santander

FLAPJACK

I suppose it would have been better all round if when Santander (UK) set up they had used another name "Goodtimes Bank" or some such.

Why? Well at least in the present situation it would not be so unsettling for some people to be (on the face of it) connected with a bank that is based in troubled Spain, unless they choose to find out who owns "Goodtimes Bank".

Probably would have been better too (at the moment) for Santander's UK business. As it would have kept to a minimum this kind of concern.

sorcerer

What do you think would happen if Santander UK goes bust, and the government don't componestate savers. They will likely be a run on every bank, so you savings won't be safe anywhere in the UK.

FLAPJACK

Thats probably the one reason that will ensure the government would pay out in the event of Santander going under.

However the fact that Santander has taken over so many other institutions makes it a very expensive compensation deal....it maybe be a case of what has happened re the Farepak compensation deal last week.
It could be that Santander's customers requiring compensation will only have a percentage repaid due to the expense 100% compensation would put on the government.

Maybe a disclaimer should be added to the small print regarding compensation, i.e "The first 85K is covered providing the government is in a position (agrees) to repay 100% of your investment, you may get back less than you invested".

grey_gym_sock

i agree about why the government would want to pay out if any major bank want under. (i don't think santander UK is more risky than other big UK banks.)

that it would be very expensive for the government to pay the compensation is 1 reason why they are likely to intervene to prop up any big bank in difficulties to prevent it going under. another reason is that if a big bank went under, and the FSCS compensation were paid out in full, there might still be runs on other banks, and other unfortunate side-effects.

propping up big banks in trouble is exactly what the government has been doing to date. it will probably continue.

as a result, they've put a frighteningly large amount of money into the banks. but of course they are likely to get a lot of it back, just not necessarily all. so it may be better value for the public sector than just paying the compensation (as well as leading to less financial chaos).

however, they certainly could have got better value for the public sector if they'd refused to buy shares in RBS and lloyds unless existing ordinary shareholders were wiped out (i.e. if they'd treated RBS and lloyds the same way they treated northern rock).

sabretoothtigger

So many shareholders were voters, the impending election almost directly gave money them to stay happy.

Not sure I'd be that happy at RBS falling 12 to under a pound. But government paid about 60p I think which was above the market price and even now they struggle to stay above 20p or 200 after share consolidation


FSCS is a liability on banks. Its supposed to be self regulation bacisically.
All the banks suffer the loss of profits to pay FSCS because its a industry guarantee not government. Every bank is liable for every other bank in proportion to its size of retail money taken.

So HSBC is massive retail bank but did nothing wrong, they still have to pay for Bradford and Bingley deposits. What government did was not pay savers so much as cover bank costs by seeing debts did not wipe out savers.
It meant no bill for HSBC and obviously savers never lost access to money for years as might happen under true FSCS

Maybe a disclaimer should be added to the small print regarding compensation, i.e "The first 85K is covered providing the government is in a position (agrees) to repay 100% of your investment, you may get back less than you invested".

The first 85k will always be paid back barring marxist revolution. The difference is it can be done instantly, seamlessly like B&B or it can take far longer maybe a decade as banks only pay a capped amount per year. Hence a contagion event is the fear

Im waiting on FSCS, since March. I was covered but it takes time. I hope I will get within 6 months. The main difference my broker was tiny, not even close to headline material. However I have no fear the bill cant be paid, the opposite scenario is headlines and completely swamped FSCS as a main depositor is hard for banks to cover even within a year

The other factor is inflation. In 1970's we had 30% per year, worst case scenario if it did take 10 years to repay everyone and we had that much inflation for that long.
You would receive all FSCS money 85k but its value in 2022 in 2012 prices would be £2,401


In my case, lets say inflation today is 4% and I get money in 6 months. My 85k will depreciate to 83.3k, thats my loss and vice versa the incentive for bank runs
A real bank run happens with commercial money more then retail I think, though savers do count for alot Im not sure its the majority of money

Inflation is a destructive agitant on the economy and company balance sheets

grey_gym_sock

the government blatantly overpaid for bank shares. e.g. they underwrote an a rights issue in lloyds, at a tiny discount (< 10%) to the share price before the rights issue was announced, for no fee. if they'd paid the market price, that would have been the usual underwriter's fee and a discount of perhaps 50%.

that's 1 issue: paying the market price, or not.

there's a slightly different issue: that they could have refused to buy bank shares at any price unless/until a bank was about to fail, because then they would get 100% of the shares for the money they put in (as with NR).

as to why they overpaid ...

i don't think buying shareholders' votes adds up. a fair number of voters have direct shareholdings in banks, but few would think it's the government's fault if their shareholding becomes worthless - unless there's some obvious unfairness involved. compare what happened to railtrack - where the government's responsibility was (without going into details) much more direct than with the banks. there was a lot of fuss about that, but it didn't become a significant election issue.

grey_gym_sock

incidentally, i wouldn't say HSBC did nothing wrong. they did, but their business was global enough and diversified enough that they could mostly pay for their own mistakes.

nationwide were complaining that they were obliged to contribute to the FSCS in proportion to the size of their deposits, despite the fact that they have a lower-risk business model. i'd agree more with that.

sabretoothtigger

I just mean wrong as in not able to cover your own mistakes. Me going down the supermarket and filling my trolley with whispa bars is probably wrong on many levels but if I can cover the bill its my business.
If HSBC was stupid enough to buy sub prime so be it and they paid for it
Maybe this 4% fix they offer now is a screw up, its their risk and their profit

This is pretty much a universal rule for capitalism, we cant pick it apart and try to tell them how they should operate.
It just doesnt work, either banks are puppets or we are capitalist free country and we have to accept force is not how success is achieved

nationwide were complaining that they were obliged to contribute to the FSCS

I like that system. Nationwide should complain when they see a bank is taking stupid risks they will pay for.
Who understands banks better then another bank. Complaining afterwards is whining, shout fire before the building burns down not complain about the bill

The lying for loans was reported on national tv 7 years ago. No new special law was needed, Nationwide just had to ask for the law to be enforced on this type of fraud

grey_gym_sock

sure. the only thing is that the banks are backed by the government in more ways than plcs in general are.

the government was lending extra money to all the big banks to prop them up during the financial crisis.

QE seems to be (among other things) a subsidy to the banks, though it is alleged to be done for other reasons.

further, the basic idea of a bank - using short-term borrowings to finance long-term lending - is fundamentally unstable. banks are naturally vulnerable to runs (for whatever reasons runs might happen). there are a few possible ways to deal with this:

(1) just let a few banks go bust if it happens. this is totally unrealistic for banks as big as many are today. and probably undesirable anyway.

(2) have a cartel of banks, where they agree to back one another up if there is a run of 1 of them.

(3) have a central bank back them up if there is a run.

we seem to be at (3) now. which means that the state stands behind all (at least very big) banks in a way that it doesn't stand behind (say) the big supermarkets.

grey_gym_sock

sabretoothtigger wrote: »

Me going down the supermarket and filling my trolley with whispa bars is probably wrong on many levels

oh, that depends whether you get a multi-buy discount