Uk Building Societies - Fractional Reserve Banking?

[cbs7]

Hi

A simple question I hope!

Do UK Building Societies use fractional reserve banking when lending out new mortgages?

I've been looking for relatively safe places to park cash for a while, and the Northern Rock debacle has made me think about the problem with a bit more focus.

I was wondering whether it would be safer to keep cash in a building society than a bank, but then to some extent it would seem riskier as building societies are more exposed to the mortgage market for their profits than some banks.

Does anyone know where realtively reliable UK credit ratings for banks can be found?

Cheers

[cbs7]

Of course they do.

Example, from Nationwide's 2007 Annual Report, page 10

Which means they only hold 11% of deposits in reserve. The rest is loaned out.

Also note that Nationwide is the strongest and biggest BS, many smaller ones are in much worse shape.

Thanks Cgnao!

That is amazing that 11% is considered a strang solvency ratio. Do you know if these figures are available anywhere easily for all banks and institutions, or would I need to go and look at annual reports for each bank or building society?

BTW, I know you are big on gold which I have and am continuing to accumulate. I do have some sizeable amounts cash which I need to hold (e.g. tax to be paid), so what banks would you say are the mostly likely to remain in business when the s**t really hits the fan? I think I read somewhere Lloyds are considered the most credit worthy UK bank

[Optobear]

Hi

A simple question I hope!

Do UK Building Societies use fractional reserve banking when lending out new mortgages?

I've been looking for relatively safe places to park cash for a while, and the Northern Rock debacle has made me think about the problem with a bit more focus.

I was wondering whether it would be safer to keep cash in a building society than a bank, but then to some extent it would seem riskier as building societies are more exposed to the mortgage market for their profits than some banks.

Does anyone know where realtively reliable UK credit ratings for banks can be found?

Cheers

I don't think fractional reserve banking is something that any individual bank can indulge itself in. Rather it is the entire system that involves fractional reserve (Person A deposits some money with a bank, that bank lends out a fraction to person B - perhaps 97% of it, person B spends the money by buying from person / organisation C. The point is that to person C it becomes real money. They can then re-deposit it with another bank, and the same original money goes around and around... )

Any bank that kept 100% of depositor's funds (acting like a piggy bank), would not be able to use that money to earn you some interest. (Just take your cash along to a bank and put it in a safety deposit box, it will be essentially safe - but it will be eroded by inflation).

All building societies and bank are vulnerable to a run - they don't have enough to give back without calling in the majority of their loans (which is impossible, especially with mortgages). Each has some of their own assets (in the case of a bank owned by investors, or a BS owned by the members), and these assets are meant to plug any short term gaps, and prevent runs. So in other words, those assets disappear first, and those people suffer the loss.

The best bet (in terms of safety) is probably NS&I, The government underwrite it, the only risk is that of a general financial collapse (or inflation being greater than the interest rate).

The other alternative is to put £3k into each of many independent banks and building societies. That way you spread your risk, and, significantly - if there was a major system wide run, the institutions would probably place withdrawal limits - and you would then be able to get a small out of many different institutions.

[cbs7]

Nobody, not even the wizards at the BoE, knows which banks/building societies are on the hook and for how much. Keep the cash in UK gilts maturing in no longer than 6 months. They are extremely liquid, you can sell them just before you need the cash.

EDIT: typo

Can I only buy a gilt through my stockbroker? My concern around this is that I then introduce the risk of my broker going broke when precisely I'm looking to avoid this risk! Is there a way of buying Gilts directly from the Treasury?

Thanks!

[packofwenty]

Of course they do.

Example, from Nationwide's 2007 Annual Report, page 10

Which means they only hold 11% of deposits in reserve. The rest is loaned out.

Also note that Nationwide is the strongest and biggest BS, many smaller ones are in much worse shape.

Do you understand what Fractional Reserve banking IS?

It isn't about "holding 11% of deposits in reserve", it's about PRINTING MONEY OUT OF THIN AIR.

Fractional Reserve banking means that the banks (and possibly building societies, but I don't know, because you don't know what fractional reserve means) are allowed to just make up money out of thin air, give that counterfeit (i.e. made up) money to the borrower, and then OWN the goods or labour that the borrower now OWES the bank for that loan - which they just made up from nowhere.

Watch the videos "Corrupt Banking System" on Youtube, that explains the whole thing.

[Concrete Jungle]

Do you understand what Fractional Reserve banking IS?

It isn't about "holding 11% of deposits in reserve", it's about PRINTING MONEY OUT OF THIN AIR.

Fractional Reserve banking means that the banks (and possibly building societies, but I don't know, because you don't know what fractional reserve means) are allowed to just make up money out of thin air, give that counterfeit (i.e. made up) money to the borrower, and then OWN the goods or labour that the borrower now OWES the bank for that loan - which they just made up from nowhere.

Watch the videos "Corrupt Banking System" on Youtube, that explains the whole thing.

What are you playing at bringing this thread and CGNAO back from the HPC ether? Are you made from 100% mechanically recovered meat perchance?

Edited July 22, 2010 by Concrete Jungle

[deflation]

I got caught by it too. Eric has resurrected 4 or more threads today too. Is there something in the water? Cyber attack?