the loan, the bank credits Mister X’s checking account (demand deposits) in the amount M corresponding to the loan, which increases the ‘customer deposits’ in its liabilities, and therefore the money supply. At the same time, the bank records its credit to Mister X in its assets under the ‘customer loans’ heading.

https://www.google.com/amp/s/group.bnpparibas/en/n...

[ATM]

When commercial banks lend money, they expand the amount of bank deposits.

https://en.m.wikipedia.org/wiki/Money_creation

[loafer123]

ATM said:

Commercial banks create the money that they lend.

https://www.quora.com/Where-do-banks-get-the-money...

The first answer is confusing, but the answer by Graham Hodgson is clearer and consistent with what we have all put above.

[ATM]

The crux of it is that the do create new money. They record this so it can be cancelled out later so the bankers will say its not simple. OK fine. Its not simple. But they still create new money when someone asks for a loan. There are rules how much they can make and its not simple. Fine. But they still make new money. Banks make new money. There are rules .... its not simple ... yada yada ... they still create new money.

The average Joe and even PH powerfully built director types included - as demonstrated here - don't know this and refuse to even believe it.

[NickCQ]

I was going to post another long screed but I don’t think there’s much point.

For as long as bank deposits are defined as ‘money’ then yes, commercial banks create money. However, the implications of that fact are a lot less profound than ATM suggests and going around suggesting that banks are somehow perpetrating a great swindle because of it is misguided.

[ATM]

I'm just saying it is not commonly known. Not saying it is a big con. Not saying it is some form of underhand practice. Just unknown. People are genuinely shocked when the penny drops. Everyone assumes banks take the money from savers to lend to borrowers. That is not the case. They just make new money as they see fit ... following the rules ... and without it being simple ... but this is what they do.

[ExV8]

Banks take money in and lend it out, it is that simple. If they do not have enough to balance the books they have to borrow it.

If they could magic it up then the financial crisis would not have happened as Northern rock could have done that rather than be bailed out by the taxpayer. They did not and no one would lend to them.

Barclays had a Middle East investment and Hsbc had deposits to cover, other banks also needed help, proof of how it works has been seen - it is not magic.

[ATM]

ExV8 said:

Banks take money in and lend it out, it is that simple.

Wrong

BoE website -

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

[67Dino]

ATM said:

ExV8 said:

Banks take money in and lend it out, it is that simple.

Wrong

BoE website -

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

It is true that deposits are not the only form of liquidity that banks need to lend. The wholesale markets are another source. I wonder if this is what is causing you to think it’s infinite?

Bank A can sell their lending on to Bank B, it is true. But Bank B needs access to capital to buy the book. Sure, pricing can be screwy and fail to recognise risk (as we discovered in the Credit Crunch), and it can be a bit of a merry go round of selling on, but ultimately there’s a limit.

Otherwise what would stop Melton Mowbray Building Society buying trillions of dollars of loans and becoming bigger than Bank of America?

[NickCQ]

ATM said:

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

It feels like you still haven’t got the point that if you actually want to do anything with the money credited to your account, the bank has to borrow money or sell other assets to give it to you.

Hence the point we are all making about a bank having to balance assets and liabilities still stands.

[klan8456]

ATM said:

The crux of it is that the do create new money. They record this so it can be cancelled out later so the bankers will say its not simple. OK fine. Its not simple. But they still create new money when someone asks for a loan. There are rules how much they can make and its not simple. Fine. But they still make new money. Banks make new money. There are rules .... its not simple ... yada yada ... they still create new money.

The average Joe and even PH powerfully built director types included - as demonstrated here - don't know this and refuse to even believe it.

Unfortunately this will never be a good discussion, as those of us who know how banking actually works are forbidden from commenting by firms’ social media policies. So keep posting away to yourself and convincing yourself you’re right!