HSBC - falling apart?

[Scootersp]

loafer123 said:

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.

Ok so how is money created as there sure is a hell is a lot more around now isn't there? The fractional system does create more money in the system so is it all central banks then?

[NickCQ]

Scootersp said:

Ok so how is money created as there sure is a hell is a lot more around now isn't there? The fractional system does create more money in the system so is it all central banks then?

If you and I decide we both owe each other 100 then we've just created 200 of money.
All that money is backed by assets (i.e. the loans we made to each other).

[Kent Border Kenny]

AJL308 said:

So why are they allowing it to continue? They clearly were letting it continue for quite some time.

Because changing systems is very far from simple, and requires massive amounts of testing to find out what downstream effects there could be, and because with limited tech resources, a relatively small issue such as this would struggle to make it to the top of the to-do list.

Unfortunately very few banks ever get to design their systems from scratch, so you end up with a horrendous tangle of interacting sub-systems, and you also have critical staff leaving who turn out to be the only one who knew how bits of it dealt with each other.

It's a very long way from ideal, but something that most people in banking have to deal with all the time. I've had to have an hour on thee phone with one of our regulators today because of an inexpertly written database query making it look as though we'd failed to correctly describe some trade reporting previously.

We hadn't, but someone who didn't know how to filter the data correctly submitted it to them, and now they (rightly) want a front-to-back audit of everything on our books.

This is just how it is, imperfections, patches, and imperfect understanding.

The chance of someone designing in a back door to allow non-active accounts to be used for fraud is up there with suggesting that the bank is also trafficking children to work in diamond mines, it's just not how things work.

[Scootersp]

NickCQ said:

If you and I decide we both owe each other 100 then we've just created 200 of money.
All that money is backed by assets (i.e. the loans we made to each other).

Aren't you describing the simple one to one money lending?

Why is there a fractional reserve % set at around 10% what does that achieve....

Google says it can achieve this

https://www.learningmarkets.com/understanding-the-...

[NickCQ]

Scootersp said:

NickCQ said:

If you and I decide we both owe each other 100 then we've just created 200 of money.
All that money is backed by assets (i.e. the loans we made to each other).

Aren't you describing the simple one to one money lending?

Why is there a fractional reserve % set at around 10% what does that achieve....

In the scenario I described there were no reserves and no capital (I lent you 100 that was entirely funded by you lending me 100).
In reality I would not be able to fund my bank 100% with debt (none of my own funds) and only hold illiquid assets.

[67Dino]

Can’t help feeling some of the confusion here is not banking but economics. Banking just makes it harder to understand because the product is money.

Take a little girl’s lemonade stand. She starts with £5 of pocket money and buys £2.50 worth of lemons and £2.50 worth of sugar. She makes 50 cups of lemonade in her kitchen and sets up a table on the front drive. It’s a sunny afternoon and she sells them all at 50p each, making £25 and giving her £20 profit.

Has she magically created £20? In one way, yes. Through her skill and effort she’s added value to the commodities of lemons and sugar to create lemonade which is more valuable. That’s capitalism!

Now, take a Bank. With £5 they can buy some money from a saver - they offer £5 in interest and collect £100 in deposits . They can now lend out up to £90 to other customers. When it’s paid back, they get the £90 plus £25 in interest. Once they put the £90 back in the Vault for the savers, they’ve made £20 profit.

So just the same, but instead of making money with lemons and sugar, they make it using money. But the principle is the same.

Edited by 67Dino on Tuesday 3rd November 20:13

[Scootersp]

If they get £100 deposits in can't they lend £1000 though, not £90?

So the money in the system has increased?

[Scootersp]

This link is a bit anti banking but is it wrong?

https://www.lowimpact.org/money-really-comes-no-lo...

[Kent Border Kenny]

Scootersp said:

This link is a bit anti banking but is it wrong?

https://www.lowimpact.org/money-really-comes-no-lo...

I’d say incoherent rather than wrong.

[67Dino]

Scootersp said:

If they get £100 deposits in can't they lend £1000 though, not £90?

So the money in the system has increased?

Not without borrowing on the wholesale markets or selling loans rather than keeping them (see my earlier post).

Running a Bank is not so different to running any other business. You still have Bank accounts, cash flow to worry about, and finance and accounting people. If I’d said we’ve got £100m in deposits, let’s lend a £1bn this month, the FD would have said - “we don’t have it, where do you plan to get it from?”. It really is the same as a Manufacturing or Retail business.

I think the confusion here is with Capital Adequacy. If you do have £1000 of deposits and want to lend it out, then you need to hold £100 back just in case some customers ask for their savings. So you have £100 in the vault and £900 of assets in the form of lending.

That looks like a 9x multiplier doesn’t it? However, what’s been forgotten here is you also have £1000 of liabilities, namely deposits customers can ask for. So it balances.

Edited by 67Dino on Wednesday 4th November 07:12

[Scootersp]

I 100% get it balances and banks can't have single sided accounting entries.

If hypothetically a new bank started up tomorrow and got £1M in deposits.

It can then start a lending arm so when it loans it creates a deposit (creditor for the bank) into a persons account and recognises the future debtor, then it makes it's profit from the interest charged on repayments. Good interest spread and low defaulting and it's all nicely profitable. They can then make more loans but can't under the current rules have this loan book get over x10 their deposit holding, that's what limits current lending?

My point is from that initial money injection they will end up creating more money in the system? It's product/it's lemonade is money?

I am writing this sort of sure of what I'm saying as are you I'm sure so no digs here I'm just trying to fully understand.

[Mr Whippy]

Jon39 said:

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.
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.

Thanks for that.

There is an element of better the devil you know.

I think I'm going to sample Monzo for discretionary spending, and leave the HSBC stuff in the background for now... also not sure if Monzo MasterCard will be as widely accepted as Visa... or if you can get a Credit Card with Monzo.


I had considered upgrading to Premiere with HSBC, but it just feels a bit weird to me... their service should be good enough generally to not need this, and be an upgrade because you like the special attention... it shouldn't need me to upgrade to get a decent service.
Plus I've just got this feeling like everyone would see me as a tt walking into local smaller branches and getting the special little room... though it's quite nice in the larger branches (which I rarely get to use) where they have nice Premiere areas.


And/or there is First Direct who seem to do really well... but I guess Monzo and the like will soon be usurping even First Direct etc.

[bmwmike]

HSBC are going to the dogs alright. Tried opening an account for my kids and they require you to upload images of passports and selfies to Jumio. No privacy policy, no indication of how the data will be handled. Phoned them to ask, and they couldnt tell me.

[loafer123]

They called me once and said "can we take you through security, please"?

I said "No, you can't. You called me, I have no idea who you are."

Muppets.

[gallopingclothespeg]

Mr Whippy said:

Thanks for that.

There is an element of better the devil you know.

I think I'm going to sample Monzo for discretionary spending, and leave the HSBC stuff in the background for now... also not sure if Monzo MasterCard will be as widely accepted as Visa... or if you can get a Credit Card with Monzo.


I had considered upgrading to Premiere with HSBC, but it just feels a bit weird to me... their service should be good enough generally to not need this, and be an upgrade because you like the special attention... it shouldn't need me to upgrade to get a decent service.
Plus I've just got this feeling like everyone would see me as a tt walking into local smaller branches and getting the special little room... though it's quite nice in the larger branches (which I rarely get to use) where they have nice Premiere areas.


And/or there is First Direct who seem to do really well... but I guess Monzo and the like will soon be usurping even First Direct etc.

Monzo aren't too bad at doing the banking thing, God helo you if you need any kind of customer service though, theirs is pitiful.
For anything over and above basic spending on food and drinks I'd be sticking with First Direct.

[bmwmike]

loafer123 said:

They called me once and said "can we take you through security, please"?

I said "No, you can't. You called me, I have no idea who you are."

Muppets.

Yeah. I get that too, usually end up in a argument and agreeing to share half of a piece of mutually known data. Then it turns out to be a sales call i'd opted out of anyway.

[bmwmike]

Mr Whippy said:

Thanks for that.

There is an element of better the devil you know.

I think I'm going to sample Monzo for discretionary spending, and leave the HSBC stuff in the background for now... also not sure if Monzo MasterCard will be as widely accepted as Visa... or if you can get a Credit Card with Monzo.


I had considered upgrading to Premiere with HSBC, but it just feels a bit weird to me... their service should be good enough generally to not need this, and be an upgrade because you like the special attention... it shouldn't need me to upgrade to get a decent service.
Plus I've just got this feeling like everyone would see me as a tt walking into local smaller branches and getting the special little room... though it's quite nice in the larger branches (which I rarely get to use) where they have nice Premiere areas.


And/or there is First Direct who seem to do really well... but I guess Monzo and the like will soon be usurping even First Direct etc.

I've had premier for about 5 years and its gradually diminished pretty much since i got it. Started out with a dedicated account manager in local branch who was easy to contact, then a guy in a call centre who used to call me every six months for a rushed call - obviously a call target - but could still email him if i had questions etc. That ended about 18 months ago and i've not heard a peep since. There is absolutely no preferential treatment (for want of a better word) or differentiation as far as I can tell from what i'd expect anyway (apart from, in fairness: worldwide travel insurance and premier credit card has product insurance built in - other ways to get those though, and probably cheaper if paying for premier).

[67Dino]

Scootersp said:

I 100% get it balances and banks can't have single sided accounting entries.

If hypothetically a new bank started up tomorrow and got £1M in deposits.

It can then start a lending arm so when it loans it creates a deposit (creditor for the bank) into a persons account and recognises the future debtor, then it makes it's profit from the interest charged on repayments. Good interest spread and low defaulting and it's all nicely profitable. They can then make more loans but can't under the current rules have this loan book get over x10 their deposit holding, that's what limits current lending?

My point is from that initial money injection they will end up creating more money in the system? It's product/it's lemonade is money?

I am writing this sort of sure of what I'm saying as are you I'm sure so no digs here I'm just trying to fully understand.

Spot on Scootersp. You’ve got it exactly.

A nice proof point that Banking isn’t able to magic money up but has to build it gradually is how old the biggest mortgage lenders are - Halifax (167 years), Nationwide (174 years), NatWest (185 years), Barclays (124 years), HSBC (155 years), etc. Why is this?

Well, mortgages are big loans so require a lot of capital. They also are low interest loans, so are not easy to make money on if you get the money from an expensive source such as the wholesale markets or through special-offer high interest deposit accounts. You really need lots of routine customer savings which you don’t pay much for.

As a result, the big lenders are all very old Banks who’ve spent decades or even centuries building up a customer and deposit base. The new Banks (like Atom) can do mortgages, but only in very small doses, as they simply don’t have enough cheap capital available to do them sustainably and profitably.

Edited by 67Dino on Thursday 5th November 07:14