Are the Banks about to get tough(er) on overdrafts?

rog2

boredofbeingathome wrote: »

This goes back i suppose to the enforced repayment, and possibly a greater amount of folk on DMP's, which would ultimately mean less profit for the bank.

Sort of cutting your nose off to spite your face scenario?

I agree with your thoughts, bobah, and, once I've found out what a 'Keynesian Liquidity Trap' means, I'm sure I'll also agree with Zed.

In pure layman's terms, I think it just confirms the 'Fairweather Friend' image of the Banks - HSBC certainly threw overdraft facilities at me - I had a £10,000 facility on my business account, and a £3,000 facility on my personal account.
Absolutely great - until I needed to use it. :mad: :mad:

yellowmonkey

r!!! wrote: »

I agree with your thoughts, bobah, and, once I've found out what a 'Keynesian Liquidity Trap' means, I'm sure I'll also agree with Zed.

Is it a plant only found in central Africa

TTMCMschine

ZTD wrote: »

What they will do, is recover money from the overdraughts, and then use it to buy risk-free guilts. The first stages of a Kenysian liquidity trap.

They need the money to fund their business. If money is in short supply, as it is, then it makes more sense to bring in money owed than to raise excess funds via borrowing or rights issues - especially since money is in short supply, etc.

Well pension funds should not be in trouble, as they should not be using leverage.

They are in deep trouble. The mortgages at crazy prices for average houses were bundled up into "securities" & sold in blocks to hedge funds & pension funds as "safe" long term investments. If the mortgagee defaults, or the value of the asset falls, then they have paid a lot of money for essentialy junk bonds. The value of the pension fund has to be written down to account for this.

Unfortunately the same thing was done with credit card debt, so if we are entering a recession, people lose their jobs, default on loans, mortgages, & credit cards, then the pension funds take a massive hit, which means that anyone with their future tied up in said pension fund also takes a massive hit.

The BoE will step in - it's what they are there for. The BoE for the banks, and the Treasury for the Government. The only thing we (the little people) have to make sure our interests are taken care of, is the good old-fashioned bank run.

The Bank of England are not there to bail out publicly listed companies. Otherwise the implication is that the banks make profit which they retain for themselves & their shareholders, & then when they start to make losses from reckless lending it's passed onto the taxpayer via the BoE, so we all have to pay. In other words profits are private, debts are public. No other business gets that kind of help, they just go bust. The BoE should have put up interest rates a long time ago to limit reckless borrowing.

But it doesn't matter if the BoE does step in - all they can do is provide liquidity. Illiquidity is not the major problem. Insolvency is the major problem.

Illiquidity is the problem, there is no credit available for bank to borrow. Thats why the swap rates have been increasing, & interest rates are put up by the banks even when the BoE puts the base rate down.

Triker

I would advise that people start to remove all funds going into these accounts and request that wages/salaries are paid in cash in hand as it used to be.

Dunno if there is any clause re wages but if people used to be able to be paid cash for their work why can't they again?

The banks assume that they have an automatic right to use our money at will.

They seem to have forgotton that if our money doesn't transfer into their accounts then they can't touch us. That way you can put whatever debt repayment cash back into the account to decrease it.

Just a thought, I do get annoyed though that we appear to be trapped into having to use banks. Monopoly or what.

rog2

Triker wrote: »

The banks assume that they have an automatic right to use our money at will.

They seem to have forgotton that if our money doesn't transfer into their accounts then they can't touch us. That way you can put whatever debt repayment cash back into the account to decrease it.

Just a thought, I do get annoyed though that we appear to be trapped into having to use banks. Monopoly or what.

Well said, Triker. :T :T

It is annoying that when the boot is on the other foot, so to speak, the Banks can, apparently, switch off credit facilities at will, having spent years enticing clients to take out, and even become dependent on, these 'facilities'.

I suppose they will argue that competition within the Banking Industry means that there is no 'monopoly' perse, but certainly the word 'cartel' springs to mind.

LilacPixie

I'm a bit annoyed with it all but not at all surprised.

I have an account with HBOS, have done since I was about 5 and upgraded as I got older. I had a cheque book £500 o/d and visa debit card on the account. Mortgage and CCard was with the halifax also.

Last year I switched mortgage providers closed my C/Card and switched wages into a joint account with my husband for ease of budgetting.

About 5 weeks ago HBOS wrote to me advising that they were withdrawing my OD facility in 28 days. It doesn't particularly bother me because the account is into the black so i'm not having to find £500 at short notice.

Last year I actually went to close the account and an HBOS employee persuaded me not to even tho there was no longer a full time income going in it. It is currently only funded by child benefit and my paypal account.

I find it a bit worrying that in the most cases we 'need' a bank account be it for wages, benefits or both yet we are really at a banks mercy wether we like it or not. I think opening a basic standby account elsewhere seems a very sensible option .

ZTD

r!!! wrote: »

Well said, Triker. :T :T

It is annoying that when the boot is on the other foot, so to speak, the Banks can, apparently, switch off credit facilities at will, having spent years enticing clients to take out, and even become dependent on, these 'facilities'.

I suppose they will argue that competition within the Banking Industry means that there is no 'monopoly' perse, but certainly the word 'cartel' springs to mind.

Well if you notice, when times get hard, the banks stop lending to you. When times get hard for the banks, the BoE lends out like it is going out of fashion.

ZTD

TTMCMschine wrote: »

ZTD wrote:

What they will do, is recover money from the overdraughts, and then use it to buy risk-free guilts. The first stages of a Kenysian liquidity trap.

They need the money to fund their business.

What is their business? Why lending of course. An overdraught is lending. If you are shrinking lending, then you are shrinking your business.

TTMCMschine wrote: »

If money is in short supply, as it is, then it makes more sense to bring in money owed than to raise excess funds via borrowing or rights issues - especially since money is in short supply, etc.

What makes sense depends on what is expected ahead. I see a flight to quality. Overdraughts out - gilts in.

TTMCMschine wrote: »

ZTD wrote:

Well pension funds should not be in trouble, as they should not be using leverage.

They are in deep trouble. The mortgages at crazy prices for average houses were bundled up into "securities" & sold in blocks to hedge funds & pension funds as "safe" long term investments. If the mortgagee defaults, or the value of the asset falls, then they have paid a lot of money for essentialy junk bonds. The value of the pension fund has to be written down to account for this.

I think we're using "trouble" to mean different things. I mean "insolvent". No matter how low their assets go (within reason), they can't be declared bankrupt because they don't owe anybody anything. See Equitable Life for details.

TTMCMschine wrote: »

ZTD wrote:

The BoE will step in - it's what they are there for. The BoE for the banks, and the Treasury for the Government. The only thing we (the little people) have to make sure our interests are taken care of, is the good old-fashioned bank run.

The Bank of England are not there to bail out publicly listed companies.

Are you sure?

TTMCMschine wrote: »

Otherwise the implication is that the banks make profit which they retain for themselves & their shareholders, & then when they start to make losses from reckless lending it's passed onto the taxpayer via the BoE, so we all have to pay. In other words profits are private, debts are public. No other business gets that kind of help, they just go bust.

No other business is exempt from the bankruptcy laws. Compare BP and Barclays. Look bottom right - net debt. Why N/A for Barclays? Because it's a bank. Its liabilities far outstrip its assets. It starts life as bankrupt - unlike any other business.

TTMCMschine wrote: »

The BoE should have put up interest rates a long time ago to limit reckless borrowing.

There were political considerations.

TTMCMschine wrote: »

Illiquidity is the problem, there is no credit available for bank to borrow. Thats why the swap rates have been increasing, & interest rates are put up by the banks even when the BoE puts the base rate down.

Of course there is liquidity and credit available. The BoE, BoJ, ECB and the Fed are all falling over themselves to give out money - there must be half a trillion USD stuffed into the global financial system now. That could get GingerSte a *whole* weekend of partying...

Now lets look at solvency. Banks have a reserve ratio - in the EU it is 8% of lendings. Part of their reserves could be MBS - so take a look at this.

Important to note:

1. It's alt-A, not sub-prime. Sub-prime is in an even worse mess.
2. It's quite new, many of the rate resets have not happened yet.
3. 23% of the whole pool is in repossession after 1 year.
4. 31% of the pool is in trouble - 60 days+ late with repayments

Now it's possible that some of those late payments will be made good - the American economy could suddenly burst into song. It's much more likely however, that the will go into recession like we are headed.

When you start from a reasonably good news baseline of 54% of your assets going up in smoke - and it will get worse - you're looking at insolvency, not illiquidity.

mountainofdebt

Strangely enough I was on the phone to egg yesterday to set up an dmp with them and the lady I was speaking to mentioned that if I went overdrawn with my bank and they decided they didn't want to be involved with someone who was on a dmp, they were likely to wait until my salary had been paid in thus bringing my account back into credit and then close/remove the overdraft facility.

Scary stuff

ZTD

mountainofdebt wrote: »

Strangely enough I was on the phone to egg yesterday to set up an dmp with them and the lady I was speaking to mentioned that if I went overdrawn with my bank and they decided they didn't want to be involved with someone who was on a dmp, they were likely to wait until my salary had been paid in thus bringing my account back into credit and then close/remove the overdraft facility.

Scary stuff

That's one of the reasons for setting up a parachute account, and treating your OD as just another debt.