Labour & banks; splitting won’t fix capacity.

(4 Posts)
Isitmebut Fri 17-Jan-14 10:06:21

Is the bank market “broken”, or coping with much smaller capacity and trying to revert back to more prudent times?

The short view here is that thanks to the financial/economic recession here, when many foreign banks/lenders left our shores, we saw numerous domestic bank and building society mergers AND then the collapse of the UK mortgage securitisation market that pre 2007 accounted for around 50% of all UK mortgages - UK BANKING CAPACITY was seriously damaged.

On top of that, UK banks had the E.U. and UK politicians DEMANDING that they shrink their size/balance sheets/lending, PLUS the regulators finally woke up and through classic over reaction, RESTRICTED lending further by insisting banks held more capital, for loans they did not want to make, as being told to shrink. The time for more bank capital, was when bank lending ratios went up from the mid 30’s back in 1997, to the 40’s by September 2007, not when the buggers NEEDED to shrink their activities. D’uh.

Furthermore, having had politicians and ‘the people’ chastise the banks for lending too much when, in theory, the global boom and lower interest rates meant that there was less far risk, the banks were being asked to repeat the process in a far riskier market, during the worst recession in 80-years, with threats of double and triple dips.

There IS STILL a broken financial market, or two, the interbank market is not fully functional to 2007 levels and the previously safe mortgage securitization market, that increased lending capacity by safely allowed banks to get mortgages ‘off balance sheet’ – but I’m not sure what big government can do about that.

New lenders are ALREADY emerging to help lending capacity, lenders coming out of a recession are more confident; splitting existing banks which will then RAISE their costs of reserves/lending will do NOTHING, other than put interest rates up AND put off the new lenders who will wonder what new South American market fix ‘initiatives’ the Labour government from 2015, will have.

niceguy2 Fri 17-Jan-14 10:52:49

Labour's new policy of 'breaking up the banks' seems to be totally missing the point.

It wasn't the retail banking sector that plunged us into recession. It was the casino gambling investment side.

So splitting the retail banking sector does nothing in my opinion except give Labour another chance to play the 'nasty banker' card just like all the main parties are letting those 'nasty immigrants' take the blame for our woes.

Isitmebut Fri 17-Jan-14 11:22:51

Niceguy2….I have to agree with you on every point, bar one, the main role of Investment Banks in ‘causing’ the crash – remember Northern Rock, the first bank to go under, was not an investment bank – so highly paid bankers, who had been doing the same thing for the previous 30-years, became the convenient whipping post of governments/regulators that had been asleep to the dangers.

However, your opinion is universally accepted, but I can see we have some bright people on here, so I’m going to throw a more historically accurate cause ‘out there’, which suggests that a financial crash was not inevitable; take from this what you will.

Generally speaking, the late 2007 financial crash was caused by most western banks massively growing their balance sheets to unsustainable levels by lending to businesses and us , especially in commercial and retail property loans – and it was these £billions of everyday type loans being written of quarter after quarter, that resulted in those huge quarterly losses until relatively recently.

The TRIGGER of the crash, was the U.S. Sub Prime Loan crisis, that provide millions of poorer people with mortgages, a facility that had been around since the 1930’s, but with successive U.S. Presidents looking for votes, passed legislation after legislation to ENCOURAGE riskier loans – and the banks seeing lower interest rates/risk, loaned hand over fist, as these loans were always SECURITIZED (packaged up and sold to investors) – a lending model very similar to the Halifax and Northern Rock mortgage loans, that believe it or not, were less risky.

The pooh hit the fan when investors realised that the mortgage ‘packages’ they owned, put together by high street banks/brokers, had a much higher default rate than HISTORICALLY expected – but as those investors had the ‘right’ to put them back to the bank if defaults reached certain levels – all of a sudden it was POSSIBLE the $trillions of mortgage loans could come back on the investment and large retail banks balance sheets.

The RESULT, was no one could trust U.S. banks, especially OTHER global banks, so global banking contagion became a real possibility, so the $trillions a day GLOBAL inter-bank market dried up, banks then had huge trouble funding their daily activity = a financial recession = an economic recession.

So THE BROKEN MARKET was the interbank market, NOT the banks themselves scrambling for recycled short term funds that had NEVER dried up since the Great Depression in the late 1920’s, and if governments had moved faster to UNBLOCK the interbank market, arguably we would not have had the financial crisis, leading to the biggest recession in 80-years.

YES the growth in finance & debt had reached a critical stage, but arguably IF spotted sooner, there was no reason that through increased reverse requirement etc, the credit growth/debt boom, couldn’t have been deflated over time, rather than a credit crash.

If any questions on my views, I’d be happy to try answer them, but I understand that it is easier to have a cup of tea and go along with the crowd on this subject.lol

Isitmebut Fri 17-Jan-14 14:11:36

Apparently Lloyds would be broken up under Labour, as it is now judged by them to be too large in market share etc.

And that would be the same Lloyds that had the Halifax etc stuffed down their boxers under Brown, INCREASING their market share, who got into trouble, and we 'the taxpayer' now owns - so that will help the share price. Marvellous.

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