Bank Profits Subsidised By Tax Payers "secret"

[jplevene]

Never realised this, but I have been told this from bank insiders who work for lobbying departments in banks.

Banks are supposed to turn to the Bank of England as a source of last resort. This application to the BOE is kept secret and not for the public or any other organisation to know about. Over the last couple of years, banks have more or less moved to the BOE for nearly all of their overnight borrowing. The reason is that the base rate of 0.5% is lower than the LIBOR rate (0.77375%).

The reason the British tax payer is subsiding the banks is that the gilt rate is currently about 5% ( the rate the Government borrows money), thus for every pound the banks borrow at a discounted rate, the taxpayer subsidises their borrowing by paying 900% more interest than they do, as we borrow at 5% and then lend the same money to the banks and only charge them 0.5%.

I have to be careful with my words here, but from what I have heard, one of the reasons the BOE are ignoring inflation and more or less making up inflation figures is due to heavy lobbying by the banks. The lobbying departments are so much targeting MPs but BOE committee members. One person told me "I bet Andrew Sentance doesn't get invited as much as the rest".

If this is true, it is beyond words as a very few are lining their pockets at the expense of 52 million people and all due to a corrupt 9 people.

[General Congreve]

Never realised this, but I have been told this from bank insiders who work for lobbying departments in banks.

Banks are supposed to turn to the Bank of England as a source of last resort. This application to the BOE is kept secret and not for the public or any other organisation to know about. Over the last couple of years, banks have more or less moved to the BOE for nearly all of their overnight borrowing. The reason is that the base rate of 0.5% is lower than the LIBOR rate (0.77375%).

The reason the British tax payer is subsiding the banks is that the gilt rate is currently about 5% ( the rate the Government borrows money), thus for every pound the banks borrow at a discounted rate, the taxpayer subsidises their borrowing by paying 900% more interest than they do, as we borrow at 5% and then lend the same money to the banks and only charge them 0.5%.

I have to be careful with my words here, but from what I have heard, one of the reasons the BOE are ignoring inflation and more or less making up inflation figures is due to heavy lobbying by the banks. The lobbying departments are so much targeting MPs but BOE committee members. One person told me "I bet Andrew Sentance doesn't get invited as much as the rest".

If this is true, it is beyond words as a very few are lining their pockets at the expense of 52 million people and all due to a corrupt 9 people.

This is news?

[jplevene]

This is news?

This hit home as we are still giving the banks over £30 billion every year, that is as much money as all the councils in England spend every year on local services. We already gave them billions, and we are still giving them more, they don't even earn us that much in tax !!!

[OnlyMe]

The banking scam goes right to the top.

It is fraud on a collossal scale.

[GloomMonger]

Is this QE money? And when that's gone is QE2 going to continue the fraud?

[Tiger Woods?]

Never realised this, but I have been told this from bank insiders who work for lobbying departments in banks.

Banks are supposed to turn to the Bank of England as a source of last resort. This application to the BOE is kept secret and not for the public or any other organisation to know about. Over the last couple of years, banks have more or less moved to the BOE for nearly all of their overnight borrowing. The reason is that the base rate of 0.5% is lower than the LIBOR rate (0.77375%).

The reason the British tax payer is subsiding the banks is that the gilt rate is currently about 5% ( the rate the Government borrows money), thus for every pound the banks borrow at a discounted rate, the taxpayer subsidises their borrowing by paying 900% more interest than they do, as we borrow at 5% and then lend the same money to the banks and only charge them 0.5%.

I have to be careful with my words here, but from what I have heard, one of the reasons the BOE are ignoring inflation and more or less making up inflation figures is due to heavy lobbying by the banks. The lobbying departments are so much targeting MPs but BOE committee members. One person told me "I bet Andrew Sentance doesn't get invited as much as the rest".

If this is true, it is beyond words as a very few are lining their pockets at the expense of 52 million people and all due to a corrupt 9 people.

[onesmallstep]

They have to recapitalise you know, they are essential for the economy.

[libspero]

Be interesting to know if this has any basis in fact..

Bits that sound odd:

The BoE can borrow for much less than 5% Linky

I thought the base rate was for overnight deposits, not overnight borrowing?

I thought the standing lending facility offered to all banks by the BoE was charged at 1% above base rate.. so 1.5% (Linky)

Can anyone who understands it better shed any light.. ?

[@contradevian]

Be interesting to know if this has any basis in fact..

Bits that sound odd:

The BoE can borrow for much less than 5% Linky

I thought the base rate was for overnight deposits, not overnight borrowing?

I thought the standing lending facility offered to all banks by the BoE was charged at 1% above base rate.. so 1.5% (Linky)

Can anyone who understands it better shed any light.. ?

Its the lobbying of MPC members that worries me. And MP's have "form."

[leicestersq]

Be interesting to know if this has any basis in fact..

Bits that sound odd:

The BoE can borrow for much less than 5% Linky

I thought the base rate was for overnight deposits, not overnight borrowing?

I thought the standing lending facility offered to all banks by the BoE was charged at 1% above base rate.. so 1.5% (Linky)

Can anyone who understands it better shed any light.. ?

My understanding was pretty much like yours, but I didnt think that the BofE lent money out except in real emergencies

If what the OP describes is true, there is no point in being a bank any more. Instead they are making free money on a surefire arbitrage. What is the point of that, they might as well just give them the money?

If it is true, and they are printing money and giving it to the banks in this backdoor fashion, that is outright fraud against the taxpayer, and those involved should be facing criminal prosecution.

FWIW, I doubt the veracity of the original accusation. However, I wouldnt be totally surprised if it were true.

[clockslinger]

Never realised this, but I have been told this from bank insiders who work for lobbying departments in banks.

Banks are supposed to turn to the Bank of England as a source of last resort. This application to the BOE is kept secret and not for the public or any other organisation to know about. Over the last couple of years, banks have more or less moved to the BOE for nearly all of their overnight borrowing. The reason is that the base rate of 0.5% is lower than the LIBOR rate (0.77375%).

The reason the British tax payer is subsiding the banks is that the gilt rate is currently about 5% ( the rate the Government borrows money), thus for every pound the banks borrow at a discounted rate, the taxpayer subsidises their borrowing by paying 900% more interest than they do, as we borrow at 5% and then lend the same money to the banks and only charge them 0.5%.

I have to be careful with my words here, but from what I have heard, one of the reasons the BOE are ignoring inflation and more or less making up inflation figures is due to heavy lobbying by the banks. The lobbying departments are so much targeting MPs but BOE committee members. One person told me "I bet Andrew Sentance doesn't get invited as much as the rest".

If this is true, it is beyond words as a very few are lining their pockets at the expense of 52 million people and all due to a corrupt 9 people.

And now Andrew Sentance is about to be moved on to be replaced almost certainly by (probably a female to look `balanced`) ex bankster/ CBI member who, you can be sure, will be more inclined to toe the proper line.

[clockslinger]

This hit home as we are still giving the banks over £30 billion every year, that is as much money as all the councils in England spend every year on local services. We already gave them billions, and we are still giving them more, they don't even earn us that much in tax !!!

Yeah, but the local authorities only spend it on happy clappy public sector workers ...ask Ralphmalph

[U235]

Be interesting to know if this has any basis in fact..

I thought the base rate was for overnight deposits, not overnight borrowing?

From BOE website: http://www.bankofengland.co.uk/monetarypolicy/how.htm

"The Bank of England sets an interest rate at which it *lends* to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The Bank supplies the cash which the banking system as a whole needs to achieve balance by the end of each settlement day. Because the Bank is the final provider of cash to the system it can choose the interest rate at which it will provide these funds each day. The interest rate at which the Bank supplies these funds is quickly passed throughout the financial system, influencing interest rates for the whole economy."

[libspero]

The Bank supplies the cash which the banking system as a whole needs to achieve balance by the end of each settlement day. Because the Bank is the final provider of cash to the system it can choose the interest rate at which it will provide these funds each day. The interest rate at which the Bank supplies these funds is quickly passed throughout the financial system, influencing interest rates for the whole economy."

Ok, if we presume then that banks can all borrow overnight at 0.5% from the BoE.. what does this mean to the tax payer?

The BoE can borrow itself on a 6 month term at 0.65%. So we would be losing 0.15%, unless it can borrow for less on a shorter term.

If for arguments sake we are losing 0.15%, then presumably this is on a "float", the banks have to be able to pay the money back the next day, so it is not an unlimited facility for banks to borrow from. More of a short term facility to make the books balance. Right?

[leicestersq]

Ok, if we presume then that banks can all borrow overnight at 0.5% from the BoE.. what does this mean to the tax payer?

The BoE can borrow itself on a 6 month term at 0.65%. So we would be losing 0.15%, unless it can borrow for less on a shorter term.

If for arguments sake we are losing 0.15%, then presumably this is on a "float", the banks have to be able to pay the money back the next day, so it is not an unlimited facility for banks to borrow from. More of a short term facility to make the books balance. Right?

I wrote to the bank of England about the 'Base Rate'. The basic question was this. Who do you lend to at the Base Rate, and on which terms?

I never did get a straight answer from them, and they took ages to answer. Just a load of gibberish to be frank.

Funnily enough I did press them to give me a simple answer, and they sent me back an email which said some silly things. I responded to that pointing out that what they said was a bit daft (there was a bit in there about the loans that they made were risk free, I just assumed that a junior person who didnt know what they were doing had been assigned to fob me off). Anyway I received a phone call with about 1 hour from a senior sounding chap, though I didnt get his name. We both agreed that there was some risk in the loans that the BofE made after all.

Anyway, one thing he was clear on, was that the Base Rate was the rate of interest that the BofE paid to deposits left overnight with them by the commercial banks. That is what he said, I remember it clearly. It made sense to me. The BofE must pay a lower rate of interest on deposits than on its loans, because it must be the most creditworthy borrower of all given its ability to print the currency.

If you could borrow from it at 0.5%, and just roll the loan over day after day, you could arbitrage yourself a fortune.

Lets hope that my understanding of what he said is true. I wouldnt like to think that they were lending at this rate of interest to our commercial banks. Presumably if they do lend money to the banks, they have to post collateral like Gilts, and presumably they either dont get the interest on the Gilts, or have to pay a higher rate of interest on the loan than they are receiving in interest from the gilts, or again, they can arbitrage themselves free money.

Sadly, the Bank of England doesnt appear to be able to describe what it does in simple words. That probably means it is hiding something.

[libspero]

Anyway, one thing he was clear on, was that the Base Rate was the rate of interest that the BofE paid to deposits left overnight with them by the commercial banks. That is what he said, I remember it clearly. It made sense to me. The BofE must pay a lower rate of interest on deposits than on its loans, because it must be the most creditworthy borrower of all given its ability to print the currency.

If you could borrow from it at 0.5%, and just roll the loan over day after day, you could arbitrage yourself a fortune.

That was my understanding.. and roughly matches this:

- It is not to be confused with the BoE's Standing Lending Facility which allows all participating banks to borrow overnight at a penalty rate of one percentage point above the Bank rate.

Here

[FreeTrader]

It's all in the red book.

This was updated in December to include an explanation of the BoE's operations since QE started in March 2009, when the normal reserves averaging scheme was suspended.

http://www.bankofengland.co.uk/markets/money/publications/redbookdec10.pdf

[Vagabond]

That was my understanding.. and roughly matches this:

Here

So they lend to commercial banks at 1.5% at the minute.

How long would these loans be for? If they can roll just them over, they've effectively been given a blank cheque.

Also,base +1% doesn't seem like much of a 'penalty' rate to me. Try accessing your emergency bank overdraft and then you find out what a real penalty rate is.

[libspero]

It's all in the red book.

This was updated in December to include an explanation of the BoE's operations since QE started in March 2009, when the normal reserves averaging scheme was suspended.

http://www.bankofengland.co.uk/markets/money/publications/redbookdec10.pdf

Thanks FT.. appreciated

The demand for reserves

15 In the Bank’s standard reserves averaging scheme, for each

reserves maintenance period (running from the date of one

MPC policy decision to the next) the MPC sets the reserves

remuneration rate (Bank Rate) and each scheme participant

sets a target for the average amount of reserves they will hold,

taking into account their own liquidity management needs.

They can adjust their targets from maintenance period to

maintenance period if those needs change. And within each

maintenance period, a bank can vary its reserves holdings from

day to day. Those holdings are remunerated at Bank Rate so

long as they are, on average over the maintenance period,

within a small range around the target.

16 Average reserves outside the target range attract a charge.

But a bank can avoid that charge by making use of the Bank’s

Operational Standing Facilities (‘OSFs’). These bilateral

facilities allow banks to borrow overnight from the Bank

(against high-quality collateral) at a rate above Bank Rate or to

deposit reserves overnight with the Bank at a rate below Bank

Rate. Commercial banks will typically be unwilling to deal in

the market on worse terms than those available at the Bank.

So these facility rates act as a ceiling and a floor in rate setting,

forming an interest rate corridor around the rates at which

banks should be willing to deal in the market

Seems to say, banks can borrow at base rate up to an agreed amount.

After this there is a penalty, unless they use the OSF which is still above the base rate (I think that's where my 1.5% SLF comes in).

So if the can borrow at LIBOR of 0.77% it seems unlikely they would borrow at 1.5%...

[jplevene]

Be interesting to know if this has any basis in fact..

Bits that sound odd:

The BoE can borrow for much less than 5% Linky

I thought the base rate was for overnight deposits, not overnight borrowing?

I thought the standing lending facility offered to all banks by the BoE was charged at 1% above base rate.. so 1.5% (Linky)

Can anyone who understands it better shed any light.. ?

They didn't give me the figures, I just looked them up to try and shed more light.

It was just explained that more and more borrowing from BOE was happening than it should as it was cheap, and that their main priority was lobbying BOE to keep rates low. This means that it is corruption of the BOE committee members on a grand scale, as their main priority is inflation and not looking after banks, feeding us spurious forecasts to try to cover their tracks.

By the way, from what I understood, most of the lobbying takes place getting the committee members to speak at dinners etc., so the more they side with the banks, the more public speaking appointments they get.

[leicestersq]

They didn't give me the figures, I just looked them up to try and shed more light.

It was just explained that more and more borrowing from BOE was happening than it should as it was cheap, and that their main priority was lobbying BOE to keep rates low. This means that it is corruption of the BOE committee members on a grand scale, as their main priority is inflation and not looking after banks, feeding us spurious forecasts to try to cover their tracks.

By the way, from what I understood, most of the lobbying takes place getting the committee members to speak at dinners etc., so the more they side with the banks, the more public speaking appointments they get.

Isnt there a legal requirement for the MPC to keep inflation low?

I wonder what the punishment for non-compliance is? Presumably ten years minimum and all assets seized given that they do so little work and that there is so much for the nation at stake.

[OnlyMe]

They didn't give me the figures, I just looked them up to try and shed more light.

It was just explained that more and more borrowing from BOE was happening than it should as it was cheap, and that their main priority was lobbying BOE to keep rates low. This means that it is corruption of the BOE committee members on a grand scale, as their main priority is inflation and not looking after banks, feeding us spurious forecasts to try to cover their tracks.

By the way, from what I understood, most of the lobbying takes place getting the committee members to speak at dinners etc., so the more they side with the banks, the more public speaking appointments they get.

Let them eat steak.

[Vagabond]

Thanks FT.. appreciated

Seems to say, banks can borrow at base rate up to an agreed amount.

After this there is a penalty, unless they use the OSF which is still above the base rate (I think that's where my 1.5% SLF comes in).

So if the can borrow at LIBOR of 0.77% it seems unlikely they would borrow at 1.5%...

This corridor is usually symmetric with the deposit rate

25bps below Bank Rate and the lending rate 25bp above Bank

Rate. The Bank is currently remunerating all reserves at Bank

Rate so there is no need for the deposit facility to be used by

the reserves account holders. But some OSF participants do

not have reserves accounts, meaning the deposit facility still

provides a floor on market rates. The deposit rate was set at

zero in March 2009 with the lending rate remaining 25bp

above Bank Rate.

If they're using the OSF, it looks like they can borrow at 0.75%, 0.02% below current LIBOR. Looking at it, it seems that anytime LIBOR is more than base + 0.25% its cheaper to borrow from the BoE rather than through other banks. That was the whole idea though wasn't it? to control the LIBOR rate.

[happy_renting]

Isnt there a legal requirement for the MPC to keep inflation low?

I wonder what the punishment for non-compliance is? Presumably ten years minimum and all assets seized given that they do so little work and that there is so much for the nation at stake.

If the BoE/MPC fails to keep inflation within the specified target range, the Governor of the BOE has to Write A Letter To The Chancellor Explaining Why.

Having to Write A Letter To The Chancellor Explaining Why is dire punishment indeed, it must have the MPC quaking in their boots as the dinner invites roll in.

[libspero]