Wednesday, Sep 09, 2009
Regulatory Capital
Guardian: Dirty tricks by porn industry
This article is about sharp practice by the porn industry, but has an interesting snippet at the end. "New capital requirements mean that it costs a building society almost 10 times as much in regulatory capital terms to offer a 90% home loan rather than one set at 60%." I haven't read all that much about what the new capital requirements actually are, but if that is the case, banks can make 10x60% loans -or- 1x90% loan, which would certainly explain the absence of high LTVs and also means that there is a profit motive for banks to push home prices down given av.deposit of 30K to around 100K, offset by forcing up their losses on repossessed existing loans. That the banks (our unloved masters)profit from dramatically lower house prices seems to me that the gov. have silently killed housing.
5 Comments
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1. Ra02127a said...
If you want further information regarding this, read up on the basel II agreement. As a result of this, the banks now have to put a greater amount of capital aside for higher risk loans.
In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.
I am 100% behind this.
2. stillthinking said...
This also slightly reminds of easy credit and the base rate around 2004 onwards although I read this from a US perspective. Essentially the argument was that self-certified loans and sharp practice e.g. Abbey staff tricking their own systems into approval was in essence the functional equivalent of a -lower- base rate than actually existed. Which we see in reverse now as banks don't want to lend, essentially the functional base rate is higher than 0.5%.
Coming back to the article, I often also read that the government is desperate to reflate the housing market preferably before the next election. I am not so sure this is the case. In particular, they have yet to make a single announcement that could give succour to anybody in negative equity, although to be sure they have attempted to forestall the disruption of mass repossession.
Anyway, if the gov. was genuinely keen on reflating or even partly reflating the housing bubble, they would not have introduced these new capital requirements, accordingly they are not so inclined and must keep shtum on the matter, as they are going to leave bubble buyers to their fate.
3. uncle tom said...
When I first started in business, long before fax machines and mobile phones appeared on the scene, and when the concept of next day delivery of supplies was in its infancy, I ran an express courier service for a number of printers and publishers - people who were always on tight deadlines, and always in need of urgent supplies.
Mostly the trade was entirely respectable, but one day I was asked to make a delivery to the late George Harrison-Marks at his house in Stamford Hill.
Through him I got to know most of the capital's exotic publishers - entrusted to deliver not only proofs and plates, but also to collect cash - sometimes by the suitcase. I was also often asked to find props for photo shoots - which could be quite interesting at times..
It was a crazy world full of crazy people - never good at paying their bills, but never dull either..
..fond memories!
4. inbreda said...
...but of course I was very...very drunk.
5. uncle tom said...
"...but of course I was very...very drunk"
:)