Banker Bonuses to be linked to Mortgage Lending

spadoosh

another one, me and g/f applied for a mortgage 6 months ago and was told they would lend us 132k. i worked out we could afford about 90k. if youve got the ratings and some finance banks will lend and will lend inappropriately (probable typo)

Batchy

isnt it interesting that they want the banks to lend the 200bln in quantative easing... or maybe that will be the next round.

No quantative easing... no mortgages... the banks have the government over a barrel!

Linton

Graham_Devon wrote: »

Why was it the victim Hamish?

What exposed NR so much?

AIUI:

In order to lend out money, banks need to get money in. They can get it from many different sources - eg depositers, ongoing income from current mortgagees, profits from other activities etc.

NR decided to base their income, excessively as it turned out, on borrowings from other banks. These are organised via a global market.

This wheeze seemed like a good idea. There was plenty of money available to be borrowed internationally and they could easily lend it out at a higher interest rate than they borrowed at. Lots of profit and minimal admin costs.

And then the credit crunch happened. Lending banks didnt trust borrowing banks to be able to pay back their borrowings. They wanted their money back and didnt want to lend any more.

This left NR with a problem. It had a good steady income from the mortgages but not enough cash to repay the loans. And it couldnt borrow any more, and of course it couldnt quickly get money back from the mortgage lendings.

So it went bust, or would have done if the government hadnt provided the funds that NR was unable to borrow commercially. Some relief for NR, also a good deal for the government, as they could borrow money at low rates and continue to get the profit from the mortgages. In addition they got the business cheaply and should be able to sell it for a handome profit.

CloudCuckooLand

HAMISH_MCTAVISH wrote: »

What we now need to get back to is sensible historical norms for lending.

Where a 5% to 10% deposit would get you a rate of 1% to 2% above base.

And a sensible historical base rate to go with the lending, presumably?

If it is time for "everything to go back to normal", then the base rate has to be included.

If not, then lending should not be special case. (house lending, not business.)

ILW

Really2 wrote: »

Do you think the world will go straight back to that on the back off this or that they may still closely evaluate the risk of any lending they may partake in?

If you tell a senior manager in a bank that he will get a £xmillion pound bonus if he can show £xmillion profit this year he will go for it. The fact that that profit could well turn into a massive loss in a few years time is not going to be a great worry for the individual involved.

Graham_Devon

Really2 wrote: »

I should imagine people queuing up to withdraw all their savings was not a help.

LOL yer. Cus people queue up outsides banks in their droves to withdraw crash for fear of the bank going under every day.

Give up.

As for management? That's why it went under? Bad management?

Anything, anything but anything, so long as we don't even mention 125% lending. Can't mention that, must look the other way....talking of looking the other way, seems Hamish is doing that to my questions

Losing_the_way

ILW wrote: »

A liquidity problem caused by long term lending financed by short term borrowing. Always a risky business made worse by the fact that they were lending over and above the asset values ot the security.
I would suggest that a lot of this risk taking was encouraged by bonuses paid throughout the organisation.

That about sums it up. One point is that as has already been pointed out is that UK mortgages didn't cause the crisis, however they were and are part of it in so much as as that they are classed as "AAA". To try to pretend that the UK played no part is naive at best. That rating is due to the fact that unlike the bulk of global mortgage value where the holder can often default with impunity, we in the UK can't. That is not to say that we won't be face a jump in default if the slide in the market continues along with the worsening employment outlook. :sad:

Graham_Devon

Batchy wrote: »

the bonus's will never go,

If they dont pay the bonus's then the bankers will move to european companies who WILL pay the bonus's or Asian companies who pay them bonus's.

This keeps getting said....however, bonuse's were massively reduced, and no one left. They all threatened it of course. But they still sit there threatening it 3 years on.

Losing_the_way

ILW wrote: »

If you tell a senior manager in a bank that he will get a £xmillion pound bonus if he can show £xmillion profit this year he will go for it. The fact that that profit could well turn into a massive loss in a few years time is not going to be a great worry for the individual involved.

Sadly that is human nature, like a tradesman undercutting his own quote in the hope that he'll be able to get away with it. The difference is that the senior manager in a bank is in a position where as we have seen in the recent past that is tolerated, were as it isn't for the tradesman.

Bank regulation now has to tighten as we know that they aren't capable of avoiding real world risk.

Losing_the_way

Graham_Devon wrote: »

This keeps getting said....however, bonuse's were massively reduced, and no one left. They all threatened it of course. But they still sit there threatening it 3 years on.

With the recent changes in corporation tax there is a stronger reason to remain in the UK. However the trend for higher base salaries as means to avoid bonus taxes is a problem, as is the lack of a fiscal firewall between many banks investment and retail sides.

The issue of compartmentalisation of that risk is a global problem which must be addressed so rather than later.