UK News
Insights from the UK and beyond
from James Saft:
The unbelievable mercy of UK banks
James Saft is a Reuters columnist. The opinions expressed are his own.
What do you call an entire economy which sweeps its insolvencies under the carpet and hopes that something will turn up?
Britain.
An investigation by the Bank of England, reported in its Financial Stability Report released on Friday, found widespread evidence that banks are extending loan forbearance to weakened borrowers.
And because loans in forbearance often aren't classified as impaired, banks may be skimping on loan provisions, giving a deceptively flattering account of their capital position and health.
Forbearance, usually some form of break given to a borrower such as extending the term or making the loan interest-only, is offered to some borrowers when they miss a payment or violate part of the loan agreement.
What's surprising about the BOE's findings is how widespread the practice is, not only in residential mortgages, but in commercial real estate lending and corporate lending.
Is Barclays paying its bankers too much?
Barclays top-two — Chief Executive John Varley and President Bob Diamond — declined their 2009 bonus for the second year in a row, although the bank is paying the 23,000 staff at its investment bank £191,000 per head on average. The bank had a record year, but said all bonuses to its Executive Committee would be deferred, as it reacts to widespread criticism on bankers’ pay.
Have your say. Take our poll and leave us a comment.
Do you think Bob Diamond and John Varley did the right thing in declining their bonuses?
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The US decision to allow Lehman Bros to fail was a brave decision, but the message that markets (rightly) took from the aftermath was they won’t ever risk that again. Governments after that shored up banks or pushed them into shotgun marriages (resulting even fewer players) regardless of moral hazard.
Obama is right, the only way to stop them from being too big to fail is to make them smaller, arguments about consequent inefficiency are transparent balderdash – their margins are a direct representation of the difference between what they buy at and what they sell at.
If the supermarkets ran a cartel resulting in huge margins and gave all of it to their employees (but not shareholders) would the City describe them as efficiently run companies?
You simply can’t get past the fundamental truth that the banks create no wealth, they merely rearrange it.
And when you get the pension that Clive Laband refers to, don’t forget that the City has efficiently helped itself to more than a third of it before you retire, then efficiently sets about ripping you off with your annuity.
So we need successful profit making businesses to generate wealth and employment in wealth creation enterprises, but we need to shrink the banks back to be being about ten boring utilities funnelling cash from depositors to lenders. If that leads to low margin lending that’s a burden we’ll all have to share.
What do you think of the bank charges ruling?
Banks have won a two-year court battle, dealing a major blow to hundreds of thousands of customers seeking to claim back billions of pounds of what they say are unfair overdraft charges.
The new Supreme Court found that the Office of Fair Trading cannot use customer protection rules to investigate whether the fees were levied unfairly.
The landmark ruling in favour of seven banks and one building society overturns two previous rulings that said the OFT had the power to investigate the unauthorised overdraft fees because the charges fell under the scope of consumer contract law.
The Supreme Court, however, said the charges form part of the fees for current account services and could not be assessed for fairness under the Unfair Terms in Consumer Contracts Regulations.
Consumers now face the choice of giving up their claims or taking on the might of the banks through individual claims, which could prove costly. To read more on how the decision affects you, read this guide from moneysavingexpert.com
What do you think of the ruling? Have the banks behaved unfairly and therefore have been made to pay the money back, or is it right that consumers should pay the price for breaking the terms and conditions of their current account?
My belated thoughts regarding this issue. In this world today, you can not proceed without a bank, this is how we have now evolved financially.
Banks do need to make money, but this needs to be in a Fair and Proper manner. If you go overdrawn and dare I say most people do at some point, then a charge needs to be levied accordingly.
This debate, as I understood it, was about the amount charged. I do think that Banks have an almost FREE HAND on how they run. The amounts they charge are discretionary to them and in their favour. A serious control needs to be taken with the Banking world as they have almost brought the Globe to its knees because they have been able to do as they please. A Bonus from a Bank can make you a Millionaire!
Now, some months later, interests are at an all time low, 0.5%, yet most High Street banks are charging in excess of 4% on mortgages and more than 9% on personal loans. Who is saving money now? Who is making money now? what can we, the people of the country, land and world do about it? Nothing. Because we need Banks to survive.
So was the decission correct? For me, No it was not. Bank Charges should be capped and subject to amounts involved. Banks should not feel they have the ability to do as they please.
My anger and disappointment comes from recent news of RBS making £3.5billion LOSS and yet feel it correct to pay out £1.5 billion in Bonuses.
If you were £10k overdrawn, could you inform your bank that you are going to withdraw a further £1,500.00 without question?
And add your future Taxes to this question too.
Too big to fail? Guerrilla central banking and the last resort
Deciding it was safe to come clean because banks are now on a more even keel and the worst of the credit crisis is behind us, the Bank of England has told the nation that at the height of the turmoil it secretly lent Royal Bank of Scotland and HBOS a colossal £62 billion, which is more than the entire British defence budget.
Both banks faced the imminent closure of high street cash machines and the curtailment of normal banking operations across the country.
The Bank said “this was a dire emergency” and Downing Street called the secret lending of taxpayers’ money in the Autumn of 2008 “a powerful reminder of how close the banking system came to near collapse.”
In Westminster, some MPs were flabbergasted, even though the loans have now been repaid.
“It is astonishing that this was kept secret for over a year,” said Vince Cable, finance spokesman for the Liberal Democrats. “The government has treated taxpayers like children while expecting them to foot the bill.”
John McFall, Treasury Committe chairman, said the sum caused “a little bit of an intake of breath thinking how many universities, how many colleges, how many jobs you could support with this.”
“It’s Enought to Make Anyone Feel Queasy,” was Ian King’s headline in The Times. “Any More £62 bn Loans You Haven’t mentioned, Merv?” asked the Daily Mirror, addressing itself to Bank of England Governor Mervyn King.
I take issue with some of the comments being thrown out today such as “the taxpayer has footed the bill” How so? the money has been repaid and no doubt with something extra on top as i’m pretty sure it’s not free money. the comparrisons with schools , universities , defence are not paralleled as there is no return from sone of these expenditures whereas with a “loan” and loan being the key word here, there is a return of the original investment plus some profit for the tax payer. Imagine what could be done if the government sold their stake in the major banks at a significant profit in the future. There’s exra money in the pot which wouldn’t have otherwise been there to sread downward on education and health and the armed forces. Where will the outcry be then.Individuals are not necessarily stupid but people en masse are. Look at the panic which eventually led to the collapse of Northern rock when it was announced they’d asked for a facility , not even taken , from the Bank of England. Mass hysteria and people queueing to withdraw the lifeblood of the bank for fear of them going under yet they themselves perpetuated the ultimate demise of the bank.Good call by the B of E I say. you can’t trust idiots to make the right decision.
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The Wall
Banks that take deposits and do retail banking should only lend and they should not be engaged in leveraged investment activity.There would not have been a financial magnitude of this order if this rule would be strictly adhered to.