Banks’ Credit Ratings Downgraded As State Bailout Guarantees Recede

[interestrateripoff]

http://www.independent.co.uk/news/business/news/banks-credit-ratings-downgraded-as-state-bailout-guarantees-recede-9650572.html

The scourge of “too-big-to-fail” banks in the UK is receding, according to the Moody’s credit rating agency.

Moody’s downgraded the outlook of British financial institutions yesterday from stable to negative and said the major reason for the change was the increasing likelihood that banks would not be able to count on a public bailout if they were to get into trouble again.

The previous Labour government pumped £66bn of taxpayers’ money into Lloyds and the Royal Bank of Scotland during the 2008/09 financial crisis because officials judged that allowing those insolvent banks to go bankrupt would inevitably impose catastrophic costs on the wider economy.

Since then, politicians and regulators have been trying to tackle the problem of too-big-to-fail by establishing a legal resolution regime for complex troubled financial institutions, whereby unsecured bondholders would automatically take losses in a crisis.

“The UK Government is now able to finalise the secondary legislation to implement the structural reforms relating to the UK resolution and bail-in regime and the related ring-fencing framework,” said Moody’s Carlos Suarez Duarte, who wrote the report.

Moody’s added that the Coalition’s legislation to impose a “ring-fence” around the retail arms of large banks by 2019 would also help remove the need for taxpayers to rescue banks in another emergency.

The withdrawal of the de facto state guarantee of banks’ liabilities means their credit rating should fall, which is why Moody’s has changed its grading of their bonds. Andy Haldane, the Bank of England’s chief economist, has estimated that the world’s big banks enjoyed an implicit taxpayer subsidy, through lower funding costs as a result of being too-big-to-fail, of €700bn (£550bn) a year at the height of the crisis in 2009.

A quiet admission the govt is effectively bankrupt and any new rescue would be a saver bail-in?

[TheCountOfNowhere]

http://www.independent.co.uk/news/business/news/banks-credit-ratings-downgraded-as-state-bailout-guarantees-recede-9650572.html

A quiet admission the govt is effectively bankrupt and any new rescue would be a saver bail-in?

I hear that advert for the savings protection scheme on the radio every day "in the unlikely event you'll need it you savings will be safe".

I usually turn the radio off and start ranting.

[Ah-so]

http://www.independent.co.uk/news/business/news/banks-credit-ratings-downgraded-as-state-bailout-guarantees-recede-9650572.html

A quiet admission the govt is effectively bankrupt and any new rescue would be a saver bail-in?

No. It means bail-in, not bail-out.

[Ah-so]

I hear that advert for the savings protection scheme on the radio every day "in the unlikely event you'll need it you savings will be safe".

I usually turn the radio off and start ranting.

What do you rant about? That the government is wasting tax payers' money by advertising, I suppose. Other than that, it seems perfectly sensible for people to be aware that savings up to GBP 85k are protected. As long as people do not spread misinformation about the FSCS works, it should avoid a retail bank run. Obviously some banks are clearly at risk - the Co-op springs to mind.

[TheCountOfNowhere]

Ahhhhh. I remember when a bank down grade was big news, a European bank collapsing would be a major headline and a billion pounds was a lot of money.

I miss those days

[TheCountOfNowhere]

What do you rant about?

That they are spouting propaganda to make the masses feel safe about their savings when in reality the who system is walking a fine line.

[Sancho Panza]

Bond holders getting a hair cut? Insane.It'll never work.

Wibble.

[Ash4781]

The Financial Conduct Authority (FCA) have banned British banks from selling Coco's (contingent convertible bonds) to individual retail investors. It is interesting that the FCA have done this. Distribution looks limited to professional, institutional, and wealthy.

[Goat]

The Financial Conduct Authority (FCA) have banned British banks from selling Coco's (contingent convertible bonds) to individual retail investors. It is interesting that the FCA have done this. Distribution looks limited to professional, institutional, and wealthy.

Can you imagine the headlines if the banks were selling them retail and did convert them to equity? The Wail would be nothing but stories about heartless bankers stealing granny's life savings and giving her worthless shares in return.

It'd make PPI look like nothing.

[Ash4781]

Can you imagine the headlines if the banks were selling them retail and did convert them to equity? The Wail would be nothing but stories about heartless bankers stealing granny's life savings and giving her worthless shares in return.

It'd make PPI look like nothing.

I don't know the hierarchy of liabilities or the actual FCA press release details. However, the customer always pays. Eventually. I don't know if they are traded on a conventional market? Presumably the price is related in part to the probability of the contingent event? FCA think they are risky so my view as they are closer to equity but currently they are debt finance. Again I don't know the hierarchy.

[wonderpup]

I hear that advert for the savings protection scheme on the radio every day "in the unlikely event you'll need it you savings will be safe".

An event so unlikely that the precautions in place for it's occurrence must be advertised on a daily basis?

Were I not the the trusting person I am I might suspect that the definition of 'unlikely' being used in this context is not of the common or garden variety, but of a more exotic nature.