HSBC - falling apart?

[ATM]

loafer123 said:

ATM said:

NickCQ said:

ATM said:

My thin air comment is deliberate because the use of complicated banking terms doesn't resonate with Joe public. Where as the thin air comment makes them go hang on a minute.

But as we have discussed on this thread it's really a trivial point.
Your earlier implication that the way banks make money is by creating money and paying it to themselves is misleading.

Quoting myself -

They manufacture money from fresh air then charge you Interest for borrowing it.

This is a common misconception.

The deposits held by banks or lent to it by other banks (for example) are liabilities and the loans it makes are assets. Whilst there is a mismatch in duration, after they are both repaid, the money supply is exactly what it was.

Yes, the bank only needs to hold ~10% of it's balance sheet as reserves, but that doesn't mean the other 90% is created from thin air - it has to come from the bank's liabilities.

And this is the sort of language which confuses me and possibly most other people.

[loafer123]

ATM said:

loafer123 said:

ATM said:

NickCQ said:

ATM said:

My thin air comment is deliberate because the use of complicated banking terms doesn't resonate with Joe public. Where as the thin air comment makes them go hang on a minute.

But as we have discussed on this thread it's really a trivial point.
Your earlier implication that the way banks make money is by creating money and paying it to themselves is misleading.

Quoting myself -

They manufacture money from fresh air then charge you Interest for borrowing it.

This is a common misconception.

The deposits held by banks or lent to it by other banks (for example) are liabilities and the loans it makes are assets. Whilst there is a mismatch in duration, after they are both repaid, the money supply is exactly what it was.

Yes, the bank only needs to hold ~10% of it's balance sheet as reserves, but that doesn't mean the other 90% is created from thin air - it has to come from the bank's liabilities.

And this is the sort of language which confuses me and possibly most other people.

Fair enough...I’ll try a different way to explain it.

To you, borrowing money is a debt, a liability, but for the bank it is an asset because you owe them money. Equally, the deposit account you have with them is your asset and their liability - they owe you the money.

What banks do is balance out their assets and liabilities - they take your money and lend it to someone else, keeping a margin in the middle.

That margin pays the shareholders for their 10% of cash in each loan...they lose money first, and that guarantees your deposit account.

[ATM]

loafer123 said:

ATM said:

loafer123 said:

ATM said:

NickCQ said:

ATM said:

My thin air comment is deliberate because the use of complicated banking terms doesn't resonate with Joe public. Where as the thin air comment makes them go hang on a minute.

But as we have discussed on this thread it's really a trivial point.
Your earlier implication that the way banks make money is by creating money and paying it to themselves is misleading.

Quoting myself -

They manufacture money from fresh air then charge you Interest for borrowing it.

This is a common misconception.

The deposits held by banks or lent to it by other banks (for example) are liabilities and the loans it makes are assets. Whilst there is a mismatch in duration, after they are both repaid, the money supply is exactly what it was.

Yes, the bank only needs to hold ~10% of it's balance sheet as reserves, but that doesn't mean the other 90% is created from thin air - it has to come from the bank's liabilities.

And this is the sort of language which confuses me and possibly most other people.

Fair enough...I’ll try a different way to explain it.

To you, borrowing money is a debt, a liability, but for the bank it is an asset because you owe them money. Equally, the deposit account you have with them is your asset and their liability - they owe you the money.

What banks do is balance out their assets and liabilities - they take your money and lend it to someone else, keeping a margin in the middle.

That margin pays the shareholders for their 10% of cash in each loan...they lose money first, and that guarantees your deposit account.

But this glosses over the way in which they manufacture money from nothing. If I am a loan shark I can only lend people money I already have. A bank doesn't have this problem. They can lend people money they do not have. This is what I am trying to explain. This is not commonly known. This is the racket which is banking.

[Evoluzione]

Our mortgage broker found us a mortgage with HSBC, they said they'd lend and did a survey, everything ok.
We did all the legal stuff which took months and went back for the money, they told us the deal had timed out so they had to do it all again.
Nothing had changed at all, but they refused to lend second time round. It's really screwed things up as you can imagine, we're now going to other banks, our current house is sold STC and the new owners are waiting to get in.

[DanL]

ATM said:

But this glosses over the way in which they manufacture money from nothing. If I am a loan shark I can only lend people money I already have. A bank doesn't have this problem. They can lend people money they do not have. This is what I am trying to explain. This is not commonly known. This is the racket which is banking.

How do they do that, out of interest? I might learn something.

[loafer123]

ATM said:

But this glosses over the way in which they manufacture money from nothing. If I am a loan shark I can only lend people money I already have. A bank doesn't have this problem. They can lend people money they do not have. This is what I am trying to explain. This is not commonly known. This is the racket which is banking.

What do you mean by “manufacture money from nothing”?

Every £ they lend is from shareholders, depositors or some other entity lending cash to the bank. They don’t just press a button and the zeros are created from thin air.

[number2]

This might have been linked to earlier, but either way it answers the question.

https://www.bankofengland.co.uk/quarterly-bulletin...

[67Dino]

DanL said:

ATM said:

But this glosses over the way in which they manufacture money from nothing. If I am a loan shark I can only lend people money I already have. A bank doesn't have this problem. They can lend people money they do not have. This is what I am trying to explain. This is not commonly known. This is the racket which is banking.

How do they do that, out of interest? I might learn something.

It’s not a racket and no magic money is created. All that is going on is that a Bank makes a profit lending out money that belongs to its savers rather than itself.

A Bank making a profit lending other people’s money is no more magic than when eBay makes a profit selling other people’s goods. It’s just how marketplaces work rather than retailers, and Banks are more like marketplaces.

[ATM]

More people that simply do not understand what is being explained because they simply can't believe a crazy concept which is absolutely standard in banking today.

When you lend 100000 from a bank they do not get that 100000 from somewhere else. They just magic it from nowhere. It does not exist until you lend it.

Is this making any sense yet?

No

You probably think that's crazy. It can't be right.

I went through this too.

I am using words like
from thin air
like magic
It did not exist

Banks just make it up

Thats it

Yes there are some rules as to how much they can make up but basically they just manufacture money from nothing

So back to you and your mortgage. Lets say you lend 300000. Up until the day you borrow this 300000 it did not exist. Then they lend it you and it does exist. Now you are paying 3% interest or 9000 a year in interest. This is basically pure profit for the Bank because they are not lending that money from anyone else. It.did not exist. It is brand new money they have just manufactured from nothing.

As you pay back the money they don't then keep it. They write off the original 300000 so eventually when it is all paid off they then effectively dissappear it. So in the same way they made the money from nothing they then un-make the money back to nothing. So at the end of the loan the bank dont have the 300000. They have nothing except all the interest you paid them over the years.

But remember they don't need to keep it because if people want to borrow more they can just make more.

Have I said enough.

Have I explained this bizarre, random, illogical practice which has been going on in banks for years and none of us seem to know about it.

Money doesn't grow on trees. It grows in banks. Well they just make it from nothing.

[AlexC1981]

Evoluzione said:

Our mortgage broker found us a mortgage with HSBC, they said they'd lend and did a survey, everything ok.
We did all the legal stuff which took months and went back for the money, they told us the deal had timed out so they had to do it all again.
Nothing had changed at all, but they refused to lend second time round. It's really screwed things up as you can imagine, we're now going to other banks, our current house is sold STC and the new owners are waiting to get in.

That's worrying, I've just applied for a mortgage with them. They said it might take 5 weeks for a decision rather than the usual 5 days because they are so busy.

Did you pay the mortgage fee upfront? I haven't paid mine yet, but the application I was doing on the HSBC website said if I don't pay now I may lose the rate if they decide to withdraw it before I pay. I went direct rather than through a broker.

[loafer123]

ATM said:

More people that simply do not understand what is being explained because they simply can't believe a crazy concept which is absolutely standard in banking today.

When you lend 100000 from a bank they do not get that 100000 from somewhere else. They just magic it from nowhere. It does not exist until you lend it.

Is this making any sense yet?

No

You probably think that's crazy. It can't be right.

I went through this too.

I am using words like
from thin air
like magic
It did not exist

Banks just make it up

Thats it

Yes there are some rules as to how much they can make up but basically they just manufacture money from nothing

So back to you and your mortgage. Lets say you lend 300000. Up until the day you borrow this 300000 it did not exist. Then they lend it you and it does exist. Now you are paying 3% interest or 9000 a year in interest. This is basically pure profit for the Bank because they are not lending that money from anyone else. It.did not exist. It is brand new money they have just manufactured from nothing.

As you pay back the money they don't then keep it. They write off the original 300000 so eventually when it is all paid off they then effectively dissappear it. So in the same way they made the money from nothing they then un-make the money back to nothing. So at the end of the loan the bank dont have the 300000. They have nothing except all the interest you paid them over the years.

But remember they don't need to keep it because if people want to borrow more they can just make more.

Have I said enough.

Have I explained this bizarre, random, illogical practice which has been going on in banks for years and none of us seem to know about it.

Money doesn't grow on trees. It grows in banks. Well they just make it from nothing.

This is simply not true.

Let me pose a question or two to you.

If it is true, why don’t they create more money?

If it is true, why do banks lend each other money?

If it is true, why bother with taking deposits?

[NickCQ]

ATM said:

This is basically pure profit for the Bank because they are not lending that money from anyone else. It.did not exist. It is brand new money they have just manufactured from nothing.

You are confusing the system-wide impact of banking (which is money creation) and the position of any individual bank.

Please go and look at the financial statements of a bank (any bank) and you will see the composition of their liabilities and the costs of them.
Source: I used to be a board director of an EU deposit-taking bank and I can assure you we didn't magic money out of nowhere.

[67Dino]

Here’s an analogy...

Imagine you run a little harbour where people moor their boats. You realise that most of the time the boats aren’t being used, so you offer to the owners to rent them out to people who don’t have boats. This turns out to be both popular and lucrative, and soon you are even paying people a little to come and moor their boats, because you can make more money then renting them.

Then along comes someone on PH and says: “That’s a racket, you’re just magicking up boats. Unless you own loads of boats, you can’t possibly be renting them out...”

[NickCQ]

67Dino said:

Here’s an analogy...

Imagine you run a little harbour where people moor their boats. You realise that most of the time the boats aren’t being used, so you offer to the owners to rent them out to people who don’t have boats. This turns out to be both popular and lucrative, and soon you are even paying people a little to come and moor their boats, because you can make more money then renting them.

Then along comes someone on PH and says: “That’s a racket, you’re just magicking up boats. Unless you own loads of boats, you can’t possibly be renting them out...”

I don't see the parallel... the supply of boats is fixed in your example (although the velocity of circulation and utilisation rate has increased). Presumably you would also compensate the boat owners for borrowing them.

[Evoluzione]

AlexC1981 said:

Evoluzione said:

Our mortgage broker found us a mortgage with HSBC, they said they'd lend and did a survey, everything ok.
We did all the legal stuff which took months and went back for the money, they told us the deal had timed out so they had to do it all again.
Nothing had changed at all, but they refused to lend second time round. It's really screwed things up as you can imagine, we're now going to other banks, our current house is sold STC and the new owners are waiting to get in.

That's worrying, I've just applied for a mortgage with them. They said it might take 5 weeks for a decision rather than the usual 5 days because they are so busy.

Did you pay the mortgage fee upfront? I haven't paid mine yet, but the application I was doing on the HSBC website said if I don't pay now I may lose the rate if they decide to withdraw it before I pay. I went direct rather than through a broker.

We paid the broker. I was encouraged to write after reading a couple of other posts earlier in the thread (don't know if you read them). The whole thing has been very stressful, it's been going on since March and we still don't know if we've secured a home. I hope you have more success!

[ATM]

NickCQ said:

ATM said:

This is basically pure profit for the Bank because they are not lending that money from anyone else. It.did not exist. It is brand new money they have just manufactured from nothing.

You are confusing the system-wide impact of banking (which is money creation) and the position of any individual bank.

Please go and look at the financial statements of a bank (any bank) and you will see the composition of their liabilities and the costs of them.
Source: I used to be a board director of an EU deposit-taking bank and I can assure you we didn't magic money out of nowhere.

Quote from Bank of England with link below -

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.

This also means as you pay off the loan, the electronic money your bank created is ‘deleted’ – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.

https://www.bankofengland.co.uk/knowledgebank/how-...

[DanL]

Isn’t that article just saying that the majority of money isn’t in the form of physical notes, etc? I.e. if everyone wanted to withdraw their money at the same time, there simply isn’t enough cash in circulation to cover this?

I work in banking software - we don’t have a magical “create money” feature in our lending module. Money moves from one account to another, and has to balance.

What’s been described sounds like QE to me, and I was under the impression that only the BoE did that?

I’d have thought that the opening paragraph was important too: “Money is more than banknotes and coins. If you have a bank account, you can use what’s in it to buy things, typically with a debit card. Because you can buy things with your bank account, we think of this as money even though it’s not cash.”

[loafer123]

Yes, the deposits held are in an account, and that money is the lent out to others.

In so far as the depositor can withdraw their money at the same time as the loan is still out there, you could think that money has been created, but in reality what happens is that the bank replaces that money with more deposits by increasing their interest rate, or by borrowing from other banks or, in extremis, the Bank of England.

Clearly this all went horribly wrong with Northern Rock, which is why the regulatory capital, which is the cash reserve the banks have to hold, has been made larger, to make that much less likely.

[AlexC1981]

Evoluzione said:

We paid the broker. I was encouraged to write after reading a couple of other posts earlier in the thread (don't know if you read them). The whole thing has been very stressful, it's been going on since March and we still don't know if we've secured a home. I hope you have more success!

Thanks, fingers crossed mine doesn't take long as it will cost me nearly £12K in stamp duty if it goes past 31st March. I wonder if I should have gone with someone with a higher rate, but able to process a bit quicker.

It is stressful, the morning after I did the application I woke up to find I had broken out with spots

[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

Granting the loan creates an asset and an offsetting liability for the bank, yes (a liability that they pay interest on).

However - if you want to actually do anything with the proceeds of that loan (ie spend it) then the bank’s liability reduces and it must commensurately reduce assets to keep its balance sheet in balance.