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End Of Cheap Money As Banks Ordered To Increase Reserves

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7998504/Banks-told-to-double-their-cash-reserves.html

Banks told to double their cash reserves
Basel III regulators reveal measures designed to prevent banks running out of liquidity.
By Rowena Mason and James Hall
Published: 8:44PM BST 12 Sep 2010
Jean-Claude Trichet, President of the European Central Bank Financial regulators have reached a deal to force global banks to double the spare cash they hold in the biggest shake-up since the economic crisis nearly brought down the system.
Mervyn King, Governor the Bank of England, is one of 27 “heads of supervision” who on Sunday helped agree on a deal in Basel, Switzerland.
Details of the Basel III regulations were unveiled on Sunday night in a move designed to prevent banks from running out of liquidity as they did in the autumn of 2008.

Our economy (HPI) is supported by the twin pillars of cheap and easy credit and jobs. Both seem to be crumbling and if the subsidy is pulled out from under the housing market by way of higher and more normal IR there is simply no way that our housing market can be sustained at current levels. A further 20% down over the course of the next 6 montghs seems inevitable.

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According to this thread, this doesn't really impact UK banks as they are well above Basel 2 thresholds anyway.

I'd never use the word inevitable about anything in our housing market RB.

Of course they are, the BoE MONETISED the crap they were using as cash before, but nobody wanted anymore. this credit is still bad and needs to be defaulted.

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Im sure it says basel 3 in the article, which is a captial ratio of 4.5% compared to 2% for basel 2.

Apologies, Basel 3. UK banks are already compliant at 6-7%+ according to linked thread.

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Apologies, Basel 3. UK banks are already compliant at 6-7%+ according to linked thread.

so mortgage famine to continue? Should still get worse as the current mortgage famine is partly due to banks having to repay the SLS next year

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The Banking Editor of the FT was just on Sky was saying that it could turn out to be 11% for the bigger banks and that it will mean that money will be tight from now on.

Or they could just lie, as they did with the stress tests.

No bank should fail before the regulator closes them due to imbalance...yet half a dozen a week close in the US owing millions...the balance sheet was a fraud.

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Or they could just lie, as they did with the stress tests.

No bank should fail before the regulator closes them due to imbalance...yet half a dozen a week close in the US owing millions...the balance sheet was a fraud.

Geez man - whats your problem with banks in negative equity :P

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Also, NB if they lend to governments they need ZERO capital!!!

Er, who's going to go bust in the medium term? Spain, Greece, Latvia etc etc

No look over there, not here.

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Geez man - whats your problem with banks in negative equity :P

te hee...It just seems a tad unfair that a plumber...who hits bad times, and owes more than he has, is asked to put his trust in a bank that is in exactly the same position as he is in, yet he is made bankrupt, and the banker receives a bonus, and a knighthood, early retirement and a pension.

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Does anyone think savers will benefit if banks need more reserves?

why would they?

Doomberg reports now that Deutchchabank.. has SOLD 9bn euros of new bonds...or thereabouts.

Didnt even know they were for sale.

I bet the ECB did though.

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te hee...It just seems a tad unfair that a plumber...who hits bad times, and owes more than he has, is asked to put his trust in a bank that is in exactly the same position as he is in, yet he is made bankrupt, and the banker receives a bonus, and a knighthood, early retirement and a pension.

And if none of this happened - but banks were still in negative equity: your position?

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Apparently the reserve increases don't apply until 2013 (ITV News).

So the potential affects on lending and house prices will likely overhang the market until then - a bit like the millennium bug did for the stock market as year 2000 approached (the olden days).

As things stand (huge debt/deficit, political instability, bank lending cuts, public sector cuts, strikes, all that peak oil/global warming stuff, zirp and rates only going up next etc etc) there doesn't seem much financial point in considering buying before then - unless a buyer spots a real "bargain".

Of course between now and then something might change to alter this stance.

Edited by billybong

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According to the Telegraph link on the other thread this doesn't kick in until between 2015 and 2018.

Looking into it a bit further it seems that the capital increases will be phased in between 1 January 2013 and 1 January 2015.

Something called "the definition of common equity" will be gradually tightened between 2014 and 2018 and then there are some other things to be tightened taking 10 years and starting in 2013 so it won't be finalised overall until about 2023.

I can't see how any of the "tightenings" can in themselves be anything but negative for house prices, at least to start with, never mind stimulate another boom but likely in time they'll find a way around. Perhaps the "best" outlook for boom hopers is for it to start from a much lower base level. Maybe that's why it's called the Basel Agreement :blink:

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My belief/understanding is the Basil II requirements caused the initial crunch as banks rushed for funds... If you tell the banks they need to be all on balance sheet and have certain capital requirements don't be surprised when you hear a huge sucking sound. Its very honourable having capital requirements, but its not very sensible attempting to do it after the event as it just makes things worse! Oh who made these Basel Folks the Boss anyway, why do they keep creating these requirements?

Edited by AteMoose

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Isn't the raising of the capital requirements a defence against an insolvency crisis, rather than a liquidity crisis? Surely, the latter just needs banks to extend less credit (monetary reserves), where as the former (capital reserves) prevents the bank going under quickly, when the credit goes bad.

I suppose you could have an insolvency problem, should you have insufficient liquidity, but the solution to the former is different from the latter, no?

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Apparently the FCIC is going to report (rewrite :blink: ) on the relative importance of about 24 factors in the credit crisis by mid December.

Guessing it'll say anything the powers did to affect it didn't have an important affect and they helped get over it.

Edited by billybong

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The more I look back on the past 3 years, the more I realise that I should have given up on HPC the moment they started printing money. I am starting to have doubts that even with EVERYTHING POSSIBLY IMAGINABLE stacking up in favour of big drops, that Merve wont just hit the print button again and the crash is pushed further down the line. Of course, we all know that every time that happens print button needs to be held down for longer and longer, but.... I really don't think they care any more - as long as every major economy is doing it, the IR's can stay as low as they want - somebody PLEASE argue against me.

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I was Basil compliant many years ago.

Despite the name it was a pleasant experience.

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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