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Gordon Brown: I made a big mistake on banks
Comments
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[quote=[Deleted User];42765672]The banks lobbied to have regulation reduced.
[/QUOTE]
Regulation has become the convenient scapegoat. But what difference would it have made? The banks had vast amounts of money in highly-rated securities that turned out to be junk. Regulation wouldn't have prevented that.
What would have helped would have been some bank directors considering it their duty, in return for their "compensation" packages, to be a bit more curious about just what their banks' assets actually consisted of."It will take, five, 10, 15 years to get back to where we need to be. But it's no longer the individual banks that are in the wrong, it's the banking industry as a whole." - Steven Cooper, head of personal and business banking at Barclays, talking to Martin Lewis0 -
Regulation has become the convenient scapegoat. But what difference would it have made? The banks had vast amounts of money in highly-rated securities that turned out to be junk. Regulation wouldn't have prevented that.
Tighter regulations and a more effective/authoritative FSA would have possibly prevented some banks (Northern Rock, Halifax, etc.) from taking too many risks, over-stretching their resources, working to unsustainable business models, not having anything in reserve for when things went wrong, etc. and this could have potentially avoided the UK financial crisis and subsequent "bail out".
Of course, if the regulations had been more strict then potentially the same or other companies in other countries would have just taken these risks... so instead of bailing our own banks out we would have ended up bailing a lot of other countries out instead!0 -
Regulation has become the convenient scapegoat. But what difference would it have made? The banks had vast amounts of money in highly-rated securities that turned out to be junk. Regulation wouldn't have prevented that.
Northern Rock along with Bradford and Bingley would have never reached a position where they failed if the correct regulation had been in place. . The banks were not complex in their operation. Just over leveraged and took excessive risk with lending. .0 -
Tighter regulations and a more effective/authoritative FSA would have possibly prevented some banks (Northern Rock, Halifax, etc.) from taking too many risks, over-stretching their resources, working to unsustainable business models, not having anything in reserve for when things went wrong, etc. and this could have potentially avoided the UK financial crisis and subsequent "bail out".
Of course, if the regulations had been more strict then potentially the same or other companies in other countries would have just taken these risks... so instead of bailing our own banks out we would have ended up bailing a lot of other countries out instead!
the northern rock model was to lend long (i.e. mortgages) and borrow short
exactly like every building society and every bank that provides mortgages
the main difference with many other lenders was it's reliance on overseas borrowing.
once the system ceased up they couldn't refinance their debts.
I can't see how Vickers proposals address this issue.0 -
Thrugelmir wrote: »Northern Rock along with Bradford and Bingley would have never reached a position where they failed if the correct regulation had been in place. . The banks were not complex in their operation. Just over leveraged and took excessive risk with lending. .
And if I suspected they were "living on the edge", why didn't the government/FSA ?30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
And if I suspected they were "living on the edge", why didn't the government/FSA ?
The Directors concealed the extent of bad debts and mortgage arrears. Although this didn't impact directly on the downfall. This is in part why it was 6 months before the bank was nationalised following the treasury take over. As the true trading performance was far worse than was expected once the mortgage books were opened up to full scrutiny..0 -
The FSA were aware of the Northern Rock business model, but either chose not to do anything about it or didn't have the power to make them change.
The FSA warned NRK that they were holding reserves that were too small and relying too much on the money markets for funding.
NRK chose to ignore that warning and the FSA chose not to pursue the matter.0 -
But who knew what the risks were? Who knew the business models were unsustainable? Anybody who took a correct view of the future direction of economies abnd markets. But that's not a regulator's job. Any two economists will have three different crystal balls.Tighter regulations and a more effective/authoritative FSA would have possibly prevented some banks (Northern Rock, Halifax, etc.) from taking too many risks, over-stretching their resources, working to unsustainable business models,
How does that work? We've lost a pile of money. Never mind, we've still got what Uncle Fred left us, we stuffed it in the mattress, it's not in the books, we'll get it out now and add it to the balance sheet and then we'll be straight again?not having anything in reserve for when things went wrong
Tighter regulation only means that if a bank's assets are revalued downwards, it's that much more likely to find itself in breach, and therefore have to fall on its sword or get a panic bailout.
The way for a bank to stay out of trouble is to operate well within the regulatory limits. But you can't enforce that by regulation.
Putting it another way, tighter regulation is like planting a minefield along a cliff edge to stop you going over the cliff. It doesn't keep a bank further away from going bust, it just redefines the point where the bank is obliged to declare itself bust.
Regulations don't provide a buffer zone unless the banks are able to stray into it safely. But we can't have banks operating secretly in breach of regulations, and if they go public it'll be all over. Nobody will say, it's ok, they might have crossed a line but they've still got plenty of slack, I'll leave my savings where they are.
If we've survived the last crisis, we've survived because people were able to exploit the slack in the system to keep quiet about the banks' predicaments until something could be sorted out."It will take, five, 10, 15 years to get back to where we need to be. But it's no longer the individual banks that are in the wrong, it's the banking industry as a whole." - Steven Cooper, head of personal and business banking at Barclays, talking to Martin Lewis0 -
But who knew what the risks were? Who knew the business models were unsustainable? Anybody who took a correct view of the future direction of economies abnd markets. But that's not a regulator's job.
In 2000 mortgage lending was a 100% funded by retail deposits held by banks. By 2007 around £750 billion had been raised from wholesale money markets to provide additional funding for mortgages. A shift of funding source of this magnitude was never properly risk assessed. If the money markets came to a halt............which they did.0
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