Why can't all banking shares be suspended?

Primrose

Forgive an ignorant question but when all banking shares are being subjected to such wild swings because of economic uncertainty, why can't the powers that be simply suspect them all on the stock exchange until further notice? Surely this would prevent speculators and the harbingers of panic doing their worst and enable the government to come up with an appropriate rescue package without pistols being pointed to their heads?
Or is a pistol being pointed to their head the only way the government will get off the pot and act quickly? I'm genuinely puzzled by the way the tail seems to be wagging the dog here or am I missing something very fundamental?

ad44downey

What happens if you had bank shares and wanted to sell them before they became worthless like n rock or bradford and bingley. You wouldn't be too happy that the government had stopped you getting a few quid for them

Primrose

Yes, I accept that, but surely there have also been runs on banking shares where banks have been adequately funded and it's the irresponsible speculation that has made the problems worse. Maybe in some cases if the shares had been suspended, the price wouldn't have nosedived in the first place?

ad44downey

how long would you suspend them for though? Indefinitely? That'd be interfering with the free market I suppose. I'm not sure you'd want the government funding failed business models like n rock and b+b had.

tomterm8

Primrose wrote: »

why can't the powers that be simply suspect them all on the stock exchange until further notice?

Because the second they did this, everyone would panic and start taking their money out, including the wholesale markets, and their shares would be worth $0.

Really, suspending banking shares would be the armegeddon option, because it would only happen when you were like Iceland with an economy that was effectively bankrupt.

Aegis

Primrose wrote: »

Forgive an ignorant question but when all banking shares are being subjected to such wild swings because of economic uncertainty, why can't the powers that be simply suspect them all on the stock exchange until further notice? Surely this would prevent speculators and the harbingers of panic doing their worst and enable the government to come up with an appropriate rescue package without pistols being pointed to their heads?
Or is a pistol being pointed to their head the only way the government will get off the pot and act quickly? I'm genuinely puzzled by the way the tail seems to be wagging the dog here or am I missing something very fundamental?

What, all of them... Even this one:

http://uk.finance.yahoo.com/q/bc?s=HSBA.L&t=6m

Be fair, just suspend the ones with large volatility

cheerfulcat

Hi, Primrose,

Price movements of this magnitude in shares of large companies don't just happen on the back of irresponsible speculation, though. Chances are that the likes of RBS and Lloyds, however solid they are as banks ( and I would say that they are very solid, no panic required! ) will not be as profitable as they have been in the past, at least not for a few years, and investors know this. Suspending trading would just put off the drop in share price, not avert it, in my opinion.

Bear in mind too that when institutions are divesting themselves of shares for whatever reason, it is the large, liquid ones which go first...

Having said that, I do feel that someone should come down hard on Robert Peston and whoever it is in government who is briefing him; the BBC's coverage has been most irresponsible.

Edit - what FT Alphaville thinks.

pumpndump

The original poster has asked a very good question. If the Russians can close their stock market down if they don't like what is happening, why can't we? It will give a period for people to simmer down. What we need at the moment is for the markets to stabilise, and not behave like a roller coaster. A lot of safeguards were introduced in 1929 to stop these sorts of things from happening. Over the decades these have been lifted to satisfy the sacred cow of the free market. Well, we've got a free market now, and look where it's got us.

1echidna

cheerfulcat wrote: »

Hi, Primrose,

Price movements of this magnitude in shares of large companies don't just happen on the back of irresponsible speculation, though. Chances are that the likes of RBS and Lloyds, however solid they are as banks ( and I would say that they are very solid, no panic required! ) will not be as profitable as they have been in the past, at least not for a few years, and investors know this. Suspending trading would just put off the drop in share price, not avert it, in my opinion.

Bear in mind too that when institutions are divesting themselves of shares for whatever reason, it is the large, liquid ones which go first...

Having said that, I do feel that someone should come down hard on Robert Peston and whoever it is in government who is briefing him; the BBC's coverage has been most irresponsible.

Edit - what FT Alphaville thinks.

I must admit sometimes on an issue I feel strongly about I get irritated with the BBC too. It is hard to pin on them that their reporting is unfair or inaccurate and I can't think that this 'coming down hard on them' would be at all possible or advisable.

cheerfulcat

Hi, 1echidna,

To make myself clear - irritating as I find the BBC, it's Peston himself I'd like someone to muzzle. His pronouncements on the banks' visits to Downing Street this morning, for example - he implied ( LINK ) that certain banks, among them RBS, had asked for a bailout from the taxpayer. Now, had this been the case, the banks in question should have issued an RNS ( the official way of announcing news concerning a listed company ) and their shares should have been suspended. As it was, RBS was forced to issue an RNS to counter the rumour ( you can find it here, ( LINK ) under " market update ", today's date ). It is the impropriety of the way he goes about things that I object to - as does the market.

tomterm8

The FSA should investigate him. He may be making a false market, which is a crime.