Bo E Dep. Governor: The Banks Should Be Allowed To Fail

[Realistbear]

http://uk.finance.yahoo.com/news/Banks-allowed-go-bust-Bank-reuters_molt-2409529183.html;_ylt=AnQqJagRREiifZAOw4NaWVHSr7FG;_ylu=X3oDMTE4ZWlzNWhmBHBvcwMzBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNiYW5rc3Nob3VsZGI-?x=0

Banks should be allowed to go bust - Bank's Tucker

9:14, Tuesday 18 January 2011

LONDON (

Reuters

) - Banks (SBK.NX - news) should be allowed to fail in the bad times, with their losses being absorbed by their creditors and investors, not by the taxpayer, the Bank of England's deputy governor suggested in a BBC interview to be broadcast later on Tuesday.

Paul Tucker, the bank's deputy governor, said that banks had to incur the losses when things went wrong and that changes to the banking sector had not gone far enough yet to allow for that.

"If we have a system where banks take the upside, but the taxpayer takes the downside, something has gone wrong with capitalism, with the very heart of capitalism and we need to repair this," he told BBC television.../

An Independent Commission on Banking will report this year on whether British banks are too powerful and need to be reined in.

Easy hindsight. But will they really allow the banks to fail with lines of panicking depositors choking the high streets as the banksters book private jets to carry them and their swag to the Caymans Islands?

Edited January 18, 2011 by Realistbear

[Papa Serf]

They have riden this horse to death, now its time to eat it.

[leicestersq]

http://uk.finance.yahoo.com/news/Banks-allowed-go-bust-Bank-reuters_molt-2409529183.html;_ylt=AnQqJagRREiifZAOw4NaWVHSr7FG;_ylu=X3oDMTE4ZWlzNWhmBHBvcwMzBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNiYW5rc3Nob3VsZGI-?x=0

Banks should be allowed to go bust - Bank's Tucker

9:14, Tuesday 18 January 2011

LONDON (

Reuters

) - Banks (SBK.NX - news) should be allowed to fail in the bad times, with their losses being absorbed by their creditors and investors, not by the taxpayer, the Bank of England's deputy governor suggested in a BBC interview to be broadcast later on Tuesday.

Paul Tucker, the bank's deputy governor, said that banks had to incur the losses when things went wrong and that changes to the banking sector had not gone far enough yet to allow for that.

"If we have a system where banks take the upside, but the taxpayer takes the downside, something has gone wrong with capitalism, with the very heart of capitalism and we need to repair this," he told BBC television.../

An Independent Commission on Banking will report this year on whether British banks are too powerful and need to be reined in.

Easy hindsight. But will they really allow the banks to fail with lines of panicking depositors choking the high streets as the banksters book private jets to carry them and their swag to the Caymans Islands?

I think you have to treat the differently. If they are crooked banks, let them fail completely. If they are just badly run, but important to the UK economy, take control over them, and turn deposits and bonds into equity to recapitalise them.

I would add, that the law needs to be changed so that any bank that fails, or is found to be trading insolvently, means that creditors are allowed to go after the personal assets of directors, to the point of bankrupting them, removing the protection of limitied liability. Do that, and I suspect we will never get a bank go under again.

[SomethingHasToGive]

http://uk.finance.yahoo.com/news/Banks-allowed-go-bust-Bank-reuters_molt-2409529183.html;_ylt=AnQqJagRREiifZAOw4NaWVHSr7FG;_ylu=X3oDMTE4ZWlzNWhmBHBvcwMzBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNiYW5rc3Nob3VsZGI-?x=0

Banks should be allowed to go bust - Bank's Tucker

9:14, Tuesday 18 January 2011

LONDON (

Reuters

) - Banks (SBK.NX - news) should be allowed to fail in the bad times, with their losses being absorbed by their creditors and investors, not by the taxpayer, the Bank of England's deputy governor suggested in a BBC interview to be broadcast later on Tuesday.

Paul Tucker, the bank's deputy governor, said that banks had to incur the losses when things went wrong and that changes to the banking sector had not gone far enough yet to allow for that.

"If we have a system where banks take the upside, but the taxpayer takes the downside, something has gone wrong with capitalism, with the very heart of capitalism and we need to repair this," he told BBC television.../

An Independent Commission on Banking will report this year on whether British banks are too powerful and need to be reined in.

Easy hindsight. But will they really allow the banks to fail with lines of panicking depositors choking the high streets as the banksters book private jets to carry them and their swag to the Caymans Islands?

I don't think they will have a choice. I think the government is losing the will required to bail out one of the big banks. I guess the Bank of England is expecting one of them to go, or at least thinks it is reasonable risk.

However they need to change it so that the depositors are the first to be paid back in a bankruptcy.

Is it true that bond holders get the first slice of the cake, then shareholders, then depositors and then the employees?

It would also be nice to make banker bonuses clawbackable for at least a year, meaning if a bank suffers then at least the bonuses go back to the depositors.

[Riedquat]

I've said it before, but there is some justification in keeping banks going, to avoid the mess and confusion for everyone who uses them. As long as the directors and probably some other top management are utterly ruined by the failure (so there's no incentive for them to do what they have done - they made the risks, they lose) keeping the actual institution going is fair enough.

[interestrateripoff]

I think you have to treat the differently. If they are crooked banks, let them fail completely. If they are just badly run, but important to the UK economy, take control over them, and turn deposits and bonds into equity to recapitalise them.

I would add, that the law needs to be changed so that any bank that fails, or is found to be trading insolvently, means that creditors are allowed to go after the personal assets of directors, to the point of bankrupting them, removing the protection of limitied liability. Do that, and I suspect we will never get a bank go under again.

I agree with that, we need moral hazard.

[SomethingHasToGive]

I've said it before, but there is some justification in keeping banks going, to avoid the mess and confusion for everyone who uses them. As long as the directors and probably some other top management are utterly ruined by the failure (so there's no incentive for them to do what they have done - they made the risks, they lose) keeping the actual institution going is fair enough.

Perhaps they have to have rules in place to avoid the mess and confusion that the collapse of retail banks would cause. Most of that chaos would be due to people losing their last month's wages. Maybe they should ensure that deposits in the last month must be kept as a capital reserve and isn't frozen in the case of a bank failiure. Obviously it couldn't be as simple as that as I've not fully thought it through...

[SomethingHasToGive]

no

What's the real order then? Or isn't it as simple as that?

[non frog]

I agree with that, we need moral hazard.

True. But it doesn't happen does it? Read this earlier as a coincidence.

http://www.independent.ie/national-news/drumms-credit-card-blowout-2500004.html

If this guy goes to jail and all the stuff he syphoned off into his wife's name gets take off them and they end up in a project with her working for McDonalds I might accept that the "system" is working. Failing that I remain a hard core sceptic.

[leicestersq]

True. But it doesn't happen does it? Read this earlier as a coincidence.

http://www.independent.ie/national-news/drumms-credit-card-blowout-2500004.html

If this guy goes to jail and all the stuff he syphoned off into his wife's name gets take off them and they end up in a project with her working for McDonalds I might accept that the "system" is working. Failing that I remain a hard core sceptic.

That guy is subject to Irish laws.

If he did that in the UK he would be guilty of lots of things. You also cannot borrow money you dont intend to repay, and give it to your wife. That is fraudulent conveyance. There is no problem with the law.

Enforcing the actual UK law though, that is the bit where we have problems.

[spongeh]

BOE says this and last night I caught the FSCS advert on the TV ..... somethings brewing, so which bank is it?

[R K]

Make the boards of all UK banks (and their key personnel) personally liable if they fail.

If Bob Diamond's (and his star traders) assets (including pension) are personally on the line he might shut the f*ck up.

If they mess up they all go bankrupt.

[Georgia O'Keeffe]

BOE says this and last night I caught the FSCS advert on the TV ..... somethings brewing, so which bank is it?

its ok they can let them go this time, the important money having missed the glaring obviousness of implosion in 2008 has had ample time to relocate to safer banks

[Realistbear]

I think you have to treat the differently. If they are crooked banks, let them fail completely. If they are just badly run, but important to the UK economy, take control over them, and turn deposits and bonds into equity to recapitalise them.

I would add, that the law needs to be changed so that any bank that fails, or is found to be trading insolvently, means that creditors are allowed to go after the personal assets of directors, to the point of bankrupting them, removing the protection of limitied liability. Do that, and I suspect we will never get a bank go under again.

The law does not need chnaging, it needs enforcing.

The companies Act makes adequate provsion for personal liability of directors in cases of fraud against the majority of shareholders or in cases of negligence. Given the amount of losses there was always a prima facie case, if anyone cared to pursue it rather than issue whitewash reports, as in the case of HBOS. If fraud or gross negligence (reckless diregard of consequences) is made out personal liability arises and the bosses pay--or, if fraud, get sent down.

[Georgia O'Keeffe]

they could easily guarantee deposits and f*** off bond/equity holders.the only problem would be that the Ponzi in CRE/resi real estate/banking/pensions would be revealed.It'll have to happen sooner or later.

I think they'll have to gurantee deposits to prevent the mother of all bank runs.

we were discussing this on another thread, guaranteeing the deposits doesnt really help because it will have to be printed in likeliness, you be getting back sterling at about 20p in the pound on an exchange rate basis

besides im sure the main reason they didnt cut the bondholders first time was because the same bondholders own uk debt, interest rates will go on a moonshoot and uk property will be worth about 10p in the pound by the time the mortgage defaults are over. On the brightside it would be a base from which to start again

Edited January 18, 2011 by Tamara De Lempicka

[leicestersq]

The law does not need chnaging, it needs enforcing.

The companies Act makes adequate provsion for personal liability of directors in cases of fraud against the majority of shareholders or in cases of negligence. Given the amount of losses there was always a prima facie case, if anyone cared to pursue it rather than issue whitewash reports, as in the case of HBOS. If fraud or gross negligence (reckless diregard of consequences) is made out personal liability arises and the bosses pay--or, if fraud, get sent down.

RB, yes I agree.

However, any banks that take deposits insured by the taxpayer, should have an extra provision in law. And that means creditors can go after the assets of directors of a failed bank, irrespective of any wrongdoing on their part. The fact that the bank has failed is cause enough.

The quid pro quo for this is that directors would be paid more, for taking on the extra risk. This is actually a payment that I am happy enough with, unlike almost every other payment made to bankers.

[leicestersq]

they could easily guarantee deposits and f*** off bond/equity holders.the only problem would be that the Ponzi in CRE/resi real estate/banking/pensions would be revealed.It'll have to happen sooner or later.

I think they'll have to gurantee deposits to prevent the mother of all bank runs.

There appear to be bank runs underway in Ireland, Belgium, Portugal and Spain, at least from the info I am getting on sites like this.

Why do they keep this secret? All it does is give a market advantage to insiders, at the expense of those outside the loop (including me). I thought that EU law proscribed information inequalities.

FWIW, I bet the Germans are hitting the banks too, would you want Euro's whilst the leprechauns are printing a new crock of gold at your expense?

Come on EU, tell us about the bank runs.

[Blod]

They have riden this horse to death, now its time to eat it.

Well put, harsh but fair.

[gf3]

In a very odd upside down world way, letting Ireland print may be a good idea. The reason for bank runs is that people fear they wont get their money back out of the bank. If they know that the bank can just print more there's nothing to fear apart from your money being devalued.

however it will be devalued under the mattress the same as if it is left in the bank, so you may as well leave it in the bank.

Edited January 18, 2011 by gf3

[Ritters]

There's a documentary about banks on BBC2 this evening at 9pm

http://www.bbc.co.uk/iplayer/episode/b00xwsl5/Britains_Banks_Too_Big_to_Save/

[erranta]

I think you have to treat the differently. If they are crooked banks, let them fail completely. If they are just badly run, but important to the UK economy, take control over them, and turn deposits and bonds into equity to recapitalise them.

I would add, that the law needs to be changed so that any bank that fails, or is found to be trading insolvently, means that creditors are allowed to go after the personal assets of directors, to the point of bankrupting them, removing the protection of limitied liability. Do that, and I suspect we will never get a bank go under again.

That would be going back to origins of modern banking.

The goldsmiths/bank owners were accountable under 100% personal liability (for state of their bank).