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Free Banking Damages Competition And Customers, Says Fsa Chairman Lord Turner

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8155331/Free-banking-damages-competition-and-customers-says-FSA-chairman-Lord-Turner.html

Making a case for ending the 25-year-old system of free banking for those in credit, he told the Treasury Select Committee (TSC) on Tuesday: "It is the case that free-if-in-credit banking does create a bit of a barrier to new entrants.

"The current account ... is essentially a loss-leader ... which banks provide in order to get hold of a relationship on which to sell other products. Because of that, there is a desire for them to sell products that are not appropriate.

"It is also the case [that] a loss-leader makes it more difficult for new entrants because they can't make a profit just out of the core product – they have to immediately be able to cross-sell as well."

After all the free taxpayer support the bankers are receiving they now want to fleece even more money from the people by charging everyone money for keeping their electronic money safe.

http://en.wikipedia.org/wiki/Adair_Turner,_Baron_Turner_of_Ecchinswell

Luckily he's not a VI.

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He seriously thinks that it damages customers? What planet is he living on? I can't see how not having to pay a penny is any damage at all. Well, no interest is, but it's still better than actually having to pay. Why do these idiots want competition for systems (or parts of systems) that actually work? Like all that nonsense over directory enquiries. No, just about everything else that banks do damages customers, so why pick on the one part that doesn't? Other than those careless enough to get themselves overdrawn, anyway.

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He seriously thinks that it damages customers? What planet is he living on? I can't see how not having to pay a penny is any damage at all. Well, no interest is, but it's still better than actually having to pay. Why do these idiots want competition for systems (or parts of systems) that actually work? Like all that nonsense over directory enquiries. No, just about everything else that banks do damages customers, so why pick on the one part that doesn't? Other than those careless enough to get themselves overdrawn, anyway.

I would be prepared to pay if banks: stopped irresponsible lending, ringfenced investment bank (gambling) so it receives no state support, paid a reasonable rate of interest on savings, did not pay massive bonuses.

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If they charge for current account services then in my eyes they need to agree to the following rules

a ) They can't lend it, so it is held as a full reserve.

b ) In the event of a bank collapse/run I have access to it all as quickly as I want.

Otherwise they are just being greedy.

Damn smilies B)

Edited by SomethingHasToGive

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If the bank was doing no lending on of the money (counter party risk) and therefore giving no interest, I can see an argument for charging - it would be a safe storage facility, with easy access.

However, the elephant in the room is the deposit guarantee for universal banks. While deposit insurance exists, there can be little competition between banks, as we consider them all safe (regulated, with deposit guarantees). We just hunt for the one with the highest return and perhaps some good customer service.

Universal banking just doesn't work and they should withdraw deposit insurance from it. Universal banking (FRB) is like alchemy, according to Mervyn King and I would agree. Then people can decide how much risk to counter parties they want to be exposed to, how much they want to pay for service/safety and how much they want to invest (at risk) for a return.

Edited by Traktion

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8155331/Free-banking-damages-competition-and-customers-says-FSA-chairman-Lord-Turner.html

After all the free taxpayer support the bankers are receiving they now want to fleece even more money from the people by charging everyone money for keeping their electronic money safe.

Yes everything he said is BS and completely backwards. The reason banking is very uncompetitive is because you need a huge amount of money to even apply to become a bank and even then you must be approved which is very difficult- all to keep the banking sector as uncompetitive and profitable as possible.

And there's the small point that banking is fraud hence why they make it so hard to become one- after all if you and your buddies are all in on the trick why let random scummers join in the action.

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Ditto Insurance whereby risk is now so granular it brings the whole question of 'what is insurance for'. We are bringing up a generation of young men who will not be able to afford to drive. Is this what we want? Why don't we spread the cost across generations? After all we're all young once.

Competition, technology has driven this trend. Regulation should be used to stem it.

This is an interesting point and one which I touched on in a recent thread about the potential for private health insurance. If you insist that all insurance (of certain types) has to be priced based on a lifetime, then some of the extremes can be levelled off. For instance, when applying for health insurance at 18, you should be able to have a lifetime price of some sort (perhaps with different weightings, but that would be up to the market). The same could be true for car insurance, with people offsetting their youth against their old age (the reverse of health insurance).

I suppose the temptation is to go with the cheapest option with health insurance (only worry about this year), but it may be unwise. If the state is forced to pick up the bill otherwise, there could be an argument for insisting on lifetime insurance policies, at least those which may get dearer as you get older.

Anyway, heading a bit OT, but I thought it was an interesting point.

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Yes everything he said is BS and completely backwards. The reason banking is very uncompetitive is because you need a huge amount of money to even apply to become a bank and even then you must be approved which is very difficult- all to keep the banking sector as uncompetitive and profitable as possible.

And there's the small point that banking is fraud hence why they make it so hard to become one- after all if you and your buddies are all in on the trick why let random scummers join in the action.

I'm charged for my Swedish bank account, and if I had wanted a credit card they would have charged me for that. I was always surprised that I was getting stuff for free in the UK. Now I obvioulsy understand why - draw 'em in and offer other she1te.

I wouldn't be surprised if they started charging here when things get worse.

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I would be prepared to pay if banks: stopped irresponsible lending, ringfenced investment bank (gambling) so it receives no state support, paid a reasonable rate of interest on savings, did not pay massive bonuses.

+1 separate investment from retail.......I think we should have more safe and savings protected local smaller financial institutions that lend in a responsible way and offer a fair rate of interest to savers and reward for loyalty.....something like a credit union, or something where the investors own the business like the old style mutual building societies before all the profit taking carpetbaggers, the beginning of the start of the downfall. ;)

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If the bank was doing no lending on of the money (counter party risk) and therefore giving no interest, I can see an argument for charging - it would be a safe storage facility, with easy access.

However, the elephant in the room is the deposit guarantee for universal banks. While deposit insurance exists, there can be little competition between banks, as we consider them all safe (regulated, with deposit guarantees). We just hunt for the one with the highest return and perhaps some good customer service.

assuming all current acct savers get 0 and also get deposit insurance then banks can still compete for borrowers (ones which won't default) and for savers in the market for higher risk products. Presumably the latter type would be pushed in the direction of buying subordinated debt, and rightly so.

One that zero nominal risk infrastructure is in place on the depositor side and critically, emplaced in the minds of customer and investor alike, and when the odd bout of printing becomes less of a taboo, then it becomes easy to wind up individual banks which have slipped below their capital requirements without blowing up the whole system.

Universal banking just doesn't work and they should withdraw deposit insurance from it. Universal banking (FRB) is like alchemy, according to Mervyn King and I would agree. Then people can decide how much risk to counter parties they want to be exposed to, how much they want to pay for service/safety and how much they want to invest (at risk) for a return.

I think it works just fine as long as the universal bank customer is not getting a return. Subordinated debt holders should get returns.

Presumably from time to time a bank will lose the money backing insured deposits - but this is what bank equity is for. And after that there is the printing press. The actual amount of printing required to be done to tidy up one failed institution would be quite minor. The slow burn inflation that this causes can be viewed as the inevitable entropy any financial system must suffer over time regardless of how it is constructed.

Likewise its also important to recognize that an economy at peak debt is a lot less likely to suffer from runaway bubbles and dodgy lending than one which is being artificially restrained from expanding to maximum debt.

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8155331/Free-banking-damages-competition-and-customers-says-FSA-chairman-Lord-Turner.html

After all the free taxpayer support the bankers are receiving they now want to fleece even more money from the people by charging everyone money for keeping their electronic money safe.

http://en.wikipedia.org/wiki/Adair_Turner,_Baron_Turner_of_Ecchinswell

Luckily he's not a VI.

This is absolute hogwash!

Most current accounts pay no, or pitifully small rates of interest.

It is inconceivable that a bank could be losing money on it's entire current account portfolio.

I can see how some individual accounts could lose money for the banks - like basic accounts with very small deposits and high activity - however these tend to cop the exorbitant charges for missed direct debits and the like.

The government have allowed a situation to arise where it is pretty well impossible to live without a bank account - if banks start charging a monthly fee or are allowed to impose unfair charges this is like another form of poll tax.

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Likewise its also important to recognize that an economy at peak debt is a lot less likely to suffer from runaway bubbles and dodgy lending than one which is being artificially restrained from expanding to maximum debt.

Isn't that a bit like saying a dead person is less likely to cause trouble? Doesn't 'peak debt' (a phrase whose very existence terrifies me) restrict all lending - irresponsible or otherwise?

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Isn't that a bit like saying a dead person is less likely to cause trouble? Doesn't 'peak debt' (a phrase whose very existence terrifies me) restrict all lending - irresponsible or otherwise?

kind of, yes.

at peak debt and zirp things are stable, as long as everyone agrees there is no possibility of deflation setting in. In which case, people will borrow when they need to for investment of buying a house, but there will not be much borrowing to speculate, since by this stage asset price rises have basically come to a halt.

so at peak debt equilibrium, the new borrowing is offset by people paying down, and when the former outstrips the latter we get some asset price rises and when the latter outstrips the former we get some printy printy, which may later be recovered via taxation which is shredded.

I would say this system is characterized by a much reduced ratio of base money to broad money and slow burn and quite stable inflation. The main fly in the ointment is the destabilising existence of economies not operating in this equilibrium.

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+1 separate investment from retail.......I think we should have more safe and savings protected local smaller financial institutions that lend in a responsible way and offer a fair rate of interest to savers and reward for loyalty.....something like a credit union, or something where the investors own the business like the old style mutual building societies before all the profit taking carpetbaggers, the beginning of the start of the downfall. ;)

Exactly.

Turner's barking. He seems to be arguing that the problem is that 'free' banking damages competition. But the problem in fact was that opening up and driving competition into the banking system effectively forced building societies to compete in markets where they lacked both size and historical skill set and it was precisely this competition which forced competition on price i.e. zero fees for operating current accounts.

But he's argueing that we need more competition, not less, but with some sort of fixed pricing.

Had we still got mutual building societies, and had we not seen limitless flows of money flooding into the UK via the criminal US banks, we probably wouldn't be in this situation.

Perhaps if the FSA could be bothered to regulate in the first place we wouldn't be in this position.

We don't need more competition - we need less competition, properly regulated and with mutual organisations providing commodity day to day current account/money transmission services. If Turner and his serially failing organisation did their job, this is what we would have, just as we did before 1985.

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printy printy, which may later be recovered via taxation which is shredded.

Interesting, how do govts shred taxation but don't spend it? I assume that is what you are implying, the govt collects money and then it's removed from circulation like it never existed in the first place?

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assuming all current acct savers get 0 and also get deposit insurance then banks can still compete for borrowers (ones which won't default) and for savers in the market for higher risk products. Presumably the latter type would be pushed in the direction of buying subordinated debt, and rightly so.

One that zero nominal risk infrastructure is in place on the depositor side and critically, emplaced in the minds of customer and investor alike, and when the odd bout of printing becomes less of a taboo, then it becomes easy to wind up individual banks which have slipped below their capital requirements without blowing up the whole system.

I think it works just fine as long as the universal bank customer is not getting a return. Subordinated debt holders should get returns.

Presumably from time to time a bank will lose the money backing insured deposits - but this is what bank equity is for. And after that there is the printing press. The actual amount of printing required to be done to tidy up one failed institution would be quite minor. The slow burn inflation that this causes can be viewed as the inevitable entropy any financial system must suffer over time regardless of how it is constructed.

Likewise its also important to recognize that an economy at peak debt is a lot less likely to suffer from runaway bubbles and dodgy lending than one which is being artificially restrained from expanding to maximum debt.

My concern would be when bank losses are so high that they exceed the amount of equity held. At a macro level, of course printing up the difference could solve the problem, but the system is open to abuse. If the bankers behave irresponsibly and push much more credit out than can be digested (ie. beyond peak debt), with profit as a motivation, then there could still be a big fall. If the rest of us then end up being taxed to pay for this, an amount of risk is being spread over the taxpayers.

Additionally, what about the Euro zone? I suppose you could get the ECB to print up money for the country, then tax and shred accordingly in due course, but there would have to be changes to the Euro policy to allow this.

I am just of the opinion that losses should be born to those who choose to be directly exposed to risk. Printing and taxing spreads it about, but doesn't let anyone opt out - having safe accounts and investment accounts sidesteps this, only exposing those who want to risk their cash. Those people would take a hair cut*, if the share capital was insufficient to cover the losses.

Apart from that, I do really think the peak debt, ZIRP and zero yield do make a lot of sense. It certainly seems to be the way we're heading and I see that as a good thing for increasing stability and reducing rent seeking.

* I would assume that their would be a trigger point, when equity was getting low, that the bank would be put into administration and then wound down, with depositors and bond holders taking a hair cut (and/or having their money held back for a period). You could even give people their money back in full (using printed cash), but they would then be taxed personally to pay back this printed money.

EDIT: BTW, I would also say that having safe accounts would provide additional price signals. If people choose to keep their money safe, it means that banks have to entice investors. Obviously, you can do that now with cash under the mattress, but few would feel safe with that.

However, to counter my own point, pushing people towards real/physical assets, rather than financial assets could also be good for the economy too. In this respect, I can see why you may want all money (which is essentially bank credit) in traditional banks. I do think that the two may be mutually conducive, rather than exclusive though.

Edited by Traktion

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Interesting, how do govts shred taxation but don't spend it? I assume that is what you are implying, the govt collects money and then it's removed from circulation like it never existed in the first place?

If QE is unfunded deficit spending, the opposite is to run a surplus and then destroy the money.

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I would say this system is characterized by a much reduced ratio of base money to broad money and slow burn and quite stable inflation. The main fly in the ointment is the destabilising existence of economies not operating in this equilibrium.

When you say stable inflation, would this be a sort of natural rate, as balanced by peak debt and zirp, rather than a CPI type target?

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"It is the case that free-if-in-credit banking does create a bit of a barrier to new entrants.

And he is well aware that charging for banking creates another revenue flow NOW whereas all these extra new banking entrants might never ever arrive.

So it's money for the banks now and as usual jam tomorrow (more competition) and pie in the sky for customers.

I'll take the "free" banking today thank you very much.

Edited by billybong

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This is why I found it funny and naiive when people would argue that usurious bank charges were just fine, because they weren't affected and had never paid them, and if the bank charges stayed and the banks won their court case then free banking remained on the cards.

What was always going to happen was the end of free banking, with the usurious fees continuing anyway.

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  • 142 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% +
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      • Even
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      • up 5%



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