HSBC - falling apart?
Discussion
Mr Whippy said:
Are any of the main street banks any good? Barclays were the last to go in my small town, so maybe that's a positive sign they're not big t
ts. Also they had the biggest queue in my local market town earlier today, so a sign they have more customers than the others?
...or less staff.ts. Also they had the biggest queue in my local market town earlier today, so a sign they have more customers than the others?More seriously, Barclays have always been pretty sensible in my experience.
ATM said:
Let's say I pay a saver 1% on their 1000 deposit with my bank.
I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
ATM, think you’ve missed something here. If a Bank has only £1k in liabilities (in this case deposits), it can only lend out £1k (well, £900ish). It is true it can then show £1k in someone’s deposit account and £900 in someone’s loan account, with £100 in the Banks capital reserve, so I get the ‘magic’ you’ve referred to. However, this situation has to start with £1k. I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
If a Bank only has £1k, it could lend £10k but only if it raised £9k on the money markets, ie borrowing from other Banks rather than deposit customers (that’s all a savings account is, a way of borrowing from you and me). Then it would have £10k of liabilities and could lend £9k. But doing this isn’t any more magic than any other business borrowing to fund growth, or you ‘creating’ £9k by taking out a car loan.
NickCQ said:
^ I have observed that some High Street banks have a policy of deterring customers that are expensive to serve, i.e. those that want to go to the branch or use telephone banking services. It seems like you may be on the wrong side of that designation.
Perhaps.Not sure who their “good” customers are?
Big credit card balances, mortgages and just use the internet?
Guess that’s me off the list on all counts.
Had a look yesterday, Monzo look quite good for a current account, then NS&I and building societies for savings...
67Dino said:
ATM said:
Let's say I pay a saver 1% on their 1000 deposit with my bank.
I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
ATM, think you’ve missed something here. If a Bank has only £1k in liabilities (in this case deposits), it can only lend out £1k (well, £900ish). It is true it can then show £1k in someone’s deposit account and £900 in someone’s loan account, with £100 in the Banks capital reserve, so I get the ‘magic’ you’ve referred to. However, this situation has to start with £1k. I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
If a Bank only has £1k, it could lend £10k but only if it raised £9k on the money markets, ie borrowing from other Banks rather than deposit customers (that’s all a savings account is, a way of borrowing from you and me). Then it would have £10k of liabilities and could lend £9k. But doing this isn’t any more magic than any other business borrowing to fund growth, or you ‘creating’ £9k by taking out a car loan.
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.
If it didn't exist then why would they have needed to go and get it from the money markets. Surely then it would have existed. That's contradictory surely.
ATM said:
67Dino said:
ATM said:
Let's say I pay a saver 1% on their 1000 deposit with my bank.
I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
ATM, think you’ve missed something here. If a Bank has only £1k in liabilities (in this case deposits), it can only lend out £1k (well, £900ish). It is true it can then show £1k in someone’s deposit account and £900 in someone’s loan account, with £100 in the Banks capital reserve, so I get the ‘magic’ you’ve referred to. However, this situation has to start with £1k. I multiply this 20 times - assuming 5% fractional reserve - to get 20000 that I can lend to borrowers.
If a Bank only has £1k, it could lend £10k but only if it raised £9k on the money markets, ie borrowing from other Banks rather than deposit customers (that’s all a savings account is, a way of borrowing from you and me). Then it would have £10k of liabilities and could lend £9k. But doing this isn’t any more magic than any other business borrowing to fund growth, or you ‘creating’ £9k by taking out a car loan.
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.
If it didn't exist then why would they have needed to go and get it from the money markets. Surely then it would have existed. That's contradictory surely.
ATM said:
I thought the whole point of making new money with fractional reserve banking is they can make new money if they have an amount in reserve - lets say 5%. They don't need to go and get this from money markets. They just make new money. From the Bank of England 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.
If it didn't exist then why would they have needed to go and get it from the money markets. Surely then it would have existed. That's contradictory surely.
Two points to note: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.
If it didn't exist then why would they have needed to go and get it from the money markets. Surely then it would have existed. That's contradictory surely.
1) It is important to understand the difference between 'capital' and 'reserves'
Capital is the bank's shareholders' own funds or equity. It is the amount by which the bank's assets (i.e. cash and loans it has made) exceed its liabilities (deposits). It is intangible and does not sit in a vault somewhere, it is just the net worth of the bank.
Reserves are the bank's own cash balance, usually deposited at the central bank or with other banks. This can be found on the asset side of the balance sheet. Banks hold reserves in order to meet liquidity requirements (i.e. someone wants to withdraw money from their account and the bank has to produce cash).
The regulator requires minimum amounts of both of the above but for different reasons. Capital ensures that the bank is solvent (i.e. has enough assets to pay off its liabilities) whereas reserves ensure that the bank is liquid (i.e. can produce cash on demand if depositors ask for it).
Modern banks are constrained by capital not reserves, as reserves (i.e. money) are endogenous to the system because of the money creation process.
2) The bank has to produce the funds every time someone wants to withdraw money from an account.
If the bank loans you 100 and you leave it on deposit with them, then from the bank's perspective an asset of 100 is created (the loan) plus a liability of 100 (the deposit). If the borrower wants to withdraw this money from the deposit account, the bank must either borrow or sell assets to produce the cash for the borrower.
Mr Whippy said:
Are any of the main street banks any good? Barclays were the last to go in my small town, so maybe that's a positive sign they're not big tts.
Sorry, their customer service is appalling. Have experienced not just one, but numerous instances of their bungling. ts. On one occasion I simply wanted a printed statement from an in-branch machine. After being unable to do it myself, called an employee for help. He could not do it either. As for the Barclays investment services - don't start me on that subject
I discovered during the first lockdown, that a cheque can be paid in to my HSBC account from home.
Taking the photograph was slightly fiddly, but that might have been my fault. Managed after a few attempts and then the cheque was credited. Very good.
ATM said:
I thought the whole point of making new money with fractional reserve banking is they can make new money if they have an amount in reserve - lets say 5%. They don't need to go and get this from money markets. They just make new money. From the Bank of England website
ATM, unfortunately you are mistaken. This is what people have politely been saying. I just think you’re reading too much into the rather badly worded sentence on the Bank of England website. They’ve tried to make it simple and in doing so, added to the confusion. The capital required - you say 5% but in my experience it is normally 10%+ for the type of lending we’re talking about - is not instead of having money to lend. It is what you must retain so that should people want their deposits back (keeping it simple), the Bank still has a reasonable proportion of it and hasn’t lent it all out.
You need to get the money you want to lend from somewhere - money markets or deposits. Alternatively you can lend first and then sell your loans, but either way you cannot just generate assets out of thin air. I know this because I’ve sat on the Exec Board of a major lending institution and this is exactly what you have to do. It’s very hard work and I wished we didn’t have to, but we did.
It makes sense if you think about it, since (as previous posters have said) otherwise Banks would have assets and liabilities completely out of kilter.
67Dino said:
ATM said:
I thought the whole point of making new money with fractional reserve banking is they can make new money if they have an amount in reserve - lets say 5%. They don't need to go and get this from money markets. They just make new money. From the Bank of England website
ATM, unfortunately you are mistaken. This is what people have politely been saying. I just think you’re reading too much into the rather badly worded sentence on the Bank of England website. They’ve tried to make it simple and in doing so, added to the confusion. The capital required - you say 5% but in my experience it is normally 10%+ for the type of lending we’re talking about - is not instead of having money to lend. It is what you must retain so that should people want their deposits back (keeping it simple), the Bank still has a reasonable proportion of it and hasn’t lent it all out.
You need to get the money you want to lend from somewhere - money markets or deposits. Alternatively you can lend first and then sell your loans, but either way you cannot just generate assets out of thin air. I know this because I’ve sat on the Exec Board of a major lending institution and this is exactly what you have to do. It’s very hard work and I wished we didn’t have to, but we did.
It makes sense if you think about it, since (as previous posters have said) otherwise Banks would have assets and liabilities completely out of kilter.
This shows a tale at the bottom where the banks assets and liabilities match. But it claims they have manufactured NZ$25,482m from NZ$3,010m so with a fractional reserve ratio of 11.81%.
ATM said:
https://en.wikipedia.org/wiki/Fractional-reserve_b...
This shows a table at the bottom where the banks assets and liabilities match. But it claims they have manufactured NZ$25,482m from NZ$3,010m so with a fractional reserve ratio of 11.81%.
In the table at the bottom there is 8,703 of capital (own funds) and reserves of 3,010 (201 + 2,809).This shows a table at the bottom where the banks assets and liabilities match. But it claims they have manufactured NZ$25,482m from NZ$3,010m so with a fractional reserve ratio of 11.81%.
There are 25,482 of demand deposits (i.e. can be withdrawn at any time).
What this means is that if all the demand deposits were to ask for their money back, the bank would first pay out its 3,010 of cash to depositors, and then would need to sell 22,472 of other assets (25,482 - 3,010) to produce cash to pay back the rest of the deposits.
Happily, as we can see from the asset side (left hand side), the bank has 104,777 of other assets in addition to its reserves (107,787 - 3,010) so it will be able to do this given a reasonable timeframe.
The solvency / capital / own funds will be unaffected by all of the above transactions.
NickCQ said:
ATM said:
https://en.wikipedia.org/wiki/Fractional-reserve_b...
This shows a table at the bottom where the banks assets and liabilities match. But it claims they have manufactured NZ$25,482m from NZ$3,010m so with a fractional reserve ratio of 11.81%.
In the table at the bottom there is 8,703 of capital (own funds) and reserves of 3,010 (201 + 2,809).This shows a table at the bottom where the banks assets and liabilities match. But it claims they have manufactured NZ$25,482m from NZ$3,010m so with a fractional reserve ratio of 11.81%.
There are 25,482 of demand deposits (i.e. can be withdrawn at any time).
What this means is that if all the demand deposits were to ask for their money back, the bank would first pay out its 3,010 of cash to depositors, and then would need to sell 22,472 of other assets (25,482 - 3,010) to produce cash to pay back the rest of the deposits.
Happily, as we can see from the asset side (left hand side), the bank has 104,777 of other assets in addition to its reserves (107,787 - 3,010) so it will be able to do this given a reasonable timeframe.
The solvency / capital / own funds will be unaffected by all of the above transactions.
ATM said:
The point is Wikipedia is saying this is made up money. It did not exist until it was made up. It is new money.
Sorry, I missed the point you had highlighted.All of those demand deposits correspond to individual accounts and represent somebody's cash deposited with the bank. There are genuine third-party creditors in all cases.
Kent Border Kenny said:
AJL308 said:
HSBC are bent...The money which was being paid into "our" account was apparently being transferred out and syphoned off elsewhere else in Europe.
So, yeah, HSBC = "dodgy as fk". Don't open an account with them.
In what way does this make HSBC bent? Are you implying that this is a deliberate loophole, set up by the bank to allow fraud, for which they are paid?So, yeah, HSBC = "dodgy as f
k". Don't open an account with them. AJL308 said:
My business was clearly not the first to have this happen and the manager I spoke to gave the impression that this was a well known problem so, yes, I think that "bent" is a reasonable assessment of them. The alternative is that they are either so incompetent they can't change their systems to eliminate this or they simply don't care. None of these options paint them in a good light!
That's really tin-foil hat territory. It'd make them. virtually no money, but nearly inevitably lead to billions of pounds in fines and jail for the directors.NickCQ said:
Sorry, I missed the point you had highlighted.
All of those demand deposits correspond to individual accounts and represent somebody's cash deposited with the bank. There are genuine third-party creditors in all cases.
Yes it's not like they make up money and keep it themselves (although they do earn interest on it) but the 'money supply' does go up.All of those demand deposits correspond to individual accounts and represent somebody's cash deposited with the bank. There are genuine third-party creditors in all cases.
If the policy of approx 10% deposit holdings to loans was reduced then the banks would create more loans/money for people to take up?
https://www.economicshelp.org/blog/1143/economics/...
Kent Border Kenny said:
AJL308 said:
My business was clearly not the first to have this happen and the manager I spoke to gave the impression that this was a well known problem so, yes, I think that "bent" is a reasonable assessment of them. The alternative is that they are either so incompetent they can't change their systems to eliminate this or they simply don't care. None of these options paint them in a good light!
That's really tin-foil hat territory. It'd make them. virtually no money, but nearly inevitably lead to billions of pounds in fines and jail for the directors.Scootersp said:
So the money you are given from a loan isn't someone else's/or backed by someone else's (or not most of it) it is 'created'.
No. It is all someone else's, whether a bondholder, another financial institution lending to your bank or a saver's money in an account with the Bank.What appears to be confusing ATM is that it isn't a simple 1:1 - they only lend their shareholders equity. The shareholders equity is only ~10% of the lending, with the remaining 90% coming from the above sources.
Needless to say this is all simplified and there are very well paid people doing lots of complex stuff in real life.
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