UK banks, sucking on the blood of depositors

Generali

From the FT:

Here’s a brilliant report from Bruce Packard at Seymour Pierce on Thursday, which expands in great detail on the rather hypocritical trend of banks scorning unsecured lending while simultaneously fighting over customer deposits — the cheapest form of unsecured borrowing for them.

What’s worrying for the UK, in particular, says Packard, is that it’s the government supported banks like RBS and Lloyds which are clearly most guilty of the practice.

Our other concern is that banks are recouping investment banking losses by expanding margins to retail and small business customers

Of course, the reason they can get away with this is that the British Government has destroyed competition in the banking market in Britain. 2 top 10 lenders were allowed to merge, 5 of the 2006 top ten lending banks are Nationalised and nobody seems able to decide whether 2 of those should be competing for business or not.

It seems to me that the UK's taxpayers are making a profit on their 'investment' in the Nationalised banks on the backs of UK consumers and businesses.

C_Mababejive

Its true they are sucking the blood out of depositors but then the depositors have no where else to run.

Thats why they dont actually have to fight for their cash. Its like shooting fish in a barrel..easy pickings.

The best thing UK depositors can do is pull out money and stockpile it either in liquid form or as tangible assets (but what?).

Whether that could happen in sufficient volume to skew the market is another matter.

Its a dangerous game.

Bullfighter

C_Mababejive wrote: »

Whether that could happen in sufficient volume to skew the market is another matter.

Well, remember that the force multiplier of fractional reserve banking works in reverse as well, it wouldn't take a massive drop in deposits to skew their already pitiful capital adequacy ratios.

tomterm8

In a lot of ways, the fault is in the response of the British government. There should be a competition commission, whose job it is to break sectors where there is inadequate competition up, so they become competitive. It's odd that we don't have such a body.

Um, what? We have such a body? Why aren't they acting then?

Generali

tomterm8 wrote: »

In a lot of ways, the fault is in the response of the British government. There should be a competition commission, whose job it is to break sectors where there is inadequate competition up, so they become competitive. It's odd that we don't have such a body.

Um, what? We have such a body? Why aren't they acting then?

Judging from the policy response it appears that the solution to the problem of having banks that are too big to fail is to make the banks bigger by having them take each other over.

lemonjelly

tomterm8 wrote: »

In a lot of ways, the fault is in the response of the British government. There should be a competition commission, whose job it is to break sectors where there is inadequate competition up, so they become competitive. It's odd that we don't have such a body.

Um, what? We have such a body? Why aren't they acting then?

I agree with what you say, but isn't there a dichotomy between taxpayers wanting to get the banks back profitable, allowing us to recover what we put into them, perhaps then selling them off in parts? If this is the case, the current situation is temporary?

Generali wrote: »

Judging from the policy response it appears that the solution to the problem of having banks that are too big to fail is to make the banks bigger by having them take each other over.

Yes. The irony is quite delicious.:D

Wookster

Generali wrote: »

It seems to me that the UK's taxpayers are making a profit on their 'investment' in the Nationalised banks on the backs of UK consumers and businesses.

They do need to rebuild balance sheets so on that basis, I don't bear bones about banks running to make a profit, however, what is still sorely lacking is lending to SMEs.

Normality simply will not return until bank take a reasonably and pragmatic view of risk.

michaels

Is it any secret that the bank bailout is being largely achieved by allowing banks to exploit their market power and generate excess profits rather than through further (deeply unpopular) injections of public money? Don't forget that after the rights issue disasters for many investors private equity was not a viable alternative.

What rankles the most is that of course all banks are benefiting, and those with the best capital position (ie not those that were bailed out) are benefiting the most so HSBC, Barclays and Santander are making a fortune so that no further govt money needs to be put in to RBS and Lloyds-HBOS.

Having said all that it is still possible to secured borrow for 2.19% and earn 2.8% on an instant access savings account so those who are not too lazy to chase the best deals are still making money from the banks.

Generali wrote: »

From the FT:



Of course, the reason they can get away with this is that the British Government has destroyed competition in the banking market in Britain. 2 top 10 lenders were allowed to merge, 5 of the 2006 top ten lending banks are Nationalised and nobody seems able to decide whether 2 of those should be competing for business or not.

It seems to me that the UK's taxpayers are making a profit on their 'investment' in the Nationalised banks on the backs of UK consumers and businesses.

tomterm8

lemonjelly wrote: »

I agree with what you say, but isn't there a dichotomy between taxpayers wanting to get the banks back profitable, allowing us to recover what we put into them, perhaps then selling them off in parts? If this is the case, the current situation is temporary?.

I don't think so, personally. Recovering money from the bailouts is nice, but over the long term, changing the situation so the events of 2007 happen less frequently is much more important. Because, as we saw, Banking crises are extremely expensive in terms of lost output. The cost of the bailouts are small potatoes compared to the cost of severe recession caused by the crises. The IMF survey suggests that banking crises tend to increase government debt by between 20 and 40% of GDP. Our own crises looks to have increased government debt by something in the order of 30% of GDP, even though most of the bailout costs will have been recovered.

michaels

But how much extra revenue came in to the govt during the 'boom' phase that preceded the bust in terms of %GDP? Adding the boom and bust together should not have pushed debt up by so much if the excessive receipts during the boom period had not been spent rather than saved.

Malcolm.

The banks appear to be the ogres whether they make too much or too little profit.

If more competition is needed, the govt should reduce the barriers to entry.

edit: From a personal (round my way) perspective, the interest on my current account is above that of my mortgage. Cheap debt was available to some for a limited period of time.