Bolitics The New Condem Government

[JulieB]

Second, there's the implicit public subsidy received by the entire banking sector, recently quantified at c£100 billion by the Bank of England, p51 of same report.

Point well made at the TSC yesterday I thought because the banks are then able to borrow money much cheaper rates because of the governments deposit guarantees. Then of course making large margins lending it out to thee & me!

What makes me laugh is how they recycle the B of E's funds & then lend it back to the government in long term gilt loans making a whopping profit!

Last Summer the differential margin wasn't that much short of 4%! As I've said before didn't need to lend to anyone else at all. In one door & out the other, earning em a big fat bonus in the interim!!

[snowychap]

We also have the Post Office Bank, which is currently a national bank of sorts as well.

Isn't that the Bank of Ireland?

Not sure..its a bit of an odd arrangment because they offer NS & I products as well as Bank of Ireland.

I think, technically, it's Bank of Ireland (UK) plc now and thus covered by the FSCS (but it was a joint arrangement with the Bank of Ireland before November, I think).

[blandy]

indie

How do we square thecomplaints of borrowing-starved homebuyers and businesses with the insistence of Barclays boss Bob Diamond at Tuesday's select committee hearing that he and other bank chiefs are now lending more than they were? Well, one problem is that even if the banks still active in the UK are lending as much now as they were prior to the financialcrisis, a good number of international banks have pulled out of the country. That's an insoluble problem, of course, but there may also be another explanation for lending shortages, at least in the mortgage market – and one which we could do more about.

This point comes courtesy of investment bank UBS, which has been looking into who is and isn't lending more to homebuyers. In the first category comes Barclays, Royal Bank of Scotland and HSBC, but their extra lending is being at least partially cancelled out by a contraction in mortgage advances at Lloyds Banking Group, the country's biggest home loan provider by quite some margin.

Why is Lloyds cutting back on lending? Not, as public outrage might have it, so it can finance bonus payments. The real answer is Lloyds' determination to end its reliance on the State: it is racing to repay the billions it took from the special liquidity scheme (SLS) before the end of 2012 deadline that has been set by the Bank of England for the closure of this facility.

Indeed, UBS points out, Lloyds has been able to raise £40bn of new funding over the past 12 months, twice as much as it had hoped. But all of the additional money has gone towards repaying the SLS, rather than funding new mortgage lending.

Now, there will be many people who think it is absolutely correct that Lloyds should be prioritising paring down its dependence on the State, rather than making loans to house purchasers. And the Bank of England is self-evidently right in its insistence that for credit markets to normalise and the economy to return to a clean bill of health, it has to wean the banking sector off the support it has been extending.

Still, this is not going to be achieved without some painful side effects – and the constraints on lending at banks such as Lloyds is one of those. In a debate clouded by anger about bonuses, this point will no doubt be missed, but while the Government is currently urging banks to lend more, the Bank of England is effectively preventing Lloyds – and, no doubt, others – from doing so.

[avfc89]

Just voted.

[peterms]

indie

...Lloyds' determination to end its reliance on the State: it is racing to repay the billions it took from the special liquidity scheme (SLS) before the end of 2012 deadline that has been set by the Bank of England for the closure of this facility.

Indeed, UBS points out, Lloyds has been able to raise £40bn of new funding over the past 12 months, twice as much as it had hoped. But all of the additional money has gone towards repaying the SLS, rather than funding new mortgage lending...

...while the Government is currently urging banks to lend more, the Bank of England is effectively preventing Lloyds – and, no doubt, others – from doing so.

The two bits I've underlined contradict the article's conclusion.

Lloyds could have chosen to lend a large part of the £40bn of new funding while also complying with the BoE's requirements regarding repayment (assuming that what the article says is correct), but has simply chosen not to do so. I wonder then why the author says it's the BoE that is preventing Lloyds from lending, straight after saying the opposite.

[blandy]

No they don't, to my reading at least.

Banks are under two (or more) contrasting pressures - BOE "pay back all the money you borrowed by next year's deadline" and Gov't and BOE "maintain a level of reserves, so that you don't need to come running to Gov't again" - both of which require the bank to use it's income to pay off debt and build reserves and then there's Gov't "lend more money (to SMEs)" which requires the opposite of the first two requirements.

That Lloyds is doing better than it thought it would at meeting the banks demand for repayment doesn't counter the point that the bank's demand for repayment is the opposite demand to "lend more to customers" - you can't take the same money and give it to two different people - BOE and SME.

Once/if they manage to meet the demand for repayment, then there will be more for lending/reserves. the BOE and the Gov't are the ones with the power over the bank's actions, because they have more sway than Joe the Newsagent, or Fred the Plumber. What the Gov't say is contradictory, what BOE say is "gimme my money back" and what SME says is "please may I have some crumbs?"

It's basically impossible to meet all 3 demands simultaneously

[snowychap]

It's basically impossible to meet all 3 demands simultaneously

Isn't part of the point that they don't have to meet the three simultaneously and that they are choosing to meet the demand which has the deadline of the end of next year (and, maybe, try to meet it early)?

[peterms]

No they don't, to my reading at least.

Banks are under two (or more) contrasting pressures - BOE "pay back all the money you borrowed by next year's deadline" and Gov't and BOE "maintain a level of reserves, so that you don't need to come running to Gov't again" - both of which require the bank to use it's income to pay off debt and build reserves and then there's Gov't "lend more money (to SMEs)" which requires the opposite of the first two requirements.

That Lloyds is doing better than it thought it would at meeting the banks demand for repayment doesn't counter the point that the bank's demand for repayment is the opposite demand to "lend more to customers" - you can't take the same money and give it to two different people - BOE and SME.

Once/if they manage to meet the demand for repayment, then there will be more for lending/reserves. the BOE and the Gov't are the ones with the power over the bank's actions, because they have more sway than Joe the Newsagent, or Fred the Plumber. What the Gov't say is contradictory, what BOE say is "gimme my money back" and what SME says is "please may I have some crumbs?"

It's basically impossible to meet all 3 demands simultaneously

That's the argument the bank will use, but it sounds like a lorry driver saying "Well do you want me to deliver the load by tomorrow, or keep to the speed limit? I can't do both". Of course both are possible, depending on the parameters set.

The article seems to be saying that as well as keeping to the repayment schedule agreed with the BoE, the additional funding coming in (from screwing customers, not from some brilliant financial skills) would have allowed more lending, but Lloyds have chosen instead to repay the money earlier.

Why would that be, I wonder?

Almost a year ago, Saint Vince attacked the banks, saying that they should make more money available for lending to SMEs, instead of bonuses. Lloyds resisted this, as did others. They failed to achieve the lending targets which they had agreed as a contractual commitment. They are claiming there's a lack of demand, but the people who want loans are saying the issue is the onerous conditions which are now laid down - things like demanding the owner's house as security, where previously things like the strength of the order book were taken into account. And where they used to take leaseholds into account in assessing value to lend against, now they don't; but most SMEs are of course in leasehold property.

The banks have chosen first to lend less, and second to change the conditions for loans so as to reduce demand. That has made more money available for bonuses. And paying back government money quicker of course hastens the day when they will be less subject to government pressure.

I believe it would be possible to keep to the payment schedule set out, maintain suitable reserves, and also lend more money - at least the article suggests that, and I see no contradictory evidence from looking around.

It really looks like a policy decision, dressed up as "our hands are tied". And a particularly venal and self-serving policy decision, at that.

[blandy]

I appreciate the points you two make, and agree to an extent with the sentiment, but...

But it's not quite so simple IMO, because of the factors I hinted at - I believe that the weight of the BOE and Gov't demands carries (in banking terms, and it's banks we're talking about) more weight than the needs of SMEs. The bank HAS to repay the debt to the Gov't/BoE. They signed a contract, agreed by Gov't (the last one) to do so. Penalties for not doing so would be high, both for the bank and for the Gov't. The parties want the loans repaid ASAP. To an extent repayment of the loans will give the Gov't money to spend on "nice" things like Health or Schools. The banks shares will rise (and therefore the value of the Gov'ts (our) shares in the bank will rise - more money for nice things. If the loan looks like being paid off slowly/not by the req'd date the shares will fall and there will be less money for schools etc.

So it's that scenario weighed against the small entrepreneurs. It's not a balanced decision, much as we might like it to be. SMEs are left down the list by both the Gov't and the Banks because of the way things have been set up.

Demands for more lending are known by the banks to be counter to demands for more repayments, more reserves. The Gov't know this too. The interests of the Gov't in getting their (our) money back are way larger than their interests in wishing the banks would lend more.

This is why it is like it is, and that's what, to me, the article is pointing out.

It does serve the banks' interests best to pay back and to build reserves. Banks are not charities. Like I said I moved to the co-op because of this "rigged game". I dislike the way it is, but I don't think it's simply "greedy bankers" that are the problem - it's the system that is wrong. Banks make a nice easy "villain" for people to be rude about, because it preserves the overall system by ignoring the wider iniquity of the western model of capitalism. The power is with the institutions and Gov'ts, they are apart from the populations of the nations. The same goes for commerce in so many areas, in globalisation, in all kinds of areas of life. The system is broken. Picking at Lloyd's or RBS won't change a thing. If you see why they are like they are, you can at least see some deeper reasons than "greedy bank execs" IMO.

[Gringo]

The govt (this and last) want the banks off the balance sheet asap. Banking lending & repayment policies will be driven by the board, who will no doubt make consideration for their shareholders views. The politicians have all made lots of noise about SME lending but no action has ever been taken - they're quite happy to let the banks take the most of the flack and hide lurking in the reflected shadows of their shame.

[peterms]

They signed a contract to increase lending, as well, in full awareness of their financial position and the other commitments they had to honour. Unless they knowingly signed something making a financial commitment which they believed was impossible (would that be illegal?) then we can assume it was possible.

The government does want the money back, and sooner would be better than later, but it doesn't need it as much as it needs lending to SMEs, partly because the govt has other ways to raise or create spending power, partly because its economic policy seems to depend critically on the expansion of SMEs to create employment. They're not going to expand without finance, and for most of them, that means loans.

The banks do need to rebuild their balance sheets, after years of apparently trading while insolvent (why don't these laws seem to apply to them?). However, which course of action makes them poorer - making loans, or giving billions of pounds of extra, discretionary money to their staff?

Yes, there is a tension between lending to SMEs and others and repaying the govt, and lending and restoring loan to asset ratios. These tensions are not irreconcilable. For example, the extra £40bn could have been used to increase lending as well as, not instead of, making improvements in the other two areas as well. That it wasn't, is a policy choice. There's also a tension between making loans and giving themselves handouts. Cable pointed this out some time ago, and he was right. Not charities? It seems that banks think they are charities, but the beneficiaries are a small and select group of their own senior staff.

There's also the problem of the desperate laziness of banks. Small businesses regularly give examples of how banks have become distant, lacking knowledge about their businesses, making requirements which are just uninformed or wholly unreasonable. Instead of engaging in a bit of work, they seem content to make money by jacking up charges in what seems to be a cartel. Their role has become parasitic, where it should be a key part of making the economy work.

I agree the wider system is fundamentally flawed. But even within the narrow limits of that system, what the banks are doing, or rather not doing, about extending lending to SMEs is a policy choice, not an unavoidable outcome of irreconcilable tensions. They would have us believe otherwise, because it gets them off the hook, but Cable, Clegg, Cameron and others clearly know it's not so.

[snowychap]

The bank HAS to repay the debt to the Gov't/BoE. They signed a contract, agreed by Gov't (the last one) to do so. Penalties for not doing so would be high, both for the bank and for the Gov't.

And when does this have to be done by? That article says the deadline is the end of next year, doesn't it?

So the argument that it is scared about potential penalties for failure to meet that deadline would only hold, in the context of paying things back earlier, if it felt that its payment plan was going to falter further down the line which may indicate some serious worries regarding Lloyds for later on this year or next, may it not?

To an extent repayment of the loans will give the Gov't money to spend on "nice" things like Health or Schools.

Would it? Why would early repayment of the SLS have any bearing on government expenditure?

The banks shares will rise (and therefore the value of the Gov'ts (our) shares in the bank will rise - more money for nice things.

Only if any increase was realized, surely? And, again, I don't see this 'more money for nice things' line. :?

...you can at least see some deeper reasons than "greedy bank execs" IMO.

On what is Eric Daniels remuneration package (beyond his basic salary) based?

[blandy]

.. It seems that banks think they are charities, but the beneficiaries are a small and select group of their own senior staff.

There's also the problem of the desperate laziness of banks. Small businesses regularly give examples of how banks have become distant, lacking knowledge about their businesses, making requirements which are just uninformed or wholly unreasonable. Instead of engaging in a bit of work, they seem content to make money by jacking up charges in what seems to be a cartel. Their role has become parasitic, where it should be a key part of making the economy work.

I agree the wider system is fundamentally flawed. ...what the banks are doing, or rather not doing, about extending lending to SMEs is a policy choice, not an unavoidable outcome of irreconcilable tensions. They would have us believe otherwise, because it gets them off the hook, but Cable, Clegg, Cameron and others clearly know it's not so.

Aye, fair comment. I just feel that people are expecting banks to behave in a way that used to be the case 20 -30 years ago. The landscape changed with Thatcher and Reagan. Their ethos changed - they changed from being institutions whose main role was to facilitate lending and saving for individuals and businesses, while taking a (smallish) percentage of the capital flow to keep them going, to being institutions which had a purpose of maximising to extreme the making of money. "Customers" stopped being people and became looked at as "generators of income for the banks". The governments were fine with this because the revenues raised were taxed and countered the loss of tax revenue through those awkward Unionised industries. Since that time all gov'ts have worshipped at the feet of the because the banks provided huge revenues for the gov'ts.

That it's all gone wrong is not really a surprise - Cable saw it coming and many people felt it was castles built on sand - Banks don't actually create anything, they move money about.

Anyway, "the Banks are too big to regulate" view has come about because in the UK they make up such a large part of the economy. Banks turned into the opposite of charities under the Thatchernomics, and pretending that sons of Thatcher, as all gov'ts since have been, are going to turn it about is IMO dreaming. They are not charities, they will do what is best for themselves. When you look at what they do from this perspective, it is neither surprising, nor is it something that makes me think "the banks are the guilty ones" It's the lack of regulation from all the govt's that made it happen. The banks are both not seperate from us, yet also living in an entirely different universe. But it's not them that have done it, it's the lack of an alternative outlook from regulators and Gov't. And now that political view is set in concrete. Oppositions will make play of the way the banks act, but put them in power and they will act in a way that gives no meaning to what they previously said. A few CEOs getting obscene bonuses won't change that - it even makes a handy scapegoat, to let the system continue, after some bluster. Gov't stays at arms distance. Cable for example in opposition did highlight what would happen, where it was heading - I listened to him talk to Mark Thomas about this yonks ago, yet now, the things he identified as needing sorted, he's gone all quiet about, for whatever reason.

[peterms]

So, combined Lib-Con vote down from 58% to 45%.

I suppose rather than the Libdem support being static, there's been a loss of votes from Lib to Lab, balanced by a large Tory tactical vote to shore up the Libs.

Debbie Abrahams (Lab) 14,718 (42.14%, +10.27%)

Elwyn Watkins (LD) 11,160 (31.95%, +0.32%)

Kashif Ali © 4,481 (12.83%, -13.62%)

Paul Nuttall (UKIP) 2,029 (5.81%, +1.95%)

Derek Adams (BNP) 1,560 (4.47%, -1.25%)

Peter Allen (Green) 530 (1.52%)

The Flying Brick (Loony) 145 (0.42%)

Stephen Morris (Eng Dem) 144 (0.41%)

Loz Kaye (Pirate) 96 (0.27%)

David Bishop (Bus-Pass Elvis) 67 (0.19%)

Lab maj 3,558 (10.19%)

4.98% swing LD to Lab

Electorate 72,788; Turnout 34,930 (47.99%, -13.19%)

2010: Lab maj 103 (0.23%) - Turnout 44,520 (61.18%)

Woolas (Lab) 14,186 (31.86%); Watkins (LD) 14,083 (31.63%); Ali ©

11,773 (26.44%); Stott (BNP) 2,546 (5.72%); Bentley (UKIP) 1,720

(3.86%); Nazir (Ch P) 212 (0.48%)

[tonyh29]

Was a strange election

Lib Dem voters appear to have switched to Labour

Tory Voters switched tactically to Lib Dems to prop them up

The Tory right appear to have switched to UKIP

Lots of BNP voters appear to have returned to Labour

I think anything other than the Libs coming second and the fallout could have meant the end of the coalition , that the Libs national showing of 7% (at last poll) wasn't reflected in last nights vote probably means the Libs (and Torys) are happy'ish with the result

As they said on This Week , at 7% more people believe Elvis is still alive than are prepared to vote Lib Dem at present :-)

[Risso]

It looks like the government owned Tote is being shifted to the Channel Islands. That wouldn't be for ahem, tax planning [avoidance] opportunities would it?

[avfc89]

Was a strange election

Lib Dem voters appear to have switched to Labour

Tory Voters switched tactically to Lib Dems to prop them up

The Tory right appear to have switched to UKIP

Lots of BNP voters appear to have returned to Labour

I think anything other than the Libs coming second and the fallout could have meant the end of the coalition , that the Libs national showing of 7% (at last poll) wasn't reflected in last nights vote probably means the Libs (and Torys) are happy'ish with the result

As they said on This Week , at 7% more people believe Elvis is still alive than are prepared to vote Lib Dem at present :-)

Saddleworth had the highest turnout of people - Saddleworth is a Tory stronghold. The people sent a message yesterday to the coalition.

[peterms]

It looks like the government owned Tote is being shifted to the Channel Islands. That wouldn't be for ahem, tax planning [avoidance] opportunities would it?

Well, let's ask the government.

A spokesman for the Department for Culture, Media and Sport declined to comment last night.

Oh. They appear to have no view.

The tax system in this country is morally bankrupt. Why on earth should ordinary people struggling to get by feel content that the government not only turns a blind eye to tax dodging by the wealthy, that it is comprised of serial tax dodgers in a personal capacity, and that even government-owned entities are at it?

[peterms]

Was a strange election

Lib Dem voters appear to have switched to Labour

Tory Voters switched tactically to Lib Dems to prop them up

The Tory right appear to have switched to UKIP

Lots of BNP voters appear to have returned to Labour

Actually, it's oddly similar to the projected "results" for 2005, calculated by the Beeb last year (projected, because the boundaries were different; they tried to work out what the vote would have been on the current boundaries).

Lab and Lib share of the vote in that hypothetical calculation is almost the same as last night, with 25% for Tories and the rest. The main difference is that last night the Tories got less, with some of their vote peeling away to BNP and UKIP, within that same total of 25% of the remaining vote. I suppose there were also former Lab voters who went with the Libs and Cons in 2010 and who switched back, with some Tories voting Lib in light of the clear signals that the Tories weren't really going for this one.

If anything, it's the 2010 result which seems out of kilter.

2005 projection:

Labour 42.5%

Liberal Democrat 32.1%

Conservative 17.8%

Others 7.6%

[JulieB]

This caught my eye about Bankers & their bonusues in the Telegraph yesterday & how they may have been miscalculated using spurious accounting valuations.

Here

Many are starting to ask questions of Accounting firms such as Price Waterhouse Cooper & KPMG etc and their supposed "impartial" audits of large banks etc & the reports they undertake on behalf of the Treasury & the FSA. They get paid millions by the banks, so surely bias comes into question when the FSA asks them to produce reports investigating how failures happened eg RBS, Lloyds etc.

Blandy & Peter etc make some excellent points about the banks & their role in Britain's financial services. No one can expect them to behave like Charities, however surely a balance needs to be struck. At the moment all we see currently is one big gravy train for the select members of an exclusive F pack alternating jobs & excessive remuneration between the the B of E, the Treasury, the Regulator, Bank auditing firms, the City etc.