Very worrying stop press news re Anglo Irish

GeorgeHowell

Midnight_Cowboy wrote: »

I'm sorry George, but that makes no sense. A bank offers customers a 'get out' clause because it thinks it might be getting into trouble? Are you saying that you would choose a bond with no get out over one with a get out?

For me, the possibility of withdrawal (even with penalty) was what edged it for Anglo Irish over the competition.

I have taken out bonds with no get outs, and also ones with an interest penalty for early withdrawal. But I think we should know where we stand. I don't want it to be at someone's discretion (though I admit to having missed that point with Anglo Irish). I think AI want to have their cake and eat it, and I'm suspicious of their motives, their financial health, and the ability of Eire to cover it all if push came to shove.

melbury

At the risk of committing yet another gaffe......

When the Irish government announced last autumn that they would guarantee all deposits made with Irish banks, money flooded over there. So where has all that money gone? Has it all just been !!!!!! away?

gozomark

melbury wrote: »

At the risk of committing yet another gaffe......

When the Irish government announced last autumn that they would guarantee all deposits made with Irish banks, money flooded over there. So where has all that money gone? Has it all just been !!!!!! away?

most of it is still there on deposit - some has been withdrawn by savers

deposits haven't been lost - its the other side of the balance sheet thats taken losses - ie bad loans.

melbury

gozomark wrote: »

most of it is still there on deposit - some has been withdrawn by savers

deposits haven't been lost - its the other side of the balance sheet thats taken losses - ie bad loans.

Thanks gozomark.

So if all of the money is still sitting there on deposit, why is there such a panic about the Irish government not being able to afford to recompense savers? If the money still exists, then surely the bank can pay us all.

Midnight_Cowboy_2

melbury wrote: »

Thanks gozomark.

So if all of the money is still sitting there on deposit, why is there such a panic about the Irish government not being able to afford to recompense savers? If the money still exists, then surely the bank can pay us all.

Good question. Without getting into the complexities of modern-day banking, broadly speaking there are 2 problems:

a) Banks were making money by borrowing heavily on money markets, and lending that money out. Money markets dried up because no-one was willing to lend any more (and the phrase 'credit crunch' was born). Banks came to renew their loans, and no cash was available, hence the collapses. Savers desposits are a pittance compared to what the banks owe, so their balance sheets are still firmly negative.

b) Banks never keep all depositor's cash on hand; they lend most of it out to make money. This is one of the reasons why a 'run' on a bank is so disastrous: people get twitchy about the bank, withdraw their cash, bank runs out because they only have a small amount of it to hand, panic ensues. There is a caveat here, though, because in current extraordinary circumstances new deposits aren't being lent, they're being used to shore up balance sheets.

gozomark

exactly - no bank can ever repay all depositors immediately - banks borrow short term (eg customer deposits), and lend long term - typical deposits might be a few months on average (some instant, some 7 days, some 2 years), loans a few years on average (some short term, some 25 years for a mortgage).

GeorgeHowell

In the days when banks were run by experienced, sensible people with integrity, instead of by wide-boys recruited from Asda this all worked well. Because everyone knew that loans were properly backed by collateral, and were not usually made to people with a high chance of defaulting there was confidence all round, and the banks made healthy profits without paying obscene bonuses to opportunist parasites. Those were the days.

redbajan

If you are still in the IOM, Allied Irish or any other bank you seriously need to be thinking about getting out before it is to late. The IOM has no funds for its suppose depositor compensation scheme and is stringing along the depositors of Kaupthing in the Isle of Man. It will soon by 6 months and they have only received an offer of 1000GBP.

Their regulator is incompentent to manage international banks.

If you have Isle of Man deposits or investments at least give this some thought before it is to late.

Midnight_Cowboy_2

gozomark wrote: »

exactly - no bank can ever repay all depositors immediately - banks borrow short term (eg customer deposits), and lend long term - typical deposits might be a few months on average (some instant, some 7 days, some 2 years), loans a few years on average (some short term, some 25 years for a mortgage).

Yes indeed. One of Anglo Irishs problems is that a big chunk of their business was mortgages, and the collapse of the Irish property market combined with rising repossessions means that the money they lent has to be written off.

gozomark

Indeed, and true for many banks around the world, including ones in Ireland, UK and Spain to name but a few

One of (insert bank name) problems is that a big chunk of their business was mortgages, and the collapse of the (insert country) property market combined with rising repossessions means that the money they lent has to be written off.