How long before banks accused of running a cartel?

[Horse_Apple]

Woolwich, yesterday drew their line in the sand over interest rates, effectively saying that it doesn’t matter whether BoE drops their rate tomorrow, Barclays’ rate floor remains at 3%.

Having had a look around it does appear that 3% is pretty much the floor in the UK now.

Obviously, there has been a fundamental change in the money markets which means that no bank can write as much mortgage business as it used to be able to do, due to the fact that they cannot package them up and sell them on, freeing up their balance sheet to offer more mortgages.

However, for those banks which can raise capital and are not solely reliant on savings accounts, having a floor of 3% is hugely lucrative.

They all do seem to have come to the same conclusion as the same time and while it all is probably very innocent, it won’t be long before the media picks this up and runs with it.

What is actually needed is new banks to create proper competition and bring to the public competitive mortgage rates.

How long before Virgin appear back on the mortgage scene or some other entity?

[randomman]

I reckon its only 1 sentence till they are accused of running a cartel...

The banks are running a cartel

[NoelWatson]

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

[scotal]

Horse_Apple said:

How long before Virgin appear back on the mortgage scene or some other entity?

I'm told that little project has been underway for some time (pretty much since they pulled out of the one account deal)

Have you a source for this floor on Woolwich?

[Horse_Apple]

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

[c7xlg]

ummm... my tracker HSBC mortgage is running at 2.75% at the moment and will drop lower if BoE lower rates today.

So not all banks are doing it. However HSBC 'new' mortgages will only offer you tracker if you have 40% deposit. For a 10% deposit you are looking at 6+% instead.

[NoelWatson]

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

The 200bps - are you basing that off base rate being 1%? Can the banks borrow at that (I've lost track of the various Gunment "inititatives"), or are they borrowing at LIBOR?

[Horse_Apple]

NoelWatson said:

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

The 200bps - are you basing that off base rate being 1%? Can the banks borrow at that (I've lost track of the various Gunment "inititatives"), or are they borrowing at LIBOR?

It was a rough estimate at the average margin looking at current offerings.

1m Libor is around 60bp currently?

I reckon that gives about a 200bp margin against the average retail rate on mortgages which is comfortably above 300.

[scotal]

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

The 200bps - are you basing that off base rate being 1%? Can the banks borrow at that (I've lost track of the various Gunment "inititatives"), or are they borrowing at LIBOR?

It was a rough estimate at the average margin looking at current offerings.

1m Libor is around 60bp currently?

I reckon that gives about a 200bp margin against the average retail rate on mortgages which is comfortably above 300.

Where did you see this floor mentioned HA?

[NoelWatson]

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

The 200bps - are you basing that off base rate being 1%? Can the banks borrow at that (I've lost track of the various Gunment "inititatives"), or are they borrowing at LIBOR?

It was a rough estimate at the average margin looking at current offerings.

1m Libor is around 60bp currently?

I reckon that gives about a 200bp margin against the average retail rate on mortgages which is comfortably above 300.

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

[scotal]

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

[NoelWatson]

scotal said:

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

I see this at 2.02 - what about you?

[scotal]

NoelWatson said:

scotal said:

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

I see this at 2.02 - what about you?

I'll happily take your word for that.

[bobbylondonuk]

Since the mortgage securities business is now almost Zero...the effective lending capacity of banks has fallen. Lending capacity must be increased. That is the only way out.

I read somewhere of IMX: International Money exchanges. Its a brilliant idea where commercial banks from all over the world lend money to the exchange and borrow money from the exchange for a fee plus intrest. So one common lender and deposit holder for banks. The members of the exchange will be vetted by the government running the exchange. eg. £ IMX in London, $ IMX in NYC, Yen IMX in tokyo, euro IMX in wherever they decide etc.. This then increases lending capacity in any part of the world where demand is higher. It also helps governments to lend money to control intrest rates etc globally. The fees recieved by the exchange is then used as an insurance premium to cover the risk of default by any member bank.

but for this to happen..I feel commercial banks (deposits and lending) must be seperate from investment banking.

unfortunately economists and strategic thinkers are not valued ...only risk taking bankers! so ideas like this will never take off.

[Iain328]

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

and/or just about staying ahead of inflation.

[NoelWatson]

bobbylondonuk said:

Since the mortgage securities business is now almost Zero...the effective lending capacity of banks has fallen. Lending capacity must be increased. That is the only way out.

I read somewhere of IMX: International Money exchanges. Its a brilliant idea where commercial banks from all over the world lend money to the exchange and borrow money from the exchange for a fee plus intrest. So one common lender and deposit holder for banks. The members of the exchange will be vetted by the government running the exchange. eg. £ IMX in London, $ IMX in NYC, Yen IMX in tokyo, euro IMX in wherever they decide etc.. This then increases lending capacity in any part of the world where demand is higher. It also helps governments to lend money to control intrest rates etc globally. The fees recieved by the exchange is then used as an insurance premium to cover the risk of default by any member bank.

but for this to happen..I feel commercial banks (deposits and lending) must be seperate from investment banking.

unfortunately economists and strategic thinkers are not valued ...only risk taking bankers! so ideas like this will never take off.

Are you saying that people with 40% deposits are unable to get a mortgage?

[Horse_Apple]

scotal said:

NoelWatson said:

scotal said:

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

I see this at 2.02 - what about you?

I'll happily take your word for that.

Solves that problem then

Although, I'm seeing 3M at 127bp

Edited by Horse_Apple on Thursday 5th March 11:42

[NoelWatson]

Horse_Apple said:

scotal said:

NoelWatson said:

scotal said:

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

I see this at 2.02 - what about you?

I'll happily take your word for that.

Solves that problem then

Although, I'm seeing 3M at 127bp

Edited by Horse_Apple on Thursday 5th March 11:42

I think you are looking at USD. The GBP number is 199

[Horse_Apple]

scotal said:

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

NoelWatson said:

Horse_Apple said:

having a floor of 3% is hugely lucrative.

Are they not just being more realistic in pricing risk?

That's an arguement.

However, 200bp is a pretty high premium.

The most suitable method of managing risk is through the margin, increasing charges and funding play a part but are ultimately more linked to increasing revenue.

While increasing revenue does work in some capacity to offset risk, it is a weak tool compared to margin policy.

Not sure what the average margin rate is now but I suspect that it is approaching 20%, up from what was probably nearer to 5% 18 months ago.

A four fold increase in margin on an asset such as property, even in its current state of decline, is completely sufficient to mitigate all but the most anomalous risk, which can never truly be eliminated.

So, this leads me to the conclusion that the funding and comm. increases that we’ve seen over the last 6 months are not related to risk control but more to do with revenue generation. Arguably to probably fill the gaps of past losses, but only competition will prevent these huge premiums from being worked down to fair value going forward.

The 200bps - are you basing that off base rate being 1%? Can the banks borrow at that (I've lost track of the various Gunment "inititatives"), or are they borrowing at LIBOR?

It was a rough estimate at the average margin looking at current offerings.

1m Libor is around 60bp currently?

I reckon that gives about a 200bp margin against the average retail rate on mortgages which is comfortably above 300.

Where did you see this floor mentioned HA?

It's just the minimum, give or take a little, that you see out in the general market place.

[scotal]

Horse_Apple said:

scotal said:

NoelWatson said:

scotal said:

NoelWatson said:

Shouldn't we be using LIBOR of a longer duration - isn't think what contributed to the Crock going under, mismatched durations?

LIBOR backed mortgages teneded to use the 3 month rate.
I believe the lenders are meant to also use this for pricing.

I see this at 2.02 - what about you?

I'll happily take your word for that.

Solves that problem then

Although, I'm seeing 3M at 127bp

Edited by Horse_Apple on Thursday 5th March 11:42

Sterling?