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Basle 3 - 4 Risky Borrowers
Generali
Posts: 36,411 Forumite
As predicted by many bank watchers*, there is a lot of back sliding as we approach the first of many deadlines for the introduction of the Basle III Accord, a set of rules covering bank solvency, bank reserves and assorted rules about how banks should stop going bust.
The main problem is that in many counties their banks haven't managed to put aside enough in assets to enable them to keep their doors open under the new rules so what to do?
British banks have basically covered their new commitments under the first part of Basle III but the US and European banks haven't done so well. Do we let British banks go and take market share from their weaker cousins or do we change the rules?
There is nothing concrete yet but I suspect that I know the answer and it isn't to let the bloody Brits come over here and take Our Customers. The result is going to be a lot of surplus cash on UK bank balance sheets so the UK part of the credit crunch may be ending sooner than many people think. We might well find out next year whether the lack of lending is due to a lack of supply or of demand.
*Modesty prevents me saying which one close to 'home' predicted this stuff.
The main problem is that in many counties their banks haven't managed to put aside enough in assets to enable them to keep their doors open under the new rules so what to do?
British banks have basically covered their new commitments under the first part of Basle III but the US and European banks haven't done so well. Do we let British banks go and take market share from their weaker cousins or do we change the rules?
There is nothing concrete yet but I suspect that I know the answer and it isn't to let the bloody Brits come over here and take Our Customers. The result is going to be a lot of surplus cash on UK bank balance sheets so the UK part of the credit crunch may be ending sooner than many people think. We might well find out next year whether the lack of lending is due to a lack of supply or of demand.
*Modesty prevents me saying which one close to 'home' predicted this stuff.
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Comments
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Temporary loan from the BOE who can accept the risk in the event of default? It's what they did before, the difference being its proactive, not reactive.0
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Temporary loan from the BOE who can accept the risk in the event of default? It's what they did before, the difference being its proactive, not reactive.
I'm not sure what you mean. The BoE lends money secured to banks. If the bank goes bust the BoE keeps the asset. They only lend e.g. 95p on £1 of security and only accept the least risky assets as collateral, or at least they did until the response to this current mess was decided to be throwing good money after bad.0 -
UK banks have plenty of problems to deal with.
The skeleton in the cupboard may be commercial property.
Not forgetting interest only mortgage loans either.0 -
I'm not sure what you mean. The BoE lends money secured to banks. If the bank goes bust the BoE keeps the asset. They only lend e.g. 95p on £1 of security and only accept the least risky assets as collateral, or at least they did until the response to this current mess was decided to be throwing good money after bad.
A bit like this, except the BOE don't get to keep the asset. A bit like bailing out the banks post credit crunch, I don't see many houses on the boe's books!0 -
A bit like this, except the BOE don't get to keep the asset. A bit like bailing out the banks post credit crunch, I don't see many houses on the boe's books!
There aren't many houses on banks' books either because borrowers are repaying their mortgages as promised so banks haven't repossessed.
The BoE takes things like Gilts (UK Govt Bonds) as collateral, not illiquid things like houses.0 -
There aren't many houses on banks' books either because borrowers are repaying their mortgages as promised so banks haven't repossessed.
The BoE takes things like Gilts (UK Govt Bonds) as collateral, not illiquid things like houses.
So the BOE (governement) takes security in the form of bonds/gilts issued by itself? The only way those gilts will get repaid is out of future taxation or the issuing of replacement bonds/gilts a bit like a revolving IOU?
So on that basis it puts money into the Banks who then buy the new bonds and gilts. No doubt some of this is supposed to spin off into the economy at some point.
If taxation is dropping in real terms don't we need to keep on creating money to keep the cycle going?
I know they are technically BOE/government separate but....."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »So on that basis it puts money into the Banks who then buy the new bonds and gilts. No doubt some of this is supposed to spin off into the economy at some point.
A major misconception. The largest buyers of gilts are Insurance Companies and Pension Funds not banks.0 -
grizzly1911 wrote: »So the BOE (governement) takes security in the form of bonds/gilts issued by itself? The only way those gilts will get repaid is out of future taxation or the issuing of replacement bonds/gilts a bit like a revolving IOU?
I know they are technically BOE/government separate but.....
You have to ask why, if the BOE controls the money supply/printing press, it has to issue gilts (IOUs) and borrow money. Why on earth should the government have to borrow?
Unless of course the BOE was a private institution and they controlled the money supply.
It would be nice to know who the capital/equity shareholders of the BOE are, who are protected by the Official Secrets Act and a Royal Charter.0 -
Thrugelmir wrote: »A major misconception. The largest buyers of gilts are Insurance Companies and Pension Funds not banks.
So how do the Banks get hold of the gilts to hand over to the BOE as security?"If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »So how do the Banks get hold of the gilts to hand over to the BOE as security?
Security for what?0
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