Large Banks on the Edge of Insolvency

Andrew64

This article is about American banks, but is the situation at British banks really any different?

Large Banks on the Edge of Insolvency

http://www.nytimes.com/2009/02/13/business/economy/13insolvent.html

"Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, has been both pessimistic and prescient about the gathering credit problems. In a new report, Mr. Roubini estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion. Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad. “The United States banking system is effectively insolvent,” Mr. Roubini said."

WTF?_2

Andrew64 wrote: »

This article is about American banks, but is the situation at British banks really any different?

Large Banks on the Edge of Insolvency

http://www.nytimes.com/2009/02/13/business/economy/13insolvent.html

"Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, has been both pessimistic and prescient about the gathering credit problems. In a new report, Mr. Roubini estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion. Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad. “The United States banking system is effectively insolvent,” Mr. Roubini said."

Yep, a large part of the Western banking system is basically insolvent.

They have leveraged themselves with a large number of poorly thought out loans which have gone bad and in the case of the UK at any rate, have become dependent upon the infamous 'shadow banking system' for day to day funding - which has more or less disappeared.

The only thing keeping the banks going is short term lending and liquidity schemes by the central banks and taxpayer funded capitalisation (bailouts) from the governments. Without that, the majority of them would be bust.

Rochdale_Pioneers

No its the same here. Northern Rock, HBOS, Bradford and Bingley and RBS all fell over. Lloyds have had large taxpayer cash injections, Barclays have had large Arab cash injections. Like in America I doubt that we have seen the bottom of their liabilities. And why stop with our banks and America? Irish banks went pop, Iceland (the whole country) went pop, we've seen bailouts in Spain France Germany the Netherlands, Italy and Denmark amongst others, with an EU-wide E16tr 2nd bailout now apparently needed.

chucky

!!!!!!? wrote: »

Yep, a large part of the Western banking system is basically insolvent.

They have leveraged themselves with a large number of poorly thought out loans which have gone bad and in the case of the UK at any rate, have become dependent upon the infamous 'shadow banking system' for day to day funding - which has more or less disappeared.

These loans haven't actually gone bad, something that people are to quick to inaccurately assume - they are in theory worthless, only in theory though.

The 'worthless' point is due to the fact how their mark to market valuation is calculated - now and how they were valued when a bank was less risk averse.

have a look here
http://rogueeconomistrants.blogspot.com/2008/07/sub-prime-cdos-and-mark-to-market-rule.html

even here from a mainstream source
http://www.ft.com/cms/s/0/d03c782a-bd86-11dd-bba1-0000779fd18c.html

this is an ongoing discussion that will take it's time for accountants and regulators to resolve.

to be clear banks have always used inter bank lending for their positions

mrposhman

chucky wrote: »

These loans haven't actually gone bad, something that people are to quick to inaccurately assume - they are in theory worthless, only in theory though.

The 'worthless' point is due to the fact how their mark to market valuation is calculated - now and how they were valued when a bank was less risk averse.

have a look here
http://rogueeconomistrants.blogspot.com/2008/07/sub-prime-cdos-and-mark-to-market-rule.html

even here from a mainstream source
http://www.ft.com/cms/s/0/d03c782a-bd86-11dd-bba1-0000779fd18c.html

this is an ongoing discussion that will take it's time for accountants and regulators to resolve.

to be clear banks have always used inter bank lending for their positions

Good post. I'm glad others actually understand the situation too.

Banks could quite conceivably writing down far too much, which will generate far greater profits as a proportion of assets in the future as they will basically be profits gained on no asset.

StevieJ

Rochdale_Pioneers wrote: »

No its the same here. Northern Rock, HBOS, Bradford and Bingley and RBS all fell over. Lloyds have had large taxpayer cash injections, Barclays have had large Arab cash injections. Like in America I doubt that we have seen the bottom of their liabilities. And why stop with our banks and America? Irish banks went pop, Iceland (the whole country) went pop, we've seen bailouts in Spain France Germany the Netherlands, Italy and Denmark amongst others, with an EU-wide E16tr 2nd bailout now apparently needed.

It is all Browns fault

ShimSham

StevieJ wrote: »

It is all Browns fault

Nope. Didn't you know it's all David Bowie's fault.

http://forums.moneysavingexpert.com/showthread.html?t=1413443