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More On Bank Funding Troubles


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HOLA441

Let's bump this thread with a bit more from Pesto:

Some other nice Pesto quotes on my favourite subject:

"You'll remember the Bank of England's recent warning that the banks need to find £800bn of funding over the coming 30 months to replace taxpayer support that has to be repaid and bonds that are maturing ....

Which presents a pressing problem for the chancellor. Does he roll over £285bn of taxpayer lending to the banks, with the risk that this becomes perceived as a semi-permanent liability and is therefore added to official or unofficial calculations of a national debt that's famously rising too fast?

Or does he stick to the timetable for withdrawing financial support for banks, knowing that this could force banks to massively reduce the amount of credit they provide to businesses and households?"

....and....

"Now the withdrawal of credit on that scale very quickly wouldn't lead to a return to recession - it would probably engender a full scale depression."

The current default plan for the powers-that-be appears to be that the banks should be using the discount window facility that was expanded to covers assets (e.g RMBS) rated in a range A-D at various levels of fees, a signficantly more expensive form of funding than the expiring SLS/CGS schemes.

It looks like the banks dont want to pay market price for their funding so we are now in the next game of chicken between the lending banks and the central banks.

Who's going to chicken out this time?

My hope is that the banks will be told to get their own funding and that net lending will run at £-20bn a month for the next two years and the housing market will... you know the rest. Oh well, I can dream.

VMR.

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HOLA442

Some other nice Pesto quotes on my favourite subject:

"You'll remember the Bank of England's recent warning that the banks need to find £800bn of funding over the coming 30 months to replace taxpayer support that has to be repaid and bonds that are maturing ....

Which presents a pressing problem for the chancellor. Does he roll over £285bn of taxpayer lending to the banks, with the risk that this becomes perceived as a semi-permanent liability and is therefore added to official or unofficial calculations of a national debt that's famously rising too fast?

Or does he stick to the timetable for withdrawing financial support for banks, knowing that this could force banks to massively reduce the amount of credit they provide to businesses and households?"

....and....

"Now the withdrawal of credit on that scale very quickly wouldn't lead to a return to recession - it would probably engender a full scale depression."

The current default plan for the powers-that-be appears to be that the banks should be using the discount window facility that was expanded to covers assets (e.g RMBS) rated in a range A-D at various levels of fees, a signficantly more expensive form of funding than the expiring SLS/CGS schemes.

It looks like the banks dont want to pay market price for their funding so we are now in the next game of chicken between the lending banks and the central banks.

Who's going to chicken out this time?

My hope is that the banks will be told to get their own funding and that net lending will run at £-20bn a month for the next two years and the housing market will... you know the rest. Oh well, I can dream.

VMR.

Do you think it likely that the banks will be able to borrow from other sources.

This seems to be a hole the banks/government will not get out of no matter how fast they dig.

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HOLA443

I seem to remember Cameron saying more than once '' we have to get the banks lending again'' .

Also the govt's big idea is for private enterprise to rescue us all, creating a million :lol: jobs, soonish. Well that requires credit availability ( or slavery ).

Therefore I will not be surprised to see QE and devaluation.

What I would like to know is will QE definately reinflate HPI and how long it may take new QE to create HPI.

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HOLA444

Do you think it likely that the banks will be able to borrow from other sources.

This seems to be a hole the banks/government will not get out of no matter how fast they dig.

If the banks could get money from other sources they would. But they can't. The government naturally wants to terminate the SLS ASAP, but can't because of this.

I think the government will extend, but make the terms for private loans much worse than for commercial loans. That way it can channel the lending to where it is needed most, industry and not the housing market. The terms of the SLS become effectively the new interest rate for modifying economic activity, but can be orientated to more specific sectors.

I think reducing house prices by 20% would be a good thing for the economy. Transactions would increase, more revenue for the government, and of course when people move into new houses they spend money on stuff and builders etc. I think as well there is also a perception in most areas (and reality in some, esp London) that prices haven't really dropped that much at all. So people shouldn't be too annoyed if a 20% or so reduction in prices occurs.

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HOLA445

Box F: DWF loan portfolio haircut ranges

• UK residential mortgages: 25%–50% haircut

• UK consumer loans: 35%–60% haircut

• UK corporate loans: 35%–60% haircut

• UK commercial real estate: 30%–60% haircut

Yep, keep using the DWF, oh yeah and then there's

For example, as described previously the Bank would require

that all loan portfolios (pre-positioned and drawn) contain no

loans that are in arrears and hence would require the

substitution or removal of non-performing loans.

Link to DWF PDF from March 2010

What do these haircuts actually mean? Is it that they can only issue a certain percentage of future loans which are covered by the facility of is it something to do with the valuation of the existing portfolio under the facility?

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HOLA446

If the banks could get money from other sources they would. But they can't. The government naturally wants to terminate the SLS ASAP, but can't because of this.

I think the government will extend, but make the terms for private loans much worse than for commercial loans. That way it can channel the lending to where it is needed most, industry and not the housing market. The terms of the SLS become effectively the new interest rate for modifying economic activity, but can be orientated to more specific sectors.

I think reducing house prices by 20% would be a good thing for the economy. Transactions would increase, more revenue for the government, and of course when people move into new houses they spend money on stuff and builders etc. I think as well there is also a perception in most areas (and reality in some, esp London) that prices haven't really dropped that much at all. So people shouldn't be too annoyed if a 20% or so reduction in prices occurs.

I don't think anyone can argue that high house prices are not drain on the economy. If people can take on smaller mortgages they have more disposable income to spend in the wider economy.

The question is whether the government is taking the longterm view.

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HOLA447

Do you think it likely that the banks will be able to borrow from other sources.

Spain just managed to raise $100bn+. It's all about the price.

However, I wouldn't have thought there is enough UK domestic savings available at any interest rate to meet the UK banks funding needs. That's why net lending has to go seriously negative for a couple of years.

At the moment, squealing banks get to use cheap central bank money and make large margins. They need to pay the market price for external funding and pass that price onto their customers (at least the one that are not on base rate guarantees).

The central bank then has to play its part by increasing the base rate to help the bank charge more interest to their customers.

VMR.

(Stuck in the land of wishful thinking)

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