Is Banking Really 'free' as they claim?

antrobus

cepheus wrote: »

I think you are misleading people as usually Antrobus, securitization isn't box standard lending it's certainly one of the problems which led to the crisis. When will people learn, you seem to be in a state of Denial.
Michael Simkovic, Competition and Crisis in Mortgage Securitization

Yes but (in no particular order),

(1) Cutting and pasting a slab of text about the "U.S. subprime mortgage crisis" doesn't real help anyone when you're talking about a UK bank.

(2) No one is arguing that securitisation isn't one of the problems which led to the crisis and certainly not me.

(3) Securitisation doesn't amount to having a "speculative investment arm" which is what you originally claimed the problem was.

(4) The reason that securitisation became a problem was that the security, being the underlying bog standard lending was pants.

mgdavid

cepheus wrote: »

if the NHS acted like a bank they would charge for being late for an appointment, sell useless health insurance, and refuse treatment to the chronic and terminally ill.

don't give them ideas !!
come to think of it. the last one is heading in that direction, look at some of the cases of apparent age discrimination due to finite budgets for drugs and certain operations;

bigadaj

A little commercial reality would be of some use surely. Charging people for missed appointments would confirm there is a cost in service delivery, just because you don't pay for it doesn't mean it's free.

There's also a lack of debate about terminal illnesses, surely better to manage this to a stage at which life is of little value and then offer a better way out. Always amuses me when managed euthanasia is dismissed by religious views, in which case don't take advantage of the man made drugs and procedures up to that point, rely on a few herbs and leeches.

grey_gym_sock

cepheus wrote: »

So are you saying the Sunday Telegraph made it up? Have they retracted the statement, or has David Walker complained?

no, i'm saying david walker was making it up.

Thrugelmir

antrobus wrote: »

Recent experience suggests otherwise. Northern Rock plc, Bradford and Bingley, Dunfermlime Building Society, none of them had a "speculative investment arm". Come to think of it, the London Scottish Bank didn't have one either. In fact the various financial difficulties experienced by many UK credit institutions circa 2007 had nothing to do with any problems encountered with speculative investment arms and everything to do with boring old lending that turned sour.

What should have boring became racey and retail.

Banks were being run by salesmen not bankers.

grey_gym_sock

antrobus wrote: »

From the FSCS link provided earlier it would seem that, since 2001, one building society and six banks have gone into administration (and three of those were Icelandic), whilst sixty-six credit unions have gone down. According to the ABCUL there are currently around 400 credit unions in GB; according to the FSA it looks like there are around 150 banks 'incorporated in the UK'.

That would suggest that there is a 14% chance of a credit union going down compared to a 4% chance of bank going bust. Not sure that it matters though.

and about a 1% chance for building societies.

apart from statistics, i'd say building societies are the safest, based on what they do.

credit unions have also received significant public subsidies in recent years. so they would be less sustainable without subsidy.

cepheus

My estimate is that about half the banks weighted by customers or money deposited required a bailout, and they could have dragged any others with toxic assets under. They were too big to go into conventional administration, but were 'de facto' bankrupt and required recapitalisation by the government.

Therefore, without the certainty of government intervention and the FSCS guarantee, depositors would be crazy to touch these institutions with a barge pole.

I guess many building societies would also have gone into administration, but the larger ones are willing to buy the smaller inefficient ones out, presumably not for profit but to maintain confidence in the sector.

Linton

antrobus wrote: »

Recent experience suggests otherwise. Northern Rock plc, Bradford and Bingley, Dunfermlime Building Society, none of them had a "speculative investment arm". Come to think of it, the London Scottish Bank didn't have one either. In fact the various financial difficulties experienced by many UK credit institutions circa 2007 had nothing to do with any problems encountered with speculative investment arms and everything to do with boring old lending that turned sour.

Dont think that explanation is true. Their lending didnt go sour, their borrowing did....

In the old days mortgages came from building societies who obtained money from savers. Barring fraud and incompetence everything carried on nicely. Savers were most unlikely to withdraw all their money so the building societies could commit to long term lending reasonably safely.

Now when these institutions became banks they had the opportunity to access extra funds for lending by borrowing on the worlds money markets. This involved far less hassle then keeping savers happy and also enabled them to grow rapidly which is why their management and shareholders liked the idea. This borrowing was fairly short term but could readily be renewed as each loan came to be repaid.

Then unfortunately the global money markets ceased to operate for the banks because of the widespread contagion of the toxic mortgages from the US. No prospective lender knew whether the bank they lent money to would be unable to repay the loan as assets they held backed by US mortages proved to be worthless. So the lenders stopped lending.

Which did for Northern Rock etc. They had no new borrowings to allow them to repay the old ones. They were insolvent.

Dunfermline was a genuine Building Society as was Derbyshire which got taken over by Nationwide. I dont know why they failed.

jimjames

Linton wrote: »

Dunfermline was a genuine Building Society as was Derbyshire which got taken over by Nationwide. I dont know why they failed.

If it was anything like the Kent Reliance which was effectively rescued by JC Flowers then it was their commercial lending that caused their problems.

Back to the orginal question, my bank pays me 1% interest on my current account with no charges for running it. That's double the base rate. Looks like it is free to me!

Linton

jimjames wrote: »

Back to the orginal question, my bank pays me 1% interest on my current account with no charges for running it. That's double the base rate. Looks like it is free to me!

If you are comparing savings returns with funds, the charging is much the same. Your current account is "worth" say 2.5-3% or more depending on what the bank gets as load interest. The difference is the charges. Similarly a fund's underlying investments may return 10% but you only get a 9% return. So 1% in charges. Neither funds nor bank accounts are free, the cost is taken from the return you dont get.