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

wotsthat

Graham_Devon wrote: »

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..

OK we'll call it a "simple retrench back to normal deposit requirements". Mortgage rationing seems like better description and certainly slips more easily from the tongue but I suppose a rose by any other name....

What do you consider a normal deposit requirement and when was the figure you last had in mind normal? I would have said 5% - 10% would be considered historically normal rather than the current 20%.

Mr._Pricklepants

chewmylegoff wrote: »

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

It usually is just semantics and forumonics once graham loses the argument.

Another technique is the "I'm out" approach, applied when he feels he's going to get another forum pummeling. :rotfl:

Graham_Devon wrote: »

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

Graham_Devon

Peston has now done a blog on this piece, and it's interesting, to say the least. I'm not quite sure if were getting a hint of the future, or whether it's just "thoughts written on a blog", but....

Sir Mervyn is fearful that we will repeat the mistakes of the 1930s in hoping that borrowers struggling to keep up the payments will one day be in a position to repay what they owe. Far better, he says, to turn off the life support for over-indebted businesses, households and even governments, write off the debts and start again.

Or to put it another way, the socially responsible behaviour of British banks in engaging in what is known as forbearance, by allowing overstretched debtors to take a holiday on payments, may now have become a burden on the economy as a whole - by keeping the banks in a state of permanent anxiety that one day they will incur huge losses on loans to these debtors.

Forcing our big banks to recognise all the big losses they are likely to face and raise enough capital to absorb those losses is the sine qua non, he says, of restoring the health of our banks so that they can provide the credit we need.

Has Mervyn truly said that above?

He's right if he has. IMO.

wotsthat

Graham_Devon wrote: »

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.

Of course risk is considered but that doesn't make it exactly the same as insurance. I don't apply for a 25 year loan from an insurance company is one slight difference.

The 95% that keeps getting thrown in is a red herring. We know that 95% mortgages are available but they aren't typical - last month new loans issued were 81% or so on average.

Don't see how it detracts from the OP either. Isn't restricting lending a very good way of holding more capital?

Generali

Graham_Devon wrote: »

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.

All the examples you give are what an economist would call rationing: resources are scarce and need to be rationed and that can be done in many different ways. You and others give many examples: price, equal shares, queuing, favoring one group over another.

You are welcome to use another word to describe this phenomenon but to an economist it is rationing.

Graham_Devon

Generali wrote: »

All the examples you give are what an economist would call rationing: resources are scarce and need to be rationed and that can be done in many different ways. You and others give many examples: price, equal shares, queuing, favoring one group over another.

You are welcome to use another word to describe this phenomenon but to an economist it is rationing.

Then it's nothing new.

And EVERY financial product is rationed, and always was....even throughout the craziest of lending years. So I don't get why all of a sudden it's being moaned about.

System

Graham_Devon wrote: »

Then it's nothing new.

And EVERY financial product is rationed, and always was....even throughout the craziest of lending years. So I don't get why all of a sudden it's being moaned about.

Rationing isn't on or off.

Edit: By which I mean the rationing now is considerably worse than it was. hence the "moaning".

Graham_Devon

Joeskeppi wrote: »

Rationing isn't on or off.

Edit: By which I mean the rationing now is considerably worse than it was. hence the "moaning".

Well whatever you want to describe it as, fundementally, there less lending. Especially to higher risks.

The reasons for lower lending, are pretty clear though, and it's not just something banks are doing because they feel like it.

It's risk calculations. And that's the way I see this. And I see that throughout every single financial product, if were going to agree that every single financial product is rationed.

Hell, if were going to use that description which continously confuses things and causes argument, tesco ration milk every time they put the price up. It's a nonsense really. All that's happened is the price from start to finish of processing the milk has changed, and therefore, tesco put their prices up (or ration it "more" if we want to go down that route).

Anyway, do thew implications of what Pestons blog has suggested Mervyn has stated, not provide for something to override this ration nonsense? It's a complete game changer if what he's said is true (and he's willing to go through with it).

wotsthat

Graham_Devon wrote: »

Then it's nothing new.

And EVERY financial product is rationed, and always was....even throughout the craziest of lending years. So I don't get why all of a sudden it's being moaned about.

No rationing isn't new - you're right.

However the commodity that's being rationed (i.e. lending) is in shorter supply so the effects of the rationing are more pronounced.

I think this might be a breakthrough.

Emy1501

wotsthat wrote: »

Of course risk is considered but that doesn't make it exactly the same as insurance. I don't apply for a 25 year loan from an insurance company is one slight difference.

The 95% that keeps getting thrown in is a red herring. We know that 95% mortgages are available but they aren't typical - last month new loans issued were 81% or so on average.

Don't see how it detracts from the OP either. Isn't restricting lending a very good way of holding more capital?

95% mortgages are available but as said are hard to get. makes sense really in a falling market. 90% mortgages are widely available but with rates the way they are makes sense for people to try to get the best LTV they can.