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ASI Report - ''UK Banking System an Accident Waiting to Happen''

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fru-gal   
2 minutes ago, Sour Mash said:

This is what I'm thinking - have posted as much a few weeks ago - but you really do need to have your own property to begin with in order to do a lot of the things which will help insulate you from 'the system' and effects of it degrading or collapsing.

What would be really useful is a large garden or piece of attached land that could be used to grow useful food.  That of course pushes the price of a regular house even higher.

I do wonder about the possibilities of taking on a piece of agricultural type land and building a small dwelling for use in maintaining the land.  I'm pretty sure there's some sort of legislation out there that allows you to do this.

Or just buy somewhere very cheap with some land/gareden and opt out of the system. As Durhamborn has shown, you can live very well if you opt out of demand and often being somewhere far away from big cities can be good for mental health - all that (free) nature etc. We have been brainwashed into thinking that in order to be happy we need all this materialistic rubbish and it is never enough. If people stop wanting things the whole system collapses so they need to keep pushing people to buy things or target kids to nag their parents for the latest this or that or make people feel inadequate if they don't have the latest gadgets. It's all very manipulative and sinister. 

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crouch   
26 minutes ago, fru-gal said:

If cash goes, people will barter, both services or goods. Probably the best thing to do right now is invest in things that take you out of the system as much as possible, like growing your own food, producing your own electricity/energy etc, making your home as energy efficient as possible, use old style systems etc. Nobody needs a 30" TV, the latest i-phone etc. Unless they start burning books, I imagine the future will revert to the simplicity of the past in many ways.

 

I think a barter system is very unlikely. If you read David Graeber's book:"Debt: the first 5000 years" you find that anthropologically there was much less barter and much more of "running up a tab", that is credit. Hunter gatherer groups knew one another and it was only in respect of dealing with people outside their own group that they had to barter; intra group was much more about simply running up credit.

Now it may be perfectly true that if you deal mostly with strangers then barter may be much more important but I think these things are much more difficult than they appear. 

As far as reverting to past simplicity how many people could actually do this; if you showed most kids a pea pod they probably wouldn't know what it was? peas come from the supermarket and that is that. 

Think Terminator rather than barter with like minded groups and you won't be far wrong.

 

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NuBrit   

The quoted article doesn't make any sense.

Before the crisis, RBS was a 50:1 leveraged monster that was up to its oxters in sub prime MBS's and had a £2.2T balance sheet. Today, the balance sheet is under £800B, it is completely out of sub-prime and has much improved leverage ratios.

To say that the UK banking system is in a worse state than in 2007 is just demonstrably wrong.

Edited by NuBrit

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spyguy   
9 minutes ago, NuBrit said:

The quoted article doesn't make any sense.

Before the crisis, RBS was a 50:1 leveraged monster that was up to its oxters in sub prime MBS's and had a £2.2T balance sheet. Today, the balance sheet is under £800B, it is completely out of sub-prime and has much improved leverage ratios.

To say that the UK banking system is in a worse state than in 2007 is just demonstrably wrong.

No, I don think the ASI is that wrong.

2007 banks had huge balance sheet backed up with v. overpriced equity.

2017 banks have much smaller balance sheets but their equity is junk.

Yes they have shrunk but they have not shrunk enough. The ASI point on market valaution is v. important - markets dont trust banks asset. There's a very discount in place.

 

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Ah-so   
4 hours ago, crouch said:

The central bank is the lender  of last resort; they supply cash to pay off all the depositors who want their money there and then; when things have quietened down they would look to see whether the bank is actually insolvent or not and take it form there. If the bank is not insolvent then the CB would continue to supply support on some basis; if it is then the bank would go through a normal insolvency procedure with the CB being one of the creditors.

It really doesn't work line this. The central bank will act as the lender of last resort but a condition was that the bank was still solvent from a balance sheet perspective. It would pay out unlimited amounts belie deciding whether something was solvent. The Bank did not believe that Northern Rock was solvent so it did not get the money. 

Also, emergent borrowings from the Discount Window Facility need to be backed by decent collateral, which have high haircuts applied. Most banks have very high ore-placed collateral at this emergency facility. Failing this, the bank will be put through a ball-in and funds will be drawn from the FSCS if there is a shortfall. 

You may believe that this does not always apply and that political fudges are put in place, but this is what the rules are. 

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Ah-so   
32 minutes ago, spyguy said:

No, I don think the ASI is that wrong.

2007 banks had huge balance sheet backed up with v. overpriced equity.

2017 banks have much smaller balance sheets but their equity is junk.

Yes they have shrunk but they have not shrunk enough. The ASI point on market valaution is v. important - markets dont trust banks asset. There's a very discount in place.

 

Their equity is clearly much better quality than in 2007. Back then, all kinds of crap could be counted towards the capital base. 

Leverage is also far lower. 

I think that the AIS raises some fair criticisms, but this is not one of them. 

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2 hours ago, fru-gal said:

 Nobody needs a 30" TV, the latest i-phone etc. Unless they start burning books, I imagine the future will revert to the simplicity of the past in many ways.

 

30" TV ?? they still make TVs that small ?.

Edited by goldbug9999

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Option5   
Just now, goldbug9999 said:

30" TV ?? they sill make TVs that small ?.

Of course they do, how else would you fit one into a new build flat !!

Rumour has it they do colour TV sets too.................

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crouch   
37 minutes ago, Ah-so said:

It really doesn't work line this. The central bank will act as the lender of last resort but a condition was that the bank was still solvent from a balance sheet perspective. It would pay out unlimited amounts belie deciding whether something was solvent. The Bank did not believe that Northern Rock was solvent so it did not get the money. 

Also, emergent borrowings from the Discount Window Facility need to be backed by decent collateral, which have high haircuts applied. Most banks have very high ore-placed collateral at this emergency facility. Failing this, the bank will be put through a ball-in and funds will be drawn from the FSCS if there is a shortfall. 

You may believe that this does not always apply and that political fudges are put in place, but this is what the rules are. 

I don't think you actually meant that "It really doesn't work like that"; what you actually meant was "It's not meant to work like that" which is rather different.

The solvency requirement was backed by the IMF in post crash studies but one really has to question this in the real world. Solvency is a matter of opinion and very difficult to judge in the circumstances in which a judgement is required. If there is a run on Barclays Bank do you really think that anyone will judge BB to be solvent and therefore not needing funds under those circumstances? You may not be able to judge its solvency within the window required or in fact anything like it so do we let Barclay's go and possibly all those other banks that would be affected by contagion? If I were a government minister I know what I would do: give them the money and we'll sort it out later.

As far as Northern Rock is concerned the BOE did hold to the purist line but was criticized subsequently for doing so. If it were Barclays or HSBC would it hold back from supplying funds? Somehow I don't think so.

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NuBrit   
32 minutes ago, Ah-so said:

Their equity is clearly much better quality than in 2007. Back then, all kinds of crap could be counted towards the capital base. 

Leverage is also far lower. 

I think that the AIS raises some fair criticisms, but this is not one of them. 

Yes exactly.

Before Basel 3 a bank could use anything for core capital including junk rated sovereign or corporate credits. That was the sort of behaviour that led to potential systematic risk, especially with European banks that were heavy in sovereign PIG debt that if marked down could bring down the greater financial system.

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winkie   
5 hours ago, fru-gal said:

If cash goes, people will barter, both services or goods. Probably the best thing to do right now is invest in things that take you out of the system as much as possible, like growing your own food, producing your own electricity/energy etc, making your home as energy efficient as possible, use old style systems etc. Nobody needs a 30" TV, the latest i-phone etc. Unless they start burning books, I imagine the future will revert to the simplicity of the past in many ways.

 

No word of a lie, they were selling generators in lidl a few weeks ago, what do they know that we don't.;)

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winkie   
5 hours ago, Sour Mash said:

This is what I'm thinking - have posted as much a few weeks ago - but you really do need to have your own property to begin with in order to do a lot of the things which will help insulate you from 'the system' and effects of it degrading or collapsing.

What would be really useful is a large garden or piece of attached land that could be used to grow useful food.  That of course pushes the price of a regular house even higher.

I do wonder about the possibilities of taking on a piece of agricultural type land and building a small dwelling for use in maintaining the land.  I'm pretty sure there's some sort of legislation out there that allows you to do this.

....or go back to the time when they had 'common land' for the community to grow and graze their animals on, common land that was there for all to use until someone decided to confiscate it as their own.....then had the cheek to charge rent to use it.;)

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2 minutes ago, winkie said:

....or go back to the time when they had 'common land' for the community to grow and graze their animals on, common land that was there for all to use until someone decided to confiscate it as their own.....then had the cheek to charge rent to use it.;)

Now idiots pay to park on it.

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3 hours ago, goldbug9999 said:

30" TV ?? they still make TVs that small ?.

Haha, we have a 30inch by in our lounge. Our friends were saying it's tiny and should be used in our bedroom wtf

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winkie   

Nothing wrong with box TVs.......can still get a good full colour and clear picture and what you watch is not part of some data statistics somewhere that can be put to good use.....handy also for a useful shelf, vase of flowers, or something.;)

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Ah-so   
4 hours ago, crouch said:

I don't think you actually meant that "It really doesn't work like that"; what you actually meant was "It's not meant to work like that" which is rather different.

The solvency requirement was backed by the IMF in post crash studies but one really has to question this in the real world. Solvency is a matter of opinion and very difficult to judge in the circumstances in which a judgement is required. If there is a run on Barclays Bank do you really think that anyone will judge BB to be solvent and therefore not needing funds under those circumstances? You may not be able to judge its solvency within the window required or in fact anything like it so do we let Barclay's go and possibly all those other banks that would be affected by contagion? If I were a government minister I know what I would do: give them the money and we'll sort it out later.

As far as Northern Rock is concerned the BOE did hold to the purist line but was criticized subsequently for doing so. If it were Barclays or HSBC would it hold back from supplying funds? Somehow I don't think so.

Running with Barclays as an example, in a live scenario, if we assume that it was agreed that it was no longer likely to remain a going concern, the BOE would take over very quickly and effect a ball-in of its loss absorbing capital, sufficient to recapitalise it. 

There is now relatively limited deposits that would have to be funded - anything that is considered wholesale and less than 30 days has to be held in cash or govt securities. To entirely deplete the buffers, the withdrawals would need to be enormous. After that there would be a considerable DWF facility to call upon.

The chances of needing to call on an additional BOE resource is very small, but I do suspect that the money would be made available if necessary if the alternative was a total collapse of Barclays. 

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1 hour ago, Social Justice League said:

People stop consuming and the whole system falls down a large hole

 

This is what needs to happen.

I'm in the US at the mo, I agree..... but that ain't gonna happen....definite, obvious inflation here over last 2-3years...conditioning here is consume, consume.....neighbourhood eateries always busy during the week....it's a chore to shop and cook healthily (if that in fact exists here), portion sizes are larger, so it apparently feels economically easier to eat out....plus more bang for their buck. (difficult for me to accept as a beans on toast man) Moderate neighbourhoods have a big truck, sports car, rv or boat in the drive.....perhaps teh US recovery is real, based on the fact they let their criminal bankers go to the wall, or did they? Pushing more debt, It's difficult to see past what is actually on show. Feels like London just on a larger scale, more haves and have nots pushed out to the ghettos. Kind of depressing the quality of life compared to the UK.....although, just as many phone zombies with their head up their asses.....

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winkie   

Hardly anyone holds a phone in their hands in public in the streets here......perhaps because they prefer face to face contact....or could it be lack of a mobile signal?......they souldn't worry, rather it stayed like that.;)

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crouch   
25 minutes ago, Ah-so said:

Running with Barclays as an example, in a live scenario, if we assume that it was agreed that it was no longer likely to remain a going concern, the BOE would take over very quickly and effect a ball-in of its loss absorbing capital, sufficient to recapitalise it. 

There is now relatively limited deposits that would have to be funded - anything that is considered wholesale and less than 30 days has to be held in cash or govt securities. To entirely deplete the buffers, the withdrawals would need to be enormous. After that there would be a considerable DWF facility to call upon.

The chances of needing to call on an additional BOE resource is very small, but I do suspect that the money would be made available if necessary if the alternative was a total collapse of Barclays. 

It is the "assumption that it was no longer likely to remain a going concern" that is a major issue and begs a very large question; with a small concern like NR it not such a problem. All these large banks now have derivative books amounting to huge sums and if you factor in that the legal wrangling over these will take place over years (See BCCI as an example) calculating whether a declaration of insolvency is such a good idea is more problematic than you may think. Putting it another way the provision of a few billion in cash now may be by far the better alternative; it may violate the principle of moral hazard but is a more practical solution. This is what the BOE chose with NR and it was probably right.

Incidentally, Sir John Vickers - the designer of the new regulatory regime for banks - gave an interview in the last couple of days; in his opinion, and despite what many say, he does not believe that we are more than 50% down the road to resolving this issue.

 

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Ah-so   
2 hours ago, crouch said:

It is the "assumption that it was no longer likely to remain a going concern" that is a major issue and begs a very large question; with a small concern like NR it not such a problem. All these large banks now have derivative books amounting to huge sums and if you factor in that the legal wrangling over these will take place over years (See BCCI as an example) calculating whether a declaration of insolvency is such a good idea is more problematic than you may think. Putting it another way the provision of a few billion in cash now may be by far the better alternative; it may violate the principle of moral hazard but is a more practical solution. This is what the BOE chose with NR and it was probably right.

Incidentally, Sir John Vickers - the designer of the new regulatory regime for banks - gave an interview in the last couple of days; in his opinion, and despite what many say, he does not believe that we are more than 50% down the road to resolving this issue.

 

You are right, it will be a grey zone when a large bank line Barclays is pushed into resolution, but remember it will not be a BCCI or Lehman style insolvency, but a bail-in. 

Also, the derivative contacts would not be broken. This was one of the major things that the authorities had to sort out and now resolution is not a point at which financial contracts world terminate:

http://www.bankofengland.co.uk/pra/Pages/publications/ps/2015/ps2515.aspx

There are still bits of the TBTF problem to sort out, but I think we are over the 50% that Vickers suggested.

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9 hours ago, NuBrit said:

Yes exactly.

Before Basel 3 a bank could use anything for core capital including junk rated sovereign or corporate credits. That was the sort of behaviour that led to potential systematic risk, especially with European banks that were heavy in sovereign PIG debt that if marked down could bring down the greater financial system.

This is fundamentally wrong.

Capital is on the credit side of the balance sheet. The things you list are all balance sheet assets.

Obviously if the bank holds assets on its balance sheet at elevated values then in the fullness of time we might argue that it did not have the equity it claimed to have.

If I am Busta with a mortgage of £75k in on a nasty little terraced house somewhere in Norfolk I can reconstruct my financial position as if I was BustaCorp (as the man from Del Monte is to Del Monte itself, if you will, but less with the "Yes" and more with the "Have I missed the flight to Malta?").

BustaCorp has a balance sheet asset (the house) and balance sheet liabilities (the mortgage, any money invested when the house was purchased - i.e. the deposit). If we update the accounts to reflect that the house has gained value then the asset side gets bigger. Accounts must balance so the other side of BustaCorp's balance sheet also grows. We can create a revaluation reserve; this reflects the fact that BustaCorp is owned by Busta so if the company makes money via HPI then those gains belong to its shareholders (or rather to its shareholder - Busta).

If the nasty little terrace was bought at £100k with a £25k deposit then the balance sheet looked like this

Asset side

£100k House

Credit side

£75k Money owed to mortgage lender

£25k Cash invested by Busta (BustaCorp equity)

If the house doubles in value it looks like this

Asset side

£200k House

Credit side

£75k Money owed to mortgage lender (we're interest only, natch)

£25 Cash invested by Busta

£100k Revaulation reserve (more BustaCorp equity)

Crucially BANKS' BALANCE SHEETS LOOK NOTHING LIKE THIS BECAUSE THEY ARE BANKS NOT BTL MUPPETS.

The assets on a bank balance sheet are loans and the loans don't change value when the house prices rise. The value of the loans can never go up; they can go down if the evidence stacks up that the borrower will not be able to pay back the loan.

A bank may with the benefit of hindsight be seen to have been taking a rosy view of its equity today if it books profits today (because the loan is performing today) but later discovers that the borrower cannot pay back the loan and that the security cannot be sold off at a price that cover the loan.

It's not that the equity is "crap", it's just that the future cannot be known and large unanticipated losses may arrive in the future.

The point and purpose of limiting bank leverage is to ensure that when those losses arrive the cash invested by the bank's owners (the shareholders) is enough to cover the losses and ensure that the bank's assets (loans which will be paid back) cover its liabilities to third party creditors (people who lent money to the bank so that it could lend the money on to others).

 

 

Edited by Bland Unsight

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thewig   
14 hours ago, houseface2000 said:

Haha, we have a 30inch by in our lounge. Our friends were saying it's tiny and should be used in our bedroom wtf

These people are not your friends.

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