Bank of England lent banks £185bn

Cannon_Fodder

http://newsvote.bbc.co.uk/1/hi/business/7867355.stm

"The Bank of England has announced that it lent £185bn to financial institutions since April under its special liquidity scheme (SLS)."



Total mortgage lending was £256Bn in 2008 - a 30% drop - how low would it have gone without this scheme?

Or is it the case that lending could have been "normal" if Banks were not hoarding the loans...

mbga9pgf

The banks wouldnt be lending !!!! all without government assistance. They dont even have the cash to pay for the write downs, never mind extra risky debt!!!

Generali

Cannon_Fodder wrote: »

http://newsvote.bbc.co.uk/1/hi/business/7867355.stm

"The Bank of England has announced that it lent £185bn to financial institutions since April under its special liquidity scheme (SLS)."



Total mortgage lending was £256Bn in 2008 - a 30% drop - how low would it have gone without this scheme?

Or is it the case that lending could have been "normal" if Banks were not hoarding the loans...

The banks have been told to improve their capital adequacy ratios. They can only do this by lending less money.

They have also been told to lend more but cannot raise money easily in capital markets.

They have also been told not to repossess people who are in default.

The three things are mutually exclusive. The only way to fill some of the gap is to use money from an external source.

WTF?_2

Generali wrote: »

The banks have been told to improve their capital adequacy ratios. They can only do this by lending less money.

Or attracting more savings deposits. Which of course by slashing interest rates to near zero the government isn't exactly helping.

They have also been told to lend more but cannot raise money easily in capital markets.

They have also been told not to repossess people who are in default.

The three things are mutually exclusive. The only way to fill some of the gap is to use money from an external source.

IMO it's very likely that the government will end up completing the nationalisation of the banking system, 'printing money' and distributing it as no-cost, no-questions-asked loans through the banks (in lieu of dropping it from a helicopter).

Generali

!!!!!!? wrote: »

Or attracting more savings deposits. Which of course by slashing interest rates to near zero the government isn't exactly helping.



IMO it's very likely that the government will end up completing the nationalisation of the banking system, 'printing money' and distributing it as no-cost, no-questions-asked loans through the banks (in lieu of dropping it from a helicopter).

I suspect you may be right.

Of course if the economy is in really bad shape, that won't work as companies won't invest in things that they can't sell. Would you build a row of houses right now for example? What about at 1% interest rate? No, nor me.

Dylanwing

The Banks will soon be on the phone to Ocean Finance!

MarkyMarkD

!!!!!!? wrote: »

generali wrote:

The banks have been told to improve their capital adequacy ratios. They can only do this by lending less money.

Or attracting more savings deposits. Which of course by slashing interest rates to near zero the government isn't exactly helping.

No, that is incorrect.

Attracting savings does not improve capital adequacy, it depletes it.

Savings are not capital.

The funds received from savers have to be used somewhere - either in mortgage lending (which requires more capital) or lending to other banks (which requires more capital). The only place that savers' funds can be placed which does NOT require more capital is with the government - and that rather defeats the object.

Generali is 100% spot on - the government's stated requirements ("lend more money") and unstated (publicly) requirements ("improve capital adequacy") are incompatible, and when coupled with ridiculously low interest rates things get even worse.

WTF?_2

MarkyMarkD wrote: »

No, that is incorrect.

Attracting savings does not improve capital adequacy, it depletes it.

Savings are not capital.

The funds received from savers have to be used somewhere - either in mortgage lending (which requires more capital) or lending to other banks (which requires more capital). The only place that savers' funds can be placed which does NOT require more capital is with the government - and that rather defeats the object.

Generali is 100% spot on - the government's stated requirements ("lend more money") and unstated (publicly) requirements ("improve capital adequacy") are incompatible, and when coupled with ridiculously low interest rates things get even worse.

Fair point - I was mixing up the need of the government to provide capital for bank lending up with capital adequacy requirements.

However, regarding the problem with the government having to make massive loans we need to get back to a situation as it was in 2000 that deposits are sufficient to service lending and there isn't a reliance on money markets to make up the difference. Markets which have been shown to be volatile and unpredictable.

purch

Savings are not capital

Yep,

Deposits are Liabilities

Loans are Assets

(Unless you follow the 21st century Banking Model, and then your assets are liabilities :eek: )

Generali

To sum up the problem AIUI:

Banks have run out of money so can't lend to People or Companies (PoCs).
Governments have agreed to lend or give money to banks so they can lend to PoCs

The money for the UK Government to lend to banks can come from two places, the UK or Not The UK.

To start with Not The UK:

- US* = mess
- Europe = Mess
- Middle East = Falling oil price => no cash => mess (soon)
- Asia (ex China/Japan) = export led economies (exporting to US see *)
- China = Has suppressed her populous on the basis of getting rich by exporting to the US*
- Japan = Old people with nobody to pay their costs

Nowhere else is important, internationally, except possibly Aus. So what'll happen to Aus? Could be the Asian Switzerland but with mines too, could be overrun by Indonesia. Time will tell.

So, possibility II, UK:

UK = mess
Wales = mess
Scotland = mess
NI = Mess

MarkyMarkD

In my view, not that anyone will listen:

- the government needs to relax, not tighten, capital requirements for banks and building societies;
- its whole strategy of throwing piles of capital at banks was flawed, because that capital was only required to meet its own enhanced capital requirements;
- instead, it should have provided meaningful liquidity to the whole bank and building society sector to enable them to replace their expiring wholesale funds, at a reasonable cost (i.e. LIBOR, not some premium above it).

Too much of the benefit has been thrown at the big banks - recapitalisation, liquidity schemes which required securitisation to be in place in advance, etc. Hardly anything has been given to the building society sector, which instead has been hammered by the enhanced capital requirements and THEN hammered again by the FSCS being forced to bear the cost of the B&B bailout, when B&B could have instead been kept afloat through more straightforward injection of liquidity by the Bank of England (or straightforward nationalisation, like with Northern Rock).