Just Realised I Have The Power To.....

[VeryMeanReversion]

A month ago, I gave 60 days notice to close my STR account at Nottingham Building society. (Didn't like them dropping

rates when everyone else was pushing them up, plus Nottingham is top of my list for a big HPC)

Just realised that given a 10:1 reserves ratio, I've stopped around 15 average sized local mortgages being available.

(based on STR fund and local house prices).

As long as I put the money in NS&I savings, it gets withdrawn from the mortgage market.

If all HPC'rs were to take their money out of mortgage-providing institutions, we could take many thousands

of mortgages off the market. Mortgage securitisation is dead so banks cant turn to that market for funds any more.

Is this worthy of being one of Baldricks cunning plans or is the loan:reserve ratio much smaller?

VMR.

[DrBob]

Is this worthy of being one of Baldricks cunning plans or is the loan:reserve ratio much smaller?

It's not the world's most authoritative resource, but according to Wikipedia:

The Bank of England holds to a voluntary reserve ratio system. In 1998 the average cash reserve ratio across the entire United Kingdom banking system was 3.1%.

If this article is correct, there is no reserve ratio requirement in the UK or US. I don't know how this tallies with the Basel II capital adequacy rules, which as far as I can tell do not specify a single reserve ratio, but use a more complex mechanism to determine capital requirements.

Nonetheless, by taking out your deposit, you will have reduced the building society's reserves so they'll need to pay better interest to keep hold of/attract more savers in the future.

Well done for withdrawing your STR fund, by the way, I don't know how you could sleep at night with that much cash all held in a single (and rather small) institution...

[Bingley Bloke]

Interesting. I'd be interested to learn how the numbers stack-up on this.

I'm currently looking for an alternative to my Halifax ISA which has a piss-poor rate of interest - so much so that I could put it an a number of savings accounts currently available on which tax is payable and still be getting a better return. I'd like to save my money somewhere that it won't be used to fund loans, so NS&I could be the way to go. If my doing so has the effect of wrongfooting lenders then that's a bonus!

Edited February 6, 2008 by Bingley Bloke

[Optobear]

It's not the world's most authoritative resource, but according to Wikipedia:

The Bank of England holds to a voluntary reserve ratio system. In 1998 the average cash reserve ratio across the entire United Kingdom banking system was 3.1%.

If this article is correct, there is no reserve ratio requirement in the UK or US. I don't know how this tallies with the Basel II capital adequacy rules, which as far as I can tell do not specify a single reserve ratio, but use a more complex mechanism to determine capital requirements.

Nonetheless, by taking out your deposit, you will have reduced the building society's reserves so they'll need to pay better interest to keep hold of/attract more savers in the future.

Well done for withdrawing your STR fund, by the way, I don't know how you could sleep at night with that much cash all held in a single (and rather small) institution...

I think there are various ratios.

The first is how much cash is held in the system compared to amount on deposit. This is a very small amount.

The second is how much is lent out compared to how much is on deposit. With securitisation this is effectively negative for someone like Northern Rock.

The Basel part relates to how much capital the bank has compared to its lending.

The important distinction is that the first two relate to customer's money (or customer's debts). The final part is a ratio that compares lending to Shareholder's funds. So the bank has capital (From shareholders and retained profits), and if loans go bad, then the losses have to be made up from that source - not from depositor's money. The capital rules are designed to protect depositor's funds.

What we are seeing is that banks have got large losses (and the need to pay large bonuses to retain the staff who made those losses?), and so they don't have enough capital on their own balance sheets to support the ratios.

Hope that helps

[right_freds_dead]

you get teh same effect saving in gold.

i was thinking,

"hey, you bastards just priced me out of my own country by lending to speculators. whip - ill be taking MY money back thank you very much."

now what you going to lend with ?

= loans.

[VeryMeanReversion]

you get teh same effect saving in gold.

Only if the seller puts your cash into a non-mortgage-issuing institution. Most likely, it goes in their bank account and you havent help

reduce mortgage availability overall.

VMR.

[huw]

A month ago, I gave 60 days notice to close my STR account at Nottingham Building society. (Didn't like them dropping

rates when everyone else was pushing them up, plus Nottingham is top of my list for a big HPC)

Just realised that given a 10:1 reserves ratio, I've stopped around 15 average sized local mortgages being available.

(based on STR fund and local house prices).

As long as I put the money in NS&I savings, it gets withdrawn from the mortgage market.

If all HPC'rs were to take their money out of mortgage-providing institutions, we could take many thousands

of mortgages off the market. Mortgage securitisation is dead so banks cant turn to that market for funds any more.

Is this worthy of being one of Baldricks cunning plans or is the loan:reserve ratio much smaller?

Once NBS has written a mortgage, the money might well be deposited with a different (more national) institution so I don't think that the multiplying effect of your savings will be concentrated in your local area. You might be able to puzzle out their ratio from this (or get the full accounts from a branch).

In the hope of learning more about how to read this stuff, I'm pasting the 2006 summary data below:

2006 ('000s)

Assets

Liquid assets 438,326

Mortgages 2,144,293

Derivative financial instruments 19,854

Fixed and other assets 16,155

Total assets 2,618,628

Liabilities

Shares 1,901,058

Borrowings 539,824

Other liabilities 14,821

Derivative financial instruments 1,847

Subscribed capital 24,808

Reserves 136,270

Total liabilities 2,618,628

It's plain where the mortgage lending is, but does anyone know where the customer deposits are above?

Overall I think you make a fair point: the less you lend banks, the less geared lending they can do in turn.

[insidetrack]

We could well see this effect growing because of the shocking state of the government finances. They are going to have to borrow 10's of billions extra £s. So NSI rates will have to be attractive to attract money away from the banks and building socs.

Even so, another thread made the interesting point that there aren't enough domestic savers to fund the government deficit. So to attract foreign money they have to keep treasury gilt rates high and protect the £ from devaluing by keeping BoE rates high. If the expectation is for rate cuts and the £ devaluing, the foreign money dries up and the government will run out of money to finance its spending.

All in all, it looks like money to buy houses will be scarse and relatively expensive for many years to come.

[CharlieChuck]

Once NBS has written a mortgage, the money might well be deposited with a different (more national) institution so I don't think that the multiplying effect of your savings will be concentrated in your local area. You might be able to puzzle out their ratio from this (or get the full accounts from a branch).

In the hope of learning more about how to read this stuff, I'm pasting the 2006 summary data below:

2006 ('000s)

Assets

Liquid assets 438,326

Mortgages 2,144,293

Derivative financial instruments 19,854

Fixed and other assets 16,155

Total assets 2,618,628

Liabilities

Shares 1,901,058

Borrowings 539,824

Other liabilities 14,821

Derivative financial instruments 1,847

Subscribed capital 24,808

Reserves 136,270

Total liabilities 2,618,628

It's plain where the mortgage lending is, but does anyone know where the customer deposits are above?

Overall I think you make a fair point: the less you lend banks, the less geared lending they can do in turn.

customer Deposits are "shares" in this case 1,901mn, building societies used to call savings accounts share accounts (some probably still do), It's a bit misleading as you think of shares as in stock market shares.

The borrowings I presume would be money market borrowings, so their ratio of money market funded mortgages would be about 25%.

If savers try to draw out more than 438mn (the liquid assets), they'd be right in the sh1t.

[huw]

customer Deposits are "shares" in this case 1,901mn, building societies used to call savings accounts share accounts (some probably still do), It's a bit misleading as you think of shares as in stock market shares.

The borrowings I presume would be money market borrowings, so their ratio of money market funded mortgages would be about 25%.

If savers try to draw out more than 438mn (the liquid assets), they'd be right in the sh1t.

Of course, that makes sense, thanks for the insight.

[huw]

If savers try to draw out more than 438mn (the liquid assets), they'd be right in the sh1t.

Reminds me of the quote from 'It's a Wonderful Life'

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

[Once in a lifetime]

I would recommend NS&I to anyone with £30k to invest.

With interest rates still historically low, you money isn’t

Going far.

This year ( the last twelve months ) I’ve made a return of 8% tax free.

and it would have been more, but for the last two months I got zero !

[CharlieChuck]

It's a bit scary to think that even a safe building society only holds 25% of your money in an easy to liquidate form.

This also explains the large amount of good interest rate, fixed term bonds available from various institutions (I saw one from another building society 6.8% for tying up your money for 6 months).

[huw]

It's a bit scary to think that even a safe building society only holds 25% of your money in an easy to liquidate form.

Inevitable though, considering what they were set up to do.

[huw]

I would recommend NS&I to anyone with £30k to invest.

With interest rates still historically low, you money isn’t

Going far.

This year ( the last twelve months ) I’ve made a return of 8% tax free.

and it would have been more, but for the last two months I got zero !

I take it you mean premium bonds. You've done well to get 8%, that's more than double the current underlying interest rate used to calculate the size of the prize fund.