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

SingleSue

I remember way back in 1990ish when Lloyds did this... I had a £100 overdraft (rarely used, not even usually a slight dipping during the month so wasn't unduly affected) which went overnight (no letter, warning etc), it also happened to my parents who had banked with Lloyds for years and years even though their overdraft was tiny and they only slightly dipped into it, never using it to it's fullest.

In fact, it happened to an awful lot of people I knew and we all moved our accounts.....to the TSB!

Imagine our horror when TSB merged with Lloyds a short while later.

bountiful

Triker wrote: »

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 Real Money Campaign!?:rotfl:Great - I love that. When I moved into my current flat back in March this year, I paid the deposit and first month's rent and agents fees in cash - I had gathered the required amount (about £1,300) from different sources and had it all in an envelope. It was a swanky property agent/surveyors office - and they had to call someone down especially from accounts to count out the money and receipt it for me. It felt really good!:rotfl:I'd love my employer to pay me in cash - weekly for preference - the old wage packet - great!

wyebird

I noticed that Halifax has stuck review dates on overdrafts that were taken out years ago and which never previously had one (mine has been on since I started working there in 1989 and was increased in 1998). However the review date was May, but when May came along OH had a letter to say sorry it should be February 2009, I didn't have a letter but the review date on the top of the statement changed to February.
I know it will have to go when it is reviewed as only Tax credits and Quidco mony goes in there now.

TTMCMschine

This is my opinions/thoughts to your post, I think you misunderstand some of the factors at work, but in any case we'll see soon enough & I promise not to clog up the thread anymore. Sorry to everyone else.

ZTD wrote: »

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

Their business isn't just lending, but if the money supply has contacted & they are short of funds then the easiest thing to do is cut short term & persistent borrowers, which is what is happening.

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

The problem is that they haven't the funds to run the business. Otherwise they wouldn't be going for a rights issue.

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.

Of course they can & of course they do. They owe money to their members, if their assets & investments lose money & they can't fulfil their obligations to pay, ie to provide pensions, then their creditors will file against them & they will be finished.

Are you sure?

Yes.

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.

I disagree. Net debt refers to the amount of money that a company has borrowed & is usually expressed as a percentage of annual turnover or profit. Lots of companies show a net debt, it doesn't mean that they're bankrupt. A bank does not "start life as bankrupt," it borrows money to make money, it is never really in a position where it can't repay it's debts (or shouldn't be anyway). Thats why they sell the mortgages, loans, & other debts as securities, to get them off the books, clear the debt, & then do it all over again. Otherwise how do you explain the fact that they manage to make Hundreds of Millions of pounds in profit each & every year?


There were political considerations.

The bank of England is not there to fulfil political agendas.

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...

No there isn't, don't you bother to follow the financial press? There has been a major contraction of credit forcing the Fed to pump more money into the system & the BoE to make emergency funds available to the banks. Without it they'd have gone down the pan already, but the money that has been made available is nothing compared to the money that was sloshing around earlier. The best thing to do is read a good account of what happened in the US in the late 20's. Its basically a rerun where easy money is replaced by no money as assets drop in value & the debtor can't repay.

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.

It all depends on how you define a security. Lots of supposed triple A is now classed as sub prime or junk, & in the UK BTL was classed as alt A - you can't get anymore sub prime than a group of shelf stacking numpties borrowing half a million quid each to play at being property moguls. Lots of supposed A grade securities will shortly be worth less than the paper that they're printed on.

1. It's quite new, many of the rate resets have not happened yet.

Rates are restting upwards & have become completely detached from the base rate. Swap rates are heading higher, & the banks are going to keep on putting rates up as a consequence (for the less financially savvy, basically they can't borrow money at the base rate, they borrow at a higher rate, & so thats what you'll be paying plus a bit).

1. 23% of the whole pool is in repossession after 1 year.
2. 31% of the pool is in trouble - 60 days+ late with repayments

Yes the repossession rates are getting worse & will accelerate, then the altA's will become alt-zeros.

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.

Or depression.

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.

The problems have been caused by illiquidity. Anyway, time will reveal all as always, so we'll see, but I think for now that we both agree that the economy is in a mess & we're going to be seeing some serious pain for a good few years.

poppasmurf_2

rog2 wrote: »

As the 'Credit Squeeze' bites even harder, and particularily in line with the High Court ruling on 'Bank Charges', there are many rumours flying around as to how Banks are going to 'crack down' on credit.
Alternatively, the account may be put on a 'deduction cycle' whereby a percentage of the overdraft is forcibly removed, on reciept of funds, salary or benefits, until the overdraft is cleared.
.

This is what i asked for way back in 1998 when after beigna a student I had a huge overdraft to pay off. I asked if my overdraft could be reduced by £100 per month until I was in the black after out goings etc They didnt want to do it.
Ive been in and out of my overdraft for the past 10 years up 2K down 2k its swings and round abouts, I get depression and to make myself happy I spend, its ridiculous giving me access to credit. Isn't this kind of thing policed?

boredofbeingathome

rog2 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.

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:

I totally agree. It is always the way, the phrase " until i needed to use it" rings with a clarity which is unsurpassed.

I do not understand their philosophy on lending.:mad: As obviously if you don't need it they will give it you, and if you do need it and would benefit from decent rates they won't.:cool:

MrsTinks

Yep that sounds like banks to me... Need it? Sorry you can't have it! You have plenty of money? Well wouldn't you like to borrow some from us? Go on... you know you want to!

ZTD

MrsTine wrote: »

Yep that sounds like banks to me... Need it? Sorry you can't have it! You have plenty of money? Well wouldn't you like to borrow some from us? Go on... you know you want to!

They have an allergy for risk. But that's what they get paid the interest for.

What they want is risk free with loads of interest - i.e. money for nothing.

TTMCMschine

From an earlier post:

"It's quite new, many of the rate resets have not happened yet.

Rates are restting upwards & have become completely detached from the base rate. Swap rates are heading higher, & the banks are going to keep on putting rates up as a consequence (for the less financially savvy, basically they can't borrow money at the base rate, they borrow at a higher rate, & so thats what you'll be paying plus a bit)."

Swap rates today shot up by an unprecedented 0.4%. That might not sound much, but it is enormous & was on the back of the news re PPI & factory input & output costs.

What it means basically is that the next set of inflation figures will almost certainly show a significant rise (or if not then the next ones will) & interest rates will be heading higher in the not very distant future.

Hang onto your hats, the !!!!!! is really about to start hitting the fan - you ain't seen nothin yet...

Bismarck

oh good :mad: