Channel 4 news running a feature on risks of foreign banks

earlgrey_3

Couple of points I'd make:

ianmr65 wrote: »

The issue is that the icelandic banks are also almost certainly being attacked by speculators, and hedge funds who are shorting their stock, and credit positions, to make proft.

If that's correct and serious money is being speculated, and I don't know if it's correct or not, then those doing so must think they're onto a winner and that those banks can be put under further pressure. They wouldn't be betting their shirts on shorting them otherwise.

ianmr65 wrote: »

And imagine what would happen if a bank the size of HBOS did go down, what impact do you think that would have on the UK economy?

Its the political and wider implications that make it safe and similar implications that in reality made Northern Rock safe for savers from the outset - even if they didn't believe it until they got it in writing. If the majority of savers with Icelandic banks are not Icelandic nationals, then the political implications there could be slightly different.

ianmr65 wrote: »

How many billions of pounds in compenstaion would have to be paid, or do you think the goverment could nationalise it (HBOS)? Their liability base is a quater of the UK's GDP.

It's the size of the operations of Icelandic banks set against the size of their national GDP, far higher than for any UK bank, that's a primary cause for speculation against them.

Personally, I think the concerns about all banks operating here are overdone but the unique situation of Icelandic banks is interesting. And because its one I couldn't begin to understand I did decided not to be persuaded by their high rates when I moved a lot of money recently. Interesting times.

PasturesNew

All I ask of a bank is that I put my money in, get a good rate of interest and I can keep it all in one place.

It's got to the stage now where just trying to check/manage all the accounts and juggle all the passwords/letters/accesses means I have to schedule in half a day to go through them all. It must be costing the banks fortunes with so many of us having spread our cash across so many accounts because of the £35k limits. All unnecessary waste and cost and time all round.

I don't even think any bank will go under, I just don't want to look daft and lose my life's savings IF one did.

ianmr65

earlgrey wrote: »

Couple of points I'd make:
If that's correct and serious money is being speculated, and I don't know if it's correct or not, then those doing so must think they're onto a winner and that those banks can be put under further pressure. They wouldn't be betting their shirts on shorting them otherwise.

Its the political and wider implications that make it safe and similar implications that in reality made Northern Rock safe for savers from the outset - even if they didn't believe it until they got it in writing. If the majority of savers with Icelandic banks are not Icelandic nationals, then the political implications there could be slightly different.

It's the size of the operations of Icelandic banks set against the size of their national GDP, far higher than for any UK bank, that's a primary cause for speculation against them.

Personally, I think the concerns about all banks operating here are overdone but the unique situation of Icelandic banks is interesting. And because its one I couldn't begin to understand I did decided not to be persuaded by their high rates when I moved a lot of money recently. Interesting times.

It is correct that serious money is being speculated - Look at todays FT article. Confirms everything I've been predicting

http://www.ft.com/cms/s/0/2c6e0a1e-0059-11dd-825a-000077b07658.html

The speculators are hedging. And never bet their shirts : Like bookies. They expect to lose a lot of the time, just aim to win slightly more than they lose.

50% of the savers in icesaves parent are icelandic nationals, and most of kupthings are.

Hbos on its own operates at about a quarter of the UK GDP. Add the other big four and you have many multiples.
This is a fallacious argument. Banks don't fail cos thier assets suddenly evaporate. ( Unless they are sub prime, toxic credit derivatives or UK buy to let housing stock :rotfl: :rotfl: )

They fail cos they haven't (or it is said, that they haven't ) enough liquid assets to meet their current liabilities, and operational costs, so institutions lose confidence, in their ability to pay. This is what did for Northern Rock, Bear, and nearly did for HBOS.

In the case of HBOS I suspect they were given a secret cash injection, by the BoE but have no evidence to prove it other than the swiftness and strength of the reaction (indicates fragility) and speed of recovery (indicates a cash injection)

In any case it's highly unlikely that the Uk acting on it's own could save another bank, that really had become fully illiquid. And REALLY couldn't meet it's liabilities. Regardless of the political fall out. Our budget defecit is too high, inflation targets too strict, and the co-ordination by the BoE and FSA is all over the place, also we have a prime minister who procrastinates. NR was saved more by luck than judgement.

Now look at the evidence about banks here.

We have had one failure, and one near failure. Many more institutions are looking rocky (no pun intende ) The goverment, and authorities are poorly co-ordinated, vacilate, and dither. They take 6 month's to solve the NR crisis. No stimulation, no intrest rate cuts..not much of anything, just a bit more money made avilable. Sort of head in the sand approach. Oh and Brown says banks must be more open.

Compare that to the USA: One large investment bank failure, many more looking rocky. Massive co-oridinated and succesful rescue over a weekend and the following changes:

• Since last summer, the Fed has cut interest rates by 300 basis points.
• December 2007 the Federal Reserve created the Term Auction Facility (TAF) whereby the Fed will auction term funds to depository institutions against a wide variety of collateral that can be used to secure loans at the discount window. In March the Federal Reserve increased the size of the TAF to $100 billion and initiated a series of term repurchase transactions that were expected to cumulate to $100 billion. As with the TAF auction sizes, the Fed said it would increase the size of these term repo operations if necessary. No doubt these facilities will need to be increased.
• In March 2008, the Federal Reserve created a $200 billion Term Securities Lending Facility (TSLF) whereby primary dealers could borrow Treasury securities for a period of up to 28 days using as collateral federal agency debt, federal agency residential mortgage backed securities (MBS) and non-agency AAA/Aaa-rated private-label residential MBS.
• In March 2008, the Federal Reserve opened up the discount window to the investment banks, which are not subject to the same regulatory limitations as the commercial banks that have traditionally had access to the window.
• The Federal Reserve made a $29 billion line of credit available to JP Morgan Chase in connection with its takeover of Bear Stearns.

Compare yet again with Iceland, NO bank failures. Goverment almost literally going to war on behalf of it's banks, and getting it's neighbouring central banks to pledge support. (see FT article above)

So on this evidence. Who's banks do you think are most at risk, those with the highest speculated, and hijacked default spreads.

Or those where the goverment, and authorities, have taken longer to do less, to protect their banks.

You're right intresting times.
My bet is that the next bank to go down will be central european, spanish, or irsh. The ECB are doing even less than the UK.

earlgrey_3

I think the point here is that the UK has a far larger number of banks than Iceland and that each in isolation has less structural importance to our economy than the far fewer banks in Iceland have to their economy.

More importantly, as a Brit, I have a far better understanding of the UK economy and our political system having watched it first hand for over 50 years. ( Yep, I'm that old ).

I've watched the current PM and chancellor for 10 years or more so have some knowledge of them and some insight on how they might behave. I even know who the governor of the Bank of England is and a little about his history too.

How many Brits can honestly say the same of Iceland's economy, their leading politicians, and politics?

If I don't understand, I don't invest. Its a rule that's served me fairly well. I don't understand Iceland. Perhaps other Brits do or perhaps they've just picked up a few snippets and may be kidding themselves that they do.

KTF

Does it really make any difference whether you understand the Icelandic politics, economy, etc. if any money you invest is covered by the 35K guarantee anyway?

earlgrey_3

KTF wrote: »

Does it really make any difference whether you understand the Icelandic politics, economy, etc. if any money you invest is covered by the 35K guarantee anyway?

That's fine if you don't mind waiting around with your money tied up at whatever rate until it's all sorted out, no one has any idea how swiftly the two-layer system that would apply to Icelandic banks would work, and if you don't have in excess of £35,000.

I'm not suggesting for a minute that those banks might fail, all the speculation and worry is well over-done, but it could well be more problematic than for UK banks. In my own case I felt happier a couple of weeks ago putting a lot more than £35K at 6.45% fixed for a year with the now government owned Northern Rock.