Bank of England warns banks about risky lending after borrowing surge

antrobus

HAMISH_MCTAVISH wrote: »

This is what was almost entirely responsible for the better than expected economic figures post-Brexit..

Brexit hasn't happened yet.

And it hasn't worked in Scotland. GDP contracted by 0.2% in Q4 2016. One more quarter like that and it counts as a recession. Of course the SNP blame the referendum. After all, nothing bad is ever their fault.

http://www.bbc.co.uk/news/uk-scotland-scotland-business-39501748

michaels wrote: »

Surely the whole point of banking is that you set an interest rate on your lending so that despite some defaults, overall you make a profit....

That's normally Plan A. However, as we have seen sometimes things don't go to plan.

michaels wrote: »

...Now it seems that any loss is unacceptable as it presents a 'systemic risk'.

Losses on lending are ever present. It's how big they are that matters. The BoE regularly carries out a survey of potential 'systemic risks'. It seems that over the period 2010-16, the respondents have become more worried about 'UK political risk' and much less worried about the 'Household/corporate credit risk'

http://www.bankofengland.co.uk/publications/Documents/other/srs/srs2016h2.pdf

Make of that what you will.

michaels wrote: »

...I guess because eveyone including the banks tries to minimise captial holdings so the profit made in the good years immediately disappears out the door as bonuses or dividends meaning there is no buffer for the lean years so the regulator has to 'regulate' away the lean years.

The whole point of regulating banks is to ensure that the profit does not disappear. The problem we had pre 2007-8, was that we had a dufus in charge of this sort of thing. Since we kicked out the dufus in 2010, we now (at least) have some kind of proper regulation, with the BoE etc telling banks they need more capital before the SHTF.

Conrad

I would also add that Banks are generally significantly owned by everyone's pension / ISA fund, so when we blithely talk about Shareholders, it's all too easily to fall into the Russell Brand playing to the gallery mind-set, forgetting that Bank profits feed pensions and ISA's and aren't merely a fat cats plaything

davomcdave

Conrad wrote: »

I would also add that Banks are generally significantly owned by everyone's pension / ISA fund, so when we blithely talk about Shareholders, it's all too easily to fall into the Russell Brand playing to the gallery mind-set, forgetting that Bank profits feed pensions and ISA's and aren't merely a fat cats plaything

They're also much beloved of retirees as they pay a nice, steady income as a rule and, unlike an annuity, you can leave them to the kids. Plus, unlike a BTL, they don't ring up on Xmas Day to complain the boiler is jiggered.

Hong Kong Chinese retirees apparently see a savings account with HSBC and HSBC shares as being basically the same thing and will put their money into the one that pays the better income.

Most shares in most large companies are owned by pension funds for the middle classes. Yes the CEOs have huge pension funds but there are hardly any of them. A final salary scheme that is going to pay out ten grand a year in a few short years will need hundreds of thousands in assets to cover that.