MSE News: 'Free' banking system isn't working, says FSA

tagq2

VT82 wrote: »

Erm, what have you been smoking, and can I have some?

I'm describing the money multiplier effect.

If Customer A deposits £100 and Customer B borrows £90, there are deposit liabilities of £100, loan assets of £90, and liquid assets of £10, not deposits of £190!

Where does the £90 you've just given Customer B go?

John_Pierpoint

Alpine_Star wrote: »

As I said income from loans is separate from net credit interest income which is realised by the PCA section of the bank that charges a fee to the loan section of the bank for the money. The loan section then makes it's own revenues from lending it out.

''Banks typically use these credit balances to earn revenue in other parts of their business. The current account business is usually paid an internal transfer fee by the section of the bank that uses the consumers’ funds. The difference between this transfer price and the interest they pay to the account holder is called net interest income. According to data from 16 banks net interest income is the largest source of PCA revenue at 50 A per cent, or at least £4.1 billion in 2006 (see Chart 2.3 in chapter 2). Net interest income is a key driver of the PCA business model.''

http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf

I think PCA must mean Personal Current Account and the rest of it is all about "Chinese Money".

It reminds me of the oil companies - one minute they a bleating like hell about the retail margins on selling petrol being a penny or two per gallon and three months later they publish world wide record profits in the history of capitalism.
Probably engineered to pop up as "production" profits in a country with no oil wells but a nice low level of corporation tax and a history of banking secrecy.

mobilejunkie

Whenever the so-called regulatory authorities meddle it ALWAYS makes things a lot worse, a lot more expensive and a lot less transparent.

When they "improved" credit cards we ended up with lots more (and higher) hidden charges, a great deal less clarity, companies arbitrarily lowering credit limits without warning or justification, worse special offers and a lot more profit (at our expense) for the financial institutions.

Why is it that governments think that INCREASING charges where there are none is fine for people who take the trouble to do things properly with their finances and will now end up paying a LOT more for those who don't?

In my (fairly substantial) experience, the FOS is the body which people should complain about most and it should stick it's ideas where the sun don't shine.

Alpine_Star

tifo wrote: »

And in my post I quoted this already

No you didn't and you're just kidding yourself if you think you did.

tifo

Alpine_Star wrote: »

No you didn't and you're just kidding yourself if you think you did.

I'm not going to carry on arguing this point because the thread is about the FSA's opinion on free banking and not overdraft charges on personal current accounts.

We have our own views so that's fine.

geneer

Looking at the derisible interest rate on current accounts, its quite clear that these aren't "free".

opinions4u

geneer wrote: »

Looking at the derisible interest rate on current accounts, its quite clear that these aren't "free".

£5 a month Halifax.

3% Lloyds TSB.

5% Santander.

3% Bank of Scotland.

Seem ok return wise to me.

adindas

Wel, I agree they are seperate department but they are one entity part of Personal Banking divison which account for personal banking profitability that they are taking from us from margin between lending and Saving. How come a bank give give a loan to people if they did not get money from our saving ? I am saving and also have current a/c. They are using my saving to lend people with muh hogher interest.

If you sperate them like that, people could also sconsider ....
IT department in your company is seperated from their selling department. Library dept at your university is seperate from the school.

When come to company proftabiltiy Are you be able to say they are seperate ?

Alpine_Star wrote: »

Income that banks derive from savings and loans are separate and irrelevant to the income derived from the personal current account market.

stevemcol

I have been the 'stupid person' when I couldn't be bothered to manage my overdraft. I eventually learnt, after a few charges that it wasn't the way to go. I got myself in the black and haven't paid a bank charge since, other than interest on agreed borrowing.
I've no problem that I was subsidising everyone else during my foolish period. It taught me a valuable lesson.
Free banking for me now please and I'm happy to be subsidised by the 'stupid people'.

VT82

tagq2 wrote: »

I'm describing the money multiplier effect.


Where does the £90 you've just given Customer B go?

Mostly on buying a house, meaning eventually it will end up in the bank account of the person at the top of the chain. But even for non-mortgage loans, it won't sit in the borrowers deposit account for very long, otherwise there wouldn't have been much point in borrowing it.

The money multiplier effect describes the expansion of money in the entire system, but does not mean that banks can magically lend out £8 for every £1 someone deposits in them.