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Head Of Banking Inquiry Says The Shock From The Fall In Property Prices Should

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http://www.bbc.co.uk/news/business-12259716

Major reforms needed, says banking inquiry head

The head of the commission reviewing whether the UK's biggest banks should be broken up has said wide-ranging reform is needed.

In a speech in London, Sir John Vickers said plans to separate bank trading and retail operations were being looked at.

These may require banks to put their investment arms into separate entities that could be allowed to collapse.

Sir John stressed that no final decisions had yet been made by his Independent Commission on Banking.

'Critical to economy'

In his speech at the London Business School, Sir John said the failure of banks to efficiently manage risks had been "spectacular".

He said the shock from the fall in property prices "should not have caused havoc on anything like the scale experienced".

He added: "Credible resolution would seem to require at least some form of separability, and arguably there is a case for some form of ex ante separation so that bank operations whose continuous provision is truly critical to the functioning of the economy can clearly be easily and rapidly carved out in the event of calamity.

"But perhaps the credibility of resolution plans can be ensured otherwise than by forms of separation, and the benefits of creating such options would of course need to be weighed carefully against costs they imposed."

Sir John concluded: "It cannot be disputed that banks of systemic importance need much more loss-absorbing capacity than they had a few years ago, and to be much more easily resolvable.

"There is a wide range of views on how much more loss-absorbing capacity is appropriate for different kinds of institution, and on how to achieve it."

Reacting to the speech, Chancellor George Osborne said: "I am glad John Vickers is today asking the tough, searching questions about how we protect taxpayers from banks that fail.

"That's exactly what [business Secretary] Vince Cable and I wanted him to do when we asked him to chair the coalition government's independent banking commission."

The British Bankers' Association (BBA) said it supported proposals to protect customers and that Sir John was "focusing on making the system safer".

BBA chief executive Angela Knight said: "What the banking industry has been working towards along with regulators and government is an arrangement where not only is the system more stable but the banks themselves.

"And so should there be a problem in the future, and I sincerely hope there never will be another problem like this in the future, then a bank can be allowed to fail without having an impact on the economy."

The BBC's Joe Lynam said "keeping the status quo is not an option".

Our correspondent added: "The public simply wouldn't wear things staying the same as they are forced to endure swingeing spending cuts and some tax rises as a direct result of reckless banking behaviour before the financial crisis of 2007-08."

Bailed out

Sir John, a former chief economist at the Bank of England, is the chairman of the five-person Independent Commission on Banking (ICB) set up by the coalition government.

It is looking at financial stability and competition, including the question of what should be done about banks deemed "too big to fail".

One suggestion is that investment banks should be separated from retail banks, so that depositors' money is not put at risk by the investment banking arms of the business.

Equally, if banks were allowed to collapse if mismanaged, taxpayers would not need to come to the rescue.

This is what happened when the last Labour government bailed out both Royal Bank of Scotland and Lloyds Banking Group when it deemed the risks to the wider financial system of allowing them to collapse were too great.

Leave country

The commission is also looking at whether too few big banks have too much control over the retail banking sector in the UK.

Currently, the top six British banks control about 90% of all deposits. This compares with a 68% market share for Germany's top seven banks and just 35% for America's top eight.

Other topics for scrutiny include whether banks should be restricted in the amount of their own money they can use for investment trading.

Critics have said that splitting up banks could damage the UK's competitive edge and make them leave the country.

HSBC and Standard Chartered have questioned whether they would keep their headquarters in the UK should the commission recommend a break-up.

The other members of the ICB are former Ofgas director-general Clare Spottiswoode, ex-Barclays chief executive Martin Taylor, former JP Morgan co-chief executive Bill Winters, and Financial Times chief economics commentator Martin Wolf.

The ICB has until September 2011 to make its recommendations to the government.

Only a brief mention there, but interesting to read how to some, the drop on property prices was such a shock, and we have an admittance that it has caused havoc.

So lots more havoc to come then? :unsure:

I have also just heard Nick Clegg on Andrew Marr's show refer to how the UK housing market had allowed to be treated like a casino.

6 UK banks control 90% of all deposits, compared to only 35% market share for America's top eight banks.

I never realised what a vast difference there was between our banks and others, for this.

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I've heard people saying it was a nice opportunity for them to fiddle some of the dot com bust numbers back into play after hiding them away for a decade...

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Gordonomics clearly states that the economy will grow on exponential upward curve forever. Also house prices will only ever go up and never go down. As a result a 120% mortgage with no deposit makes perfect sense. Spend the extra 20% what is there to worry about?

The banking commission are confusing the culture that pervaded the country for the last 10-15 years with the structure of the banks.

The banks behaved completely rationally as they believed completely in Gordonomics.

There is nothing wrong with the way the banks are set up, the problem was with the lending culture that developed as result of massive overconfidence after years of growth. The possibility house prices might fall was never considered.

With everyone in debt up to their eyeballs all secured against property it was inevitable house price falls would near on destroy the economy.

Changing the structure of the banks would have not have altered the course of the economy in the slightest 97-07.

Changing the culture of debt and limiting borrowing, ensuring risk was properly priced is what was needed then and what is still needed now.

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6 UK banks control 90% of all deposits, compared to only 35% market share for America's top eight banks.

I never realised what a vast difference there was between our banks and others, for this.

Apples and oranges.

What percentage of Europe's market do Europe's top [handful of] banks control?

Or for an economy closer to the UK's size, what proportion of California's market do their top few banks control?

I'm not denying your point: other European countries have historically had many more banks than us too (but we had building societies to add variety). Just that particular comparison.

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So let's consider the argument of separating the 'critical' part to the 'rest'.

What is the 'rest' doing exactly if it is not 'critical' or important to the functioning of the global economy. If it is 'socially useless' as Turner says - why does it exist. Presumably it exists to make profits by carrying out unimportant and socially useless activities? What we are saying is that they propose to let these businesses carry on gaming everyone else by virtue of their position and knowledge but without adding value to society Why would we want that as a solution?

They're already spinning preferred outcomes to the 'wrong' question.

i.e. the working assumption is that Goldman Sachs, Barclays IB and so on ought to exist at all.

Here's Clegg's words

"We have to insulate the economy and the taxpayer from carrying these liabilities," he said.

"We need to have a sustainable and prosperous banking sector where the taxpayer is not liable.

What a load of nonsense that statement is. He's saying that investment bankstering must be sustainable and prosperous. Well if the taxpayer isn't liable then it makes no difference. It's just like any other business sector. If it fails it's because it's not viable and it ought not to exist. His assumption is clearly that bankstering ought to exist and that it ought to be sustainable and prosperous, but since it has no social value, must carry no liability for the taxpayer and is socially useless it can only exist for the benefit of the investment banksters. For everyone else it's a parasitic tax i.e. through charges and fees and losses.

That's one issue. The second issue is that the problem in the housing market was caused largely by something else. It was caused by the trade imbalances and the creation of new debt instruments in the west to absorb the surpluses in the East/China. Splitting up Barclays or RBS would have had NO impact on the money flows via foreign (largely US banksters) into the UK housing market either directly via UK arms of US banks or via the securitisation market. Both of these problems were ones of regulation at the local level and the wider issue of free capital flows. It was insane to allow US banks to flood the UK housing market with lending which was largely unregulated. But it's clear the commission and govt. aren't even asking that question. NRK, B&B, HBOS (Lloyds) fell due to reckless lending at the domestic level NOT because RBS was a crock of sh1t.

Clegg/Osborne are talking through their ar5es and clearly have already decided the outcome isn't going to even consider the fundamental problem - global imbalances, capital flows and local regulation. Rather simply more capital and some imaginsary or real separation which allows the IBs to carry on stealing, if not directly through lender of last resort/govt. bailouts, then indirectly as a charge/tax on all other businesses.

TAX THE INVESTMENT BANKSTERS 100% ON THEIR STOLEN WINDFALLS. FOREVER.

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... His assumption is clearly that bankstering ought to exist and that it ought to be sustainable and prosperous,...

That's because he and his equally rich chums in the other half of the government are all making their wodge from it ;)

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http://www.bbc.co.uk/news/business-12259716

Only a brief mention there, but interesting to read how to some, the drop on property prices was such a shock, and we have an admittance that it has caused havoc.

So lots more havoc to come then? :unsure:

I have also just heard Nick Clegg on Andrew Marr's show refer to how the UK housing market had allowed to be treated like a casino.

6 UK banks control 90% of all deposits, compared to only 35% market share for America's top eight banks.

I never realised what a vast difference there was between our banks and others, for this.

...this idiot is as naive as the rest...if he had read the signs like many he would have seen doomsday approach ....Brown was blowing a bubble ...the FSA were in denial.....and the feckless were lending and borrowing in a frenzy of greed ... .and today the same idiots are calling for more mortgage lending when there is no 'funny' money left in the system .....haven't seen him make a statement on that..... :rolleyes:

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He said the shock from the fall in property prices "should not have caused havoc on anything like the scale experienced".

I took that as a red herring statement to distract attention from the fact that the banking system failed through all the malpractice and fraud in the system and in the derivative markets - as well as the fraud in the basic lending policies etc etc etc.

A little rewriting of history and not to mention the real issues.

In 50 or so years time, if there ever is another boom, they'll be saying don't let house prices fall, remember the olden days around 2007 and what happened the last time they suddenly fell.

Edited by billybong

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I took that as a red herring statement to distract attention from the fact that the banking system failed through all the malpractice and fraud in the system and in the derivative markets - as well as the fraud in the basic lending policies etc etc etc.

A little rewriting of history and not to mention the real issues.

It looks to me like he's going to sell the story that the initial US subprime foreclosures, hence price drops, *caused* this mess. He an insider, former BOE Chief Economist, and head of the OFT.

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He an insider, former BOE Chief Economist, and head of the OFT.

....on an economic footing what have the BofE 'got right' in the last ten years ...?....and have you seen any abundance of fair trading over the same time period....who is this guy.....?....... :rolleyes:

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  • 312 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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