A Question On Bank Legislation On Lending

[W1zard]

Does anyone know if there is or is soon to be actual legislation or laws preventing banks from returning to the irresponsible lending practices we were experiencing until only a short time ago?

On the basis people will typically borrow any sum they can get their hands on regardless of the personal and economic risks involved with no regard for historical averages or value for money, I see the reluctance to lend as the only economic driver for housing costs to slowly slide back toward sanity.

so, my concern is this, once the banks return to having healthy cash reserves, is there anything in place to stop them from simply beginning to lend high income multiples all over again which would of course keep HPI flying off into orbit once more?

[WageslaveX14]

Not sure, but the CML and mortgage brokers have been lobbying like crazy to ensure nothing is done.

The article on the front page contains the best and most succinct explanation of why banks act against our interests, and why the financial and real estate sectors should be curbed. It won't happen, though:

"In America, despite the amazing rise in productivity we’ve had in the last 30 years, real wages have actually gone down. All of the increase in productivity has been taken by the finance, insurance, and real estate sector, called the FIRE sector, almost all of it by the financial sector. So all of this growth has been siphoned off, not taking the form of rising living standards, but taking the form of debt service, mainly interest and fees. The fees are as large as interest for the credit card companies. So it’s all siphoned off financially.

So instead of having industrial capitalism a century ago, we have a finance capitalism that actually is stifling industrial capitalism here. So what Alan Greenspan and others call the postindustrial economy is really neo-feudalism. It’s a financialized economy where all of the surplus goes to the banks. And if you’re a banker and somebody comes in and wants to take out a loan, you say, how much do you make? How much do you spend on food? You realize that most people, most workers in America have to spend 20 percent of their income just on basic goods and services–food, clothing, transportation to get to work. Everything over that, they think that’s all available to be paid to the banks. The idea of a banker is for the entire economic surplus to be paid in the form of a financial surplus."

http://michael-hudson.com/2010/12/deficit-hawks-one-two-punch/

[W1zard]

Interesting. My concern is once UK backs have replenished their cash reserves they will just begin the irresponsible lending all over again and the progress of a return to a healthy market which is only just underway will quickly disappear.

Does anyone know if this reluctance to lend actually relates directly to their cash reserves being hammered during the credit crunch or have they all simply decided that it will be far less risky lending if the income requirements on loans were lower due to lower house prices.

Does anyone know of any comments from banking on why they will not lend?

Unless its made law I can just see everything reverting back to the inflation days once they have enough 'punt' money again.

[non frog]

.....

Does anyone know if this reluctance to lend ....

I would be more curious to know if there really is a "reluctance"? Is it not more probable there is a shortage of would be borrowers?

Banks went fruit loop and got burned (now we're paying for that). Even the dumbo bankers tend not to make the same mistake again so quickly. I know of three people that have recently bought and had zero problem getting a loan.

[Bloo Loo]

Interesting. My concern is once UK backs have replenished their cash reserves they will just begin the irresponsible lending all over again and the progress of a return to a healthy market which is only just underway will quickly disappear.

Does anyone know if this reluctance to lend actually relates directly to their cash reserves being hammered during the credit crunch or have they all simply decided that it will be far less risky lending if the income requirements on loans were lower due to lower house prices.

Does anyone know of any comments from banking on why they will not lend?

Unless its made law I can just see everything reverting back to the inflation days once they have enough 'punt' money again.

the problem were the SIVs ( off balance sheet vehicles) that allowed banks to get a liability and remove it off the balance sheet...this has been largely removed, and they only survive by a change in the accountancy rules where they can still mark to model.

Of course, new lending will have a value so marking to model will be the same as the mark to market.

with all this stuff on the balance sheet, Capital Adequacy comes into play so if they want to sell their RMBS they need to be truthful about their claims.

[Flatdog]

the problem were the SIVs ( off balance sheet vehicles) that allowed banks to get a liability and remove it off the balance sheet...this has been largely removed, and they only survive by a change in the accountancy rules where they can still mark to model.

Of course, new lending will have a value so marking to model will be the same as the mark to market.

with all this stuff on the balance sheet, Capital Adequacy comes into play so if they want to sell their RMBS they need to be truthful about their claims.

My apologies BL, but that is all just way too complicated.

Could you possibly relate this to repossessed homes not being allowed to come on to the market?

[Bloo Loo]

My apologies BL, but that is all just way too complicated.

Could you possibly relate this to repossessed homes not being allowed to come on to the market?

what, you mean the ones that ARE possessed by shell Companies owned by the banks?

[W1zard]

Does anyone have anything further on this question regarding lenders official stance on lending? Does anyone know if the banks have collectively agreed not to lend? My concern is all this great work on returning to a sane market could be reversed overnight if the banks all decide to lend high multiples once more.

[Bloo Loo]

Does anyone have anything further on this question regarding lenders official stance on lending? Does anyone know if the banks have collectively agreed not to lend? My concern is all this great work on returning to a sane market could be reversed overnight if the banks all decide to lend high multiples once more.

lend what? what they are committed to repay in 2011?, why lend at 2.5% when they can pump up stocks and commodities, safe in the knowledge that bad investments, like lending to Irish Banks, Spain and Greece, has no risk?

[W1zard]

So you believe the banks are not lending because they have insufficient funds in order to do so? Would this not then be a concern that once they have replenished their reserves they will just start lending irresponsible multiples all over again?

[Bloo Loo]

So you believe the banks are not lending because they have insufficient funds in order to do so? Would this not then be a concern that once they have replenished their reserves they will just start lending irresponsible multiples all over again?

yes, that is a concern, and it was one of the aims of QE...to get them lending and to support asset prices.

BUT, off balance sheet vehicles are all but banned and new capitalisation rules should stop that. QE of course, encourages it...but the threat of them having to support themselves next year is holding them back.

and the Sovereign debt crisis is no mean check either.

what comes around goes around....all this kick the can has done is make the debt bubble bigger.