Banks MUST hold more capital, and lending won't get "back to normal" until then

Graham_Devon

Says Sir Lord Merv. Seems somewhat at odd's with what they have been saying before now, and ushering before now, but hey ho.

The UK and other major economies will remain weak until banks have sufficient capital to absorb "likely" future losses from bad loans, the governor of the Bank of England has warned.

Sir Mervyn King said this was because the banks' current "insufficient capital" was continuing to deter them from lending to households and firms.

He added that banks needed to accept that further bad debts were expected.

Sir Mervyn said only such a change could allow economies to prosper again.

"I am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values and recapitalisation of their financial systems," he said.

"Only then will it be possible to return to a more normal provision of vital banking services so crucial to an economic recovery".

I think it's fair to suggest that building on that, Merv is suggesting lending will not get better until banks capital and balance sheets get better. Something thrugelmir on here has been saying for some time, under derision from many.

Mervyn King has also stated that Funding for Lending is only temporary and cannot be used as a workaround.

http://www.bbc.co.uk/news/business-20051656

wotsthat

Are you starting to accept that mortgage rationing is a reality?

We can think of another name for it so you don't have to admit Hamish was right but the evidence, in the absence of rejection data, continues to build.

Graham_Devon

wotsthat wrote: »

Are you starting to accept that mortgage rationing is a reality?

We can think of another name for it so you don't have to admit Hamish was right but the evidence, in the absence of rejection data, continues to build.

That's sweet. Hamish was right? He's been banging on about forcing them to lend for how long? HOW many times has he gone up against Thrugelmir claiming everything thrugel was saying was nonsense!?

Merv comes out and states lending won't be back to "normal" until banks hold enough capital, and you claim Hamish was right.

LOL.

As for rationing, no. Rationing is giving equal amounts to equal people. Banks are not rationing anything, they've simply got new criteria. The criteria of 2006 may never be seen again....so does that mean they will be "rationing" forevermore?

System

Graham_Devon wrote: »

As for rationing, no. Rationing is giving equal amounts to equal people.

I don't think that's true.

Edit: Well it is, but we're not talking about WW2

http://en.wikipedia.org/wiki/Credit_rationing

Some good stuff there.

Graham_Devon

Joeskeppi wrote: »

I don't think that's true.

Edit: Well it is, but we're not talking about WW2

http://en.wikipedia.org/wiki/Credit_rationing

Some good stuff there.

Yes, and that proves it's not rationing....

In other words, at the prevailing market interest rate, demand exceeds supply, but lenders are not willing to either loan more funds, or raise the interest rate charged, as they are already maximising profits.

That's not what is happening. Even the BOE have said that's not what is happening, and demand is too low.

What IS happening, is a simple retrench back to normal deposit requirements, and some people detest it with a passion and need to make out it's something immoral.

REAL demand does not exceed supply. Demand cannot be defined as "those who would take it if it was available". Demand needs to be defined by those who want AND can afford it. Nothing is being rationed there.

chewmylegoff

i see, the whole hamish vs. graham epic was about the meaning of the word rationing. it was all semantics!

personally i don't think there is anything in the meaning of rationing which implies or requires equality. WW2 food rationing is a good example of that, as civilians and the military both received a fixed ration, but those rations were not equal.

the NHS is another good example, the NHS rations its resources (by making you wait) based on need rather than apportioning resources on an equal basis to all users.

banks have a certain amount to lend, and they are lending it to the people who have the largest deposits. it's certainly not grammatically incorrect to call this credit rationing as far as i'm concerned. you can call it something else if you want though.

ukcarper

Graham_Devon wrote: »

Yes, and that proves it's not rationing....

That's not what is happening. Even the BOE have said that's not what is happening, and demand is too low.

What IS happening, is a simple retrench back to normal deposit requirements, and some people detest it with a passion and need to make out it's something immoral.

REAL demand does not exceed supply. Demand cannot be defined as "those who would take it if it was available". Demand needs to be defined by those who want AND can afford it. Nothing is being rationed there.

Depends what you call normal deposit requirements.

Emy1501

wotsthat wrote: »

Are you starting to accept that mortgage rationing is a reality?

We can think of another name for it so you don't have to admit Hamish was right but the evidence, in the absence of rejection data, continues to build.

Depends on what you call mortgage rationing as 90% mortgages are widely available now so no reason for people not to have a problem getting a mortgage.

If your talking about 95%-%100, Selft cert etc, IO then yeah there is rationing but these types of lending are a thing of the past now.

System

ukcarper wrote: »

Depends what you call normal deposit requirements.

And depends how many people are being rejected for loans.

Graham_Devon

Ok, I'm going to post one last thing on the rationing subject.

Are insurance company "rationing policies" when they put the price up, or decline to offer a policy to an individual?

Or are they pricing in risk, based on the individuality of that policy?

Are insurance companies as a whole rationing policies to those who keep getting flooded on flood plains? Or are they undertaking a risk evaluation regarding their business?

Who's going to stick their hand up and claim they ARE rationing, not risk planning?

The whole things a nonsense. You'd have to be stupid to think insurance policies are rationed. So why apply it to mortgages!? It's risk evaluation based on current issues surrounding the banks. They will lend, they will lend up to 95%....just depends on your individual circumstances. Exactly the same as insurance.

This is all detracting from the original OP.

CLAPTON

merv says whatever his audiance is expecting

sometime he highlights the need to help industry to be able to borrow and sometimes he says the banks mustn't lead but rebuild their balance sheets

he knows the banks have loads of hidden toxic debts still but does nothing about them.

always he says that he himself is right and has never been wrong and that QE.

a complete disaster but he will be gone soon although we probably won't get anything better.