What Would Happen If The U K's Biggest Bank Went Bust?

[Bruce Banner]

Would this government nationalise it as Labour did with (much smaller) Northern Rock, or would they let it go and pay out the minimum, ie FSA guarantee of £85K per depositor.

[Bloo Loo]

I think it was bust 3 years ago...you have your answer....they lie.

[TheCountOfNowhere]

It thought it already had.

So we know the answer...the tax-payers will bail them out. They will print money to keep them afloat and house prices will collapse, go up a bit, then collapse again.

The country will be in a right mess.

The public sector, who are actually part of the problem, will bury their heads in the sand and ask for more and more money anyway.

Inflation will kick off, leading to people unable to afford to live.

Interest rates will stay low to punish savers.

And the bankers will be laughing up their sleeve at the lot of us.

QED.

['Bart']

or would they let it go and pay out the minimum, ie FSA guarantee of £85K per depositor.

From a politician's point of view this would be seen as being too electorally damaging I would have thought.

[sympatex]

Isn't the government Britains biggest 'bank' now. So if they went bust i guess they would print whatever they wanted so the answer would be, they wouldn't go bust and nothing would happen. Food, fuel, money borrowing and plasma TV's might get a bit more expensive though.

[Bruce Banner]

From a politician's point of view this would be seen as being too electorally damaging I would have thought.

I agree.

[leicestersq]

Would this government nationalise it as Labour did with (much smaller) Northern Rock, or would they let it go and pay out the minimum, ie FSA guarantee of £85K per depositor.

I am sure I saw an interview with David Cameron where he was talking about handling it a different way. His proposal was to not use taxpayers money, and instead take depositor money in excess of that protected, and bondholders money, to make good on the losses, and to build up some new capital in the bank. In exchange bondholders and depositors would get shares, and existing shareholders would get the shaft.

Whether or not Dave C is Dave the Brave and would actually do this is another matter, but it is the right thing to do.

Some sort of punishment for the directors would be good too. All directors at banks in the UK with FSCS insured deposits should have unlimited liability, no protection for their bank pensions, and have their own personal capital backing the bank, so it can be seized if the bank goes under.

[Bloo Loo]

I am sure I saw an interview with David Cameron where he was talking about handling it a different way. His proposal was to not use taxpayers money, and instead take depositor money in excess of that protected, and bondholders money, to make good on the losses, and to build up some new capital in the bank. In exchange bondholders and depositors would get shares, and existing shareholders would get the shaft.

Whether or not Dave C is Dave the Brave and would actually do this is another matter, but it is the right thing to do.

Some sort of punishment for the directors would be good too. All directors at banks in the UK with FSCS insured deposits should have unlimited liability, no protection for their bank pensions, and have their own personal capital backing the bank, so it can be seized if the bank goes under.

if he said that then he is a twunt of the first order.

Depositors money is a liability....they clearly wouldnt have ANY excess whatsoever as the runs on the bank would have gotten rid of it, and made it bust in the first place.

[_w_]

I am sure I saw an interview with David Cameron where he was talking about handling it a different way. His proposal was to not use taxpayers money, and instead take depositor money in excess of that protected, and bondholders money, to make good on the losses, and to build up some new capital in the bank. In exchange bondholders and depositors would get shares, and existing shareholders would get the shaft.

Indeed? I also remember him telling us not long ago that now was the time for a referendum on Europe.

[shell]

It thought it already had.

So we know the answer...the tax-payers will bail them out. They will print money to keep them afloat and house prices will collapse, go up a bit, then collapse again.

The country will be in a right mess.

The public sector, who are actually part of the problem, will bury their heads in the sand and ask for more and more money anyway.

Inflation will kick off, leading to people unable to afford to live.

Interest rates will stay low to punish savers.

And the bankers will be laughing up their sleeve at the lot of us.

QED.

The bit I like is the 'house prices will collapse' which you do twice. Can you elaborate? Is there a really good chance of this? 'Collapse' as in a few % or a good 25-50%?

[Lepista]

From a politician's point of view this would be seen as being too electorally damaging I would have thought.

Until it's not.

But at what point is that? £1 trillion QE? 10? 100?

it WILL happen, the question is just 'when'.

[leicestersq]

if he said that then he is a twunt of the first order.

Depositors money is a liability....they clearly wouldnt have ANY excess whatsoever as the runs on the bank would have gotten rid of it, and made it bust in the first place.

No bank run takes out everything, doors close long before then. You do this with what you have when the doors close.

[Bruce Banner]

No bank run takes out everything, doors close long before then. You do this with what you have when the doors close.

How can you take out money after the doors have closed?

[leicestersq]

How can you take out money after the doors have closed?

You dont, that is the whole point. You have to restructure everything after the doors close. When the doors close it is too late.

The idea is that they will open again once the bank has been recapitalised in this way. If the run happens again, it shouldnt be a problem as the bank will be solvent and be able to sell assets and/or put up good assets as collateral for short term loans.

[leicestersq]

if he said that then he is a twunt of the first order.

Depositors money is a liability....they clearly wouldnt have ANY excess whatsoever as the runs on the bank would have gotten rid of it, and made it bust in the first place.

I am one of those of the first order as well then. This seems to me the best way to deal with a failed bank.

It seems to me right that depositors have taken a risk in return for interest on their deposits and the ability to make payments more easily, so with risk comes the reward or not as the case may be.

So restructuring reduces the liabilities by writing down the value of those deposits until the bank is solvent again. That is how a normal bankruptcy works, why should banks be any different?

[Rare Bear]

I am one of those of the first order as well then. This seems to me the best way to deal with a failed bank.

It seems to me right that depositors have taken a risk in return for interest on their deposits and the ability to make payments more easily, so with risk comes the reward or not as the case may be.

So restructuring reduces the liabilities by writing down the value of those deposits until the bank is solvent again. That is how a normal bankruptcy works, why should banks be any different?

Trouble is that these days the real interest rate on deposits is negative so there better be some measure of security otherwise under the mattress begins to look much more attractive. If that were the case how healthy would the banks be?

[leicestersq]

Trouble is that these days the real interest rate on deposits is negative so there better be some measure of security otherwise under the mattress begins to look much more attractive. If that were the case how healthy would the banks be?

They are negative, but clearly people arent taking their money out. If they did, banks would be forced to raise interest rates to depositors, it is a market after all. If the banks do get withdrawals, and dont raise interest rates on deposits and loans in line with market demand, then they deserve to go out of business asap.

[abroad]

Depositors are backed by a current government indemnity, Cameron can't remove this without causing a run on the banks. EU laws give Bondholders primacy over depositors therefore government would need to default before bank bondholders take a haircut.This is what Merkel has been pushing for and has been blocked by other EU countries and the Bondholders(disguised as the banks themselves), essentially Bondholders get automatic primacy over depositors....so its shareholders, depositors then bondholders......

Cameron can't rewrite the statute books.

[winkie]

Would this government nationalise it as Labour did with (much smaller) Northern Rock, or would they let it go and pay out the minimum, ie FSA guarantee of £85K per depositor.

The good bit or the bad bit?

[leicestersq]

Depositors are backed by a current government indemnity, Cameron can't remove this without causing a run on the banks. EU laws give Bondholders primacy over depositors therefore government would need to default before bank bondholders take a haircut.This is what Merkel has been pushing for and has been blocked by other EU countries and the Bondholders(disguised as the banks themselves), essentially Bondholders get automatic primacy over depositors....so its shareholders, depositors then bondholders......

Cameron can't rewrite the statute books.

UH, well I thought Cameron could rewrite the statute books, that is why he was elected.

I thought that the depositors were only insured to a certain amount, after that limit (£85k is it) there money is at risk. I didnt think that Bondholders were before depositors in the queue, I thought that they were at the same level. Can anyone say if abroad has it right or not here?

[dances with sheeple]

From a politician's point of view this would be seen as being too electorally damaging I would have thought.

Not really? how many sheeple would have even close to the FSA limits?

[jammo]

All their skyscrpaers and assets will be liquidized. The bank chief will get no pension/ payoff, nada. The regulatory body will have a major structural reform to ensure their lack off foresight is never repeated. Finally, the boss of the bank will appear in shame on television to make a humble apology.

Oh wait a minute, this isn't the What Should Happen thread is it..

[Mr. Piddle]

I have never really understood why they bailed out the banks, would it not be better just to let them go bust on the shareholder's shoulders (after all investment apparently carried risk ) and just give the depositers back there money through the guarantee schemes? Someone would buy up the mortgage debt, job done

Labour must have been thinking along different lines but anyone know what?