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Lenders Braced For Fresh Market Turbulence Until Bank Of England Acts

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http://business.timesonline.co.uk/tol/busi...icle3607808.ece

From The Times

March 24, 2008

Lenders braced for fresh market turbulence until Bank of England acts

Miles Costello

Britain’s biggest lenders are bracing themselves for fresh turbulence on the wholesale markets amid suggestions that it may be weeks before the Bank of England agrees to free up the banking system with a bumper cash injection.

It is understood that, after a meeting with senior retail banking executives late last week, the Bank is happy in principle to provide additional liquidity when needed along the same lines as those agreed by the US Federal Reserve – but that it needs time to work out the details.

Extra liquidity is understood to have been one of the main requests made by the banks at last week’s meeting, held with Mervyn King, the Governor. It is also thought that the Bank is prepared to take a wider range of securities to use as collateral against loans.

The Bank confirmed over the weekend that it was considering ways to ease pressure on the funding markets for banks. However, the UK’s lender of last resort provided no firm details about the size or timing of any potential cash injection.

Sources close to some of the leading high street banks said that last week’s meeting with Mr King had gone well. One said: “There has been some movement. The Bank is looking at different measures.

“This is the Bank of England, though. It will want to think very carefully before doing this. Don’t presume anything will happen any time soon. It could be this week, but it could be weeks down the line.”

The Bank declined to comment yesterday, but on Saturday it did deny reports that it was considering using public money to fund a mass acquisition of mortgage-backed securities. It went on to say that it was “examining a number of other options, but it is too early to go into any detail”.

Short-term money markets have been paralysed since the middle of last year as banks fearful about their exposure to the crisis in mortgage securities become increasingly nervous about lending to each other. After fighting shy of a public intervention, the Bank last week doubled to £10 billion its auction of three-day money. Demand for it was nearly three times supply.

The Bank is to hold another auction of three-day money this Thursday. It may still use this scheduled sale to unveil further measures.

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Surely what the banks are angling for is not another tranche of 3 day loans? What they want is long-term loans at low rates so they can service their existing debts and also dish it out to hapless punters. I can't see the BoE giving them enough on a long enough term to solve the problem.

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The feeling I'm getting is that the BoE and the government are rapidly running out of available funds (or don't wish to borrow more themselves!) and can see that the Fed bailing out isn't working, so why should they waste their money. What with a lack of stamp duty funds keeping the pot topped up and £100bn wasted on NR so far, it must be extremely difficult to balance the books, or at least not make the balance even greater than it already shouldn't have been.

HBOS and Bradford & Bingley may just go to the wall after all.

Edited by Scott

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The feeling I'm getting is that the BoE and the government are rapidly running out of available funds (or don't wish to borrow more themselves!) and can see that the Fed bailing out isn't working, so why should they waste their money. What with a lack of stamp duty funds keeping the pot topped up and £100bn wasted on NR so far, it must be extremely difficult to balance the books, or at least not make the balance even greater than it already shouldn't have been.

HBOS and Bradford & Bingley may just go to the wall after all.

I think you are right. They don't have bottomless pockets, they are already looking at having to borrow £60billion a year just to fund current government spending. What happens when the gilt market says no thank you to another huge offering? Even governments have credit limits.

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Surely what the banks are angling for is not another tranche of 3 day loans? What they want is long-term loans at low rates so they can service their existing debts and also dish it out to hapless punters. I can't see the BoE giving them enough on a long enough term to solve the problem.

Shouldn’t BoE or FSA change the way banks lend money to us? We do not want same thing happened again.

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... but on Saturday it did deny reports that it was considering using public money to fund a mass acquisition of mortgage-backed securities.

If they do this, and life continues to grow more unaffordable then we could see some serious trouble in the streets of Britain.

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If they do this, and life continues to grow more unaffordable then we could see some serious trouble in the streets of Britain.

The central bankers have played with finance and economics and shown themselves to be totally inept and utterly ignorant of the knock on effects of their actions. To think that they could even imagine the sort of social troubles they have ALREADY caused is almost totally improbable.

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HBOS last week took up a 750million loan from the BoE and paid over 9% for the pleasure.

And they tell the City the dont have any problems.

The loan wasn't from the BoE. They secured 750 million of extra capital from Asian investors, I believe,

Peter.

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HBOS and B&B are two separate kettle of fish. One is a quite small former building society that has, some say, 60 percent of its lending in BTL. The other is one of Britain's top 5 banks with some of the biggest saving deposits in the UK plus mortgages that go back long before this present house bubble even began.

HBOS is in the news simply because of the result of speculators in the City who spread false rumours and drove down the share price. That is old news now and trying to continue to destroy HBOS on a forum like this is both pointless and more than a touch naive.

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If they do this, and life continues to grow more unaffordable then we could see some serious trouble in the streets of Britain.

I did not agree to pay taxes so that our goverment could go on a gambling spree.

people will be dieing as a result of goverment actions and the rest will be skint.

we need to evict the morons running the country and install replacements that are on the publics side before we all end up on the street or rent our own homes.

i don't mind getting phyical to stop this madness and to ensure my freedoms are returned from these facist ba$tards that won't even give the public a vote and the EU constitution.

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HBOS last week took up a 750million loan from the BoE and paid over 9% for the pleasure.

And they tell the City the dont have any problems.

It doesn't matter that the loan was at 9%, capital requirements under Basle regulations mean they can lend that out many times over at lower interest rates and still be hugely in profit.

Shouldn’t BoE or FSA change the way banks lend money to us? We do not want same thing happened again.

They definately will change the way banks lend money to us.

There are three main ways banks raise funds to lend;

Securitisation - What got us in this mess in the first place. Debts are packaged up and sold off balance sheet to other institutions to free up room for more lending. Northern Rock was almost exclusively reliant on this and thats why it went belly up when the securitisation market shut down in summer 07.

Covered bonds - Similar thing but securities that have to stay on the lenders balance sheets. Regulation means this limits amount that can be lent to a percentage of what is held on the balance sheet. Hence why securitisation has been so popular as banks can sell the dodgy debt off to Norwegian pension funds who don't know their **** from their elbow.

Deposit accounts - Nowhere near enough in these to fund what we need.

The short term requirement is for the BoE and FSA to re-intill confidence in securitisation as soon as possible. The amount of debt out there needs securitisation as the other two means are limited and will leave a massive shortfall in future refinancing requirements.

Then we need to manage the debt bubble down over the next few years until it is at levels that can be managed without excessive securitisation so that banks have to take more risk and will therefore not dish out loans to dodgy borrowers because ultimately they don't have to carry the risk.

At that point the powers that be can enforce the rules they need to ensure that this does not happen again. The only problem is though that this will happen again, in about 20 years time. When the lessons we learn today have been forgotten by the next generation.

The loan wasn't from the BoE. They secured 750 million of extra capital from Asian investors, I believe,

Peter.

HBOS did tap the BoE for funds two weeks ago, and then went to Asian investors too.

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.

HBOS is in the news simply because of the result of speculators in the City who spread false rumours and drove down the share price.

I have serious doubts that this is true - it's painting an evil picture of shorters and laying the blame solely at their shoulders when anyone with a right mind can see the problem is structural. Rumours drive markets up and down, yet no-one complains when it's ramped up on rumours, when the FSA investigate I doubt they will find anything to substantiate these rumours, in fact my guess is hbos will eventually show it's true colours and the short position will be proved right. A bank should not have to deny that it's not in trouble - it usually means the opposite!

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It doesn't matter that the loan was at 9%, capital requirements under Basle regulations mean they can lend that out many times over at lower interest rates and still be hugely in profit.

But isn't the problem here that the banks need the money and are not lending anymore, therefore those huge profits don't exist but the 9% interest repayment does?

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It doesn't matter that the loan was at 9%, capital requirements under Basle regulations mean they can lend that out many times over at lower interest rates and still be hugely in profit.

They definately will change the way banks lend money to us.

There are three main ways banks raise funds to lend;

Securitisation - What got us in this mess in the first place. Debts are packaged up and sold off balance sheet to other institutions to free up room for more lending. Northern Rock was almost exclusively reliant on this and thats why it went belly up when the securitisation market shut down in summer 07.

Covered bonds - Similar thing but securities that have to stay on the lenders balance sheets. Regulation means this limits amount that can be lent to a percentage of what is held on the balance sheet. Hence why securitisation has been so popular as banks can sell the dodgy debt off to Norwegian pension funds who don't know their **** from their elbow.

Deposit accounts - Nowhere near enough in these to fund what we need.

The short term requirement is for the BoE and FSA to re-intill confidence in securitisation as soon as possible. The amount of debt out there needs securitisation as the other two means are limited and will leave a massive shortfall in future refinancing requirements.

Then we need to manage the debt bubble down over the next few years until it is at levels that can be managed without excessive securitisation so that banks have to take more risk and will therefore not dish out loans to dodgy borrowers because ultimately they don't have to carry the risk.

At that point the powers that be can enforce the rules they need to ensure that this does not happen again. The only problem is though that this will happen again, in about 20 years time. When the lessons we learn today have been forgotten by the next generation.

When the BOE inject more liquidity/buy up the mortgage backed securities will this mean that the Banks can keep up with their insane lending to property junkies et al? Your reply seems to suggest that this will happen, as the only profitable way for banks to exist is, if they keep up with their securitisation, activities as just covered bonds and deposit accounts wont be enough. But securitisation is what caused the troubles in the first place

HBOS did tap the BoE for funds two weeks ago, and then went to Asian investors too.

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Given that many many big investors that include banks, are shorting HBOS I think the idea that its rumours are pretty much a spin on reality.

If HBOS were not hiding anthing, they would simply have a full page spread in the nationals on Sunday declaring their exposure to bad debt, and signed off with the blood of the board.

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Deposit accounts - Nowhere near enough in these to fund what we need.

The short term requirement is for the BoE and FSA to re-intill confidence in securitisation as soon as possible. The amount of debt out there needs securitisation as the other two means are limited and will leave a massive shortfall in future refinancing requirements.

Then we need to manage the debt bubble down over the next few years until it is at levels that can be managed without excessive securitisation so that banks have to take more risk and will therefore not dish out loans to dodgy borrowers because ultimately they don't have to carry the risk.

Ain't gonna happen, bubbles burst, they don't slowly deflate.

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Ain't gonna happen, bubbles burst, they don't slowly deflate.

They do slowly deflate, it took at least 5 years for the last housing correction to deflate. Please check your sources

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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