UK banks 'still short of capital'

wotsthat

An interesting piece from Peston...

Why do they need more? Well, there may be a couple of reasons.

First, under the Basel system that allows big banks with "advance" status to set their own evaluations of the riskiness of different categories of loan - the so-called risk weights - there is not enough consistency in how much capital different banks hold to cover similar risks.

The Bank of England wants consistency (which many would say is not unreasonable). But levelling up the capital requirement, rather than levelling down, has revealed a shortfall in some banks.

So that is one reason why the banks in general are under-capitalised.

A second reason may be that banks are not taking a pessimistic enough view of the prospects for getting money back from customers who are in "forbearance", to use the jargon.

These are individuals and businesses on the brink of going bust, often referred to as zombies, who are just keeping their heads above water, because the banks have temporarily let them off some of their debt payments.

Anyone expecting QE, FFL or any other scheme to lead to loads of cash sloshing about the system will continue to be disappointed.

Lenders don't want to lend.

http://www.bbc.co.uk/news/business-21936550

PaulF81

Yep. The inflation has already happened, during the housing boom. They are now crystallising that inflation with QE.

shortchanged_2

Well I can definitely understand the banks not wanting to lend for overpriced assets.

Where would the logic in that be?

Thrugelmir

wotsthat wrote: »

Lenders don't want to lend.

Lenders are greatly reduced in number. Of those that are left RBS, Lloyds and Santander are deleveraging their balance sheets. NW doesn't have the capital reserves to lend more. Barclays is to busy chewing through ING. Which only leave HSBC as a lender actually doing business than before.

grizzly1911

wotsthat wrote: »

An interesting piece from Peston...



Anyone expecting QE, FFL or any other scheme to lead to loads of cash sloshing about the system will continue to be disappointed.

Lenders don't want to lend.

http://www.bbc.co.uk/news/business-21936550

It would be interesting to see what the books lok like if the banks fessed up about the true extent of point zombie forbearance cases.

No doubt they will be eased out slowly once the rump of PPI passes.

Thrugelmir

grizzly1911 wrote: »

It would be interesting to see what the books lok like if the banks fessed up about the true extent of point zombie forbearance cases.

Banks are required to give these figures to the FSA. Failure to do so does result in disqualification of board Directors.

Yesterday NRAM announced arrears of over 3 months are down by around a quarter to 25,000 mortgages.

Five years from when it last lent , still holds 578,000 mortgages.

Generali

wotsthat wrote: »

An interesting piece from Peston...



Anyone expecting QE, FFL or any other scheme to lead to loads of cash sloshing about the system will continue to be disappointed.

Lenders don't want to lend.

http://www.bbc.co.uk/news/business-21936550

Interesting post.

I certainly agree with the second point he makes but there is no public information available to substantiate his first point, particularly his inference that this means that banks are undercapitalized.

Thrugelmir

Generali wrote: »

particularly his inference that this means that banks are undercapitalized.

Between 2003 and 2007. Banks raised £600 billion to fund mortgages from the wholesale money markets.Over time this funding will require refinancing. From where though? No longer much of a demand for securitised mortgage debt.

grizzly1911

Thrugelmir wrote: »

Banks are required to give these figures to the FSA. Failure to do so does result in disqualification of board Directors.

Yesterday NRAM announced arrears of over 3 months are down by around a quarter to 25,000 mortgages.

Five years from when it last lent , still holds 578,000 mortgages.

Who decides if they are in arrears and by how much if terms have been renegotiated or repackaged?

Do they have to put an amount against that volume?

Generali

Thrugelmir wrote: »

Between 2003 and 2007. Banks raised £600 billion to fund mortgages from the wholesale money markets.Over time this funding will require refinancing. From where though? No longer much of a demand for securitised mortgage debt.

You'd be surprised actually. CDOs not so much but there's a market for vanilla, high quality RMBS.

Anyway there's more than one way to skin a cat. There is certainly tons of demand for mid-rated (think A-BB) corporate bonds and there are plenty of banks that are operating in that area that could raise debt for lending.

Also, now that central banks will take any old crap through the discount window you can always pass the buck onto the Old Lady of Threadneedle Street.

purch

Good old Vanilla.

The Rocky Road with extra sprinkles seemed like a good idea at the time, but left a nasty taste.

There is an idea that the markets are in some kind of stasis, and that not a lot is happening, but in most areas it is business as usual and has been throughout the crisis.