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Timm

Possible Reason Banks Are Hoarding Funds?

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Whilst trying to get some information about Basel II Internal Ratings Based approach, I came across this graph from Fitch:

Now I am very far from being an expert, but this seems to say that if banks are using the IRB system, then not only do they need to hold more capital as the default risk (on residential mortgages they hold) rises, but at only 2.5% default risk, that requirement is more than if they had stuck with the Standardised approach. Is this right? If so, it might explain why they are hoarding funds: they have to...

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Whilst trying to get some information about Basel II Internal Ratings Based approach, I came across this graph from Fitch:

Now I am very far from being an expert, but this seems to say that if banks are using the IRB system, then not only do they need to hold more capital as the default risk (on residential mortgages they hold) rises, but at only 2.5% default risk, that requirement is more than if they had stuck with the Standardised approach. Is this right? If so, it might explain why they are hoarding funds: they have to...

Is this on mortgages u have lent on or mortgage RMBS that you hold?

Either way, yes, this is definitely one reason to hold more capital at the moment.

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Is this on mortgages u have lent on or mortgage RMBS that you hold?

RMBS portfolio I think. It's from this report, page 15 (for those not registered, it's free to do so).

Either way, yes, this is definitely one reason to hold more capital at the moment.

So in this respect, they really don't have a choice? I'm getting the impression that the bleeting of our glorious leaders that banks should lend more, is at least in part, for show.

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Guest happy?

Banks are not hoarding funds - the trolls told us earlier today that house prices are stable ergo there's a full recovery in progress.

Apparently, we're in denial.

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Banks are not hoarding funds - the trolls told us earlier today that house prices are stable ergo there's a full recovery in progress.

Apparently, we're in denial.

Who said that? Banks are definitely hoarding funds just look at the Lloyds results.

If however it is on RMBS portfolios, I'm not sure it would be that significant, I don't know many banks with more than £5bio in RMBS on the balance sheet.

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If I was a bank, I would be hoarding funds.

The money is coming thick and fast, and profits are being made. Market share is not much of a worry, as other banks are also lethargic. Turning on the lending taps appears stupid, when people's debt levels are already high, and defaults are likely.

If you were a bank, what would you do?

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Who said that? Banks are definitely hoarding funds just look at the Lloyds results.

If however it is on RMBS portfolios, I'm not sure it would be that significant, I don't know many banks with more than £5bio in RMBS on the balance sheet.

OK, that's useful.

One of the reasons for me banging on about things I don't really understand recently is trying to understand how much of the hoarding is structural requirements, and how much is discretionary / prudent. The govt spin is that the money is being held back voluntarily, and could erupt at any moment. I'm not sure that is true, but I am sure that it is important.

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