RBS opposes internal firewalls

Remember, it's the retail banking part of the business (i.e. the business that originates loans/debt) that is the goose that lays the golden eggs.

That's why the're not happy about internal firewalls, let alone legal separation of the retail and casino banking arms (ala Glass-Steagall).

Risky UK banks should, perhaps, be allowed to fail or be split so that components can fail?

"So there is progress towards re-establishing RBS as thriving, growing business, which could prosper without the benefit of exceptional support from taxpayers"

The problem with this aim (or progress to the aim) is that it is being undertaken to the detriment of societal values (assuming that we wish to remain under a system that allows failure, as a function of risk, rather than our current path towards a semi-capitalist command economy).

I know people who are now making their business judgements based on the assumption that the MPC will never be able to get us off emergency rates.

Firewalls.... - "likely to add to bank costs - impacting both customers and shareholders -without the safety gains that the broader Basel process is delivering" Maybe but it would be a small price to pay IF it ensured there was not the calamity of 2007-9. A big if and the government could go a long way to ensuring stability and good governance and practice if it retained at least one of these two banks in public ownership. The government will still need to back up governance for the private banks with the law which would apply to directors.

Why is RBS equivocating on PPI refunds - surely HMG should tell them to shut up and pay up!

The Big Lie
https://www.zerohedge.com/article/mike-krieger-exposes-big-lie

I have not posted for a while, just been reading and nothings changed. If my granny was my brothers half sisters uncle then my mother is my aunt June!

Sorry Robert but that’s how it reads and it’s not your fault but the tangled web of delusion. My impression is that economists are falling for the old 123 trick:

1. divert attention
2. add confusion
3. walk away laughing clutching the gains

Is it a loss or a devaluation of assets or is it a company re-leveling it’s self within a given market. Perhaps it’s not as the advert says: ‘over tired’ but ‘over valued’. Which ever way you look at it, heads they win, tails we loose.

Am I the only one who sees the phasing out of cheques as another way of the banks bleeding more money out of the financial system.

Currently if I pay a cheque someone in the bank has to process it and at no cost to me or the receiver.

After cheques I will either have to pay cash (inconvenient) or pay by card which cost the receiver a percentage and may cost me control of my finances if I am weak willed/disorganised (I am not) and do not off my card by the due date in full.

I suspect that the card system is automated within the bank and so the banks will also be able to dispense with staff.

In a normal competitive market what would happen is that these market efficiencies would be passed on to the consumer in lower charging structures. However the banking sector seems to be operating as some form of powerful cartel so I suspect this will just increase their profits/bonuses paid to their top people.

Is museV being ironic or just stupid? I can't tell.

The idiocy behind the idea of splitting the banks is that it buys into the narrative peddled by the regulators and politicians whose failings (overly loose monetary policy and poor oversight) led to the banking crisis, rather than dealing with the facts.

The banks that ran into trouble did so because of poor credit control in lending - see Northern Rock's ridiculous mortgage deals and HBOS' over-exposure to leveraged deals as examples of poor lending and RBS' failure to due diligence ABN properly as just gross idiocy. In the US it was lending to people who couldn't afford to repay through the government sponsored Fannie Mae and Freddie Mac that lay at the heart of the problem (and that in turn was due to the US Govt requiring those organisations to lower their credit standards in order to promote home ownership amongst racial minorities).

Investment banking created instruments that spread the risk - ie increased systemic risk - but it wasn't the investment banks that did the stupid stuff. Regulators didn't understand the investment banking products and so effectively ignored their impact on the system. When things went wrong they blamed the investment bankers, but the failure was theirs.

This banking crisis is the same as every other one since the 18th century. Money gets too cheap - step forward the ECB, Bank of England and Federal Reserve who greeted every correction with a lowering of interest rates and ignored asset price inflation - assets get over-valued, banks lend too much because they respond to the demand and trust the asset prices, the bubble pops, and banks face losses on their asset backed loans. The only difference this time was that when the problem emerged it was worldwide because banking is now a global industry not a national one. Governments therefore struggled to deal with it.

Isn't it touching how the greedy bankers look after our interests? Insulated subsidiaries are likely to add to (our) costs, they say. Yet they were only too glad to add to customers' costs with pointless PPI deals.

It's a load of rubbish, though. Ordinary banks would not be broken up, so would remain cheap. Only the bloated “mega-banks” (home to countless little “Sir” Greedies) would suffer.

The Independent Banking Commission must revise its recommendation to ensure a complete breakup of the bloated mega-banks. Until these greedy bankers get separated out and broken down, they remain the number one threat to trade and industry in this country. That is the public verdict.

In trying to get their businesses back in order following their abuse of consumers the banks are abusing their consumers' interests.
You can complicate the issue as much as you like but that is what is happening and will continue to happen.
Its impossible for the banks to make money in an ethical way.
So lets just carry on as normal because if the banks aren't coming up with myriad ways to take money from people whilst giving nothing in return then the shareholders get nothing and a certain section of society don't get money for gambling on them.
It is what it is and you can get lost in as much technical detail as you like - we'll be here again inside the next six months with yet another scandalous rip-off and everyone trying to unpick this Gordian knot.
A bold stroke is whats needed but thats not the British way.

Update: News headline : April 1st 2021
"Lloyds-TSB-HSBC-HALIFAX-RBS group accused of defrauding 8 million customers"
Can't wait.

Really. Can't wait.

Well of course the erection of a firewall will add to costs, if it didn't, the banks would have done it years ago, and used it in their marketing propaganda. What would be interesting is if one or two banks jumped the gun and got on with it, how many people would shift their accounts and savings to a 'safer' bank, if it cost them a small premium in loss of interest etc to do so!

RP - I know you are..................... regularly criticised for.............. going on and on and on and on about.........bankers bonuses, but what I would ....................really like to see or .................hear is the results stated like this

Bank Profit or Loss before Bonuses/Bonus Provision
Bank Bonuses Paid
Bank Profit or Loss After Bonuses/Bonus Provision

Any ..................chance that you could........................ help me out?

Thanks

My business banks with NatWest and they have no apitite to lend to it - they are reducing the overdraft. Mean time I have a raft of new orders I need to fulfill - so I would love to borrow more.
I am in constuction so may be different in other sectors - but they causing me real problems - a million miles away from the public face of goernment policy and PR statements.

The best argument for splitting off the gambling section into an entirely separate operation is to read what RBS says.
They are worse than politicians.
They are working for their own rewards/bonuses and do not want the cost of money for gambling to be more expensive, which it will be if the gambling is separated since a realistic risk assessment will then determine the cost.

6. At 11:44am 6th May 2011, GRIMUPNORTH77 wrote:
After cheques I will either have to pay cash (inconvenient) or pay by card which cost the receiver a percentage and may cost me control of my finances if I am weak willed/disorganised (I am not) and do not off my card by the due date in full.

I'm not a 'financial' person and I still don't understand the pussy-footedness of the Government over serious intervention in those banks that it (i.e WE) partially own. In particular over the separation of retail and investment banking.
I know the public interest isn't necessarily those things that the public's interested in, and that Government always held itself from issuing either specific or general directions to the old classic nationalised industries -generally for good reason. But this is different. Most ordinary people aren't interested in the technical issues surrounding retail and investment banking -only that they can have a bank which provides good money transfer services atminimum cost, personal loan facilities when they need them, and above all a place to put their money where they know it's safe, and not used as the raw material for bonus-driven speculation.
So, the Government should stand no nonsense from the banks it has saved with our money (at the expense of the taxpyer both in increased tax and public service costs) and take legal powers to require them to put in place the necessary firewalls. Or perhaps it should define in a new Banking Act a type of bank which would be banned from investment trading activities, subjected to a close regulatory regime to prevent cheating on that point, but perhaps given some kind of simpler regulation to recognise its more limited functions
People would then be able to know their money is secure, and it would be up to them to decide if they wished to withdraw some of it to lend to the casino players.
It would be interesting to see how many of the multi-function banks would take up that opportunity themselve and provide (un-cross-subsidised) competition in this simpler banking market....
Or am I just saying that the sale doctrinally-driven sale of the National Girobank to the then Alliance and Leicester should never have happened?

DVA should really be considered the flip side of CVA. It winds me up to see it split out as non-operating item.

Likewise the APS thing. RBS had to get involved in order to keep operating.

Also, labelling things "non-core" and acting like they don't really count is a farce. If RBS could dispose of these assets promptly, then they would. A lot of the stuff in there will be hanging around for a while I imagine. And if any of it sees a reversal in fortune it would probably magically become CORE again.

@CyranoinLondon
"Investment banking created instruments that spread the risk - ie increased systemic risk - but it wasn't the investment banks that did the stupid stuff. "

Investment banks did not do "stupid stuff?" You are kidding me, right?

Investment Banks bought and sold CDS. Credit Default Insurance. Also on Lehman Brothers which went belly-up with $200bn debt. That was insured by AIG, through Credit Default Swaps. The investment banks knew, they were "too big to fail". After all the US treasury secretary ran Goldman Sachs before, so he was unlikely to let them go down the tube.

So Hank Paulson pumped $200bn into AIG so that the investment banks could be saved. Goldman Sachs was the biggest benificiary of that US taxpayer largesse, otherwise they could well have gone the same way as Lehman's.

So, if you are telling me, that relying for survival on some CDS insurance by an insurance company which cannot pay is not "stupid stuff", than what is it?

The investment banks are stupid, and as they go bust one by one, as they are separated from retail banking, we will all be made aware of it.

No internal firewalls?

Only makes any sense if there really is a competitive market in banking services. So logically we MUST move from the 4 banks today to 40 banks.

The banks cannot be allowed to ever to be in the position where they are 'too big to fail' and require to be (or feel that they must be) bailed out by the taxpayer.

So no internal firewalls and 'Vickers' MUST come down on the side of the break up of the existing banks. Back to having country banks (one per county) perhaps, with North London and South London banks too.

The problem for Vickers that our banks and building societies are in reality bankrupt so breaking them up will only be done on the basis of a fire sale!

Fascinating. No doubt there may be a another alleged miss-selling story to come from lots of financial institutions to come down the line, as they wait in the queue for exposure?

One nightmare at a time is recommended for pond life like me, and most of my family, who bought into doing the right thing from brokers who purported to represent certain, and historically respected, financial institutions. Oh well, another 10 years to sort out another scandal. Who would have thought it?

Of course banks do not like the split between investment banking and retail banking. They are trying to scare us that it would add to costs.

It would, of course, add to costs of the investment banking side, which cannot rely on cheap funding by the retail banking side. Normal banking for you and me should become cheaper, casino banking as done by investment banks a lot more expensive.

That, of course, assumes that the retail side will be forbidden to finance the investment banking side. That must be the underlying principle. No money from retail banking can be used to finance investment banking, otherwise any separation is a sham. Also, any money pumped into the retail banking arm, by the investment banking arm, has to have equity character (ie., it cannot be pulled out as soon as the investment bank is in trouble). That must be the overriding principle, for the separation to work.

What use is a firewall when it's the retail/group side of the bank that is failing?

Northern Rock, was that to do with "casino" departments? NO. That was business model that failed.
HBOS? No, again a business model that failed.
RBS? No, a massively stupid corporate decision to buy ABN Amro.

None of the investment (or casino) banking divisions in those banks would have dragged the retail side under. People seem to be trying to transpose the issues in the US, primarily the oringate-to-sell investment banking push onto the UK.

6. At 11:44am 6th May 2011, GRIMUPNORTH77 wrote:

Am I the only one who sees the phasing out of cheques as another way of the banks bleeding more money out of the financial system.


Not at all mate, whenever a bank says " its in the customers interest " you can bet your last dime its not....at least not in the long term.

10. At 12:06pm 6th May 2011, zzzzjohn wrote:

Well of course the erection of a firewall will add to costs, if it didn't, the banks would have done it years ago, and used it in their marketing propaganda. What would be interesting is if one or two banks jumped the gun and got on with it, how many people would shift their accounts and savings to a 'safer' bank, if it cost them a small premium in loss of interest etc to do so!

They say it will increase costs but i have never seen them spell out why it will cost more.
The Government imo should have a target date for removing the tax payers guarantee, from all banks that dont comply with what WE require, they can huff and puff all they want but we hold all the ace cards its just whether we have a government prepared to do the best for the country.

GRIMUPNORTH77:

Better not to be obsessed with bonuses. It is total remuneration that should concern you. I've heard/read that base salaries in RBS have changed a great deal over the past couple of years, to reduce the % appearance of bonuses.

To me if someone is paid 500k, then it doesn't matter if it is £50k base and 450 bonus or the other way around. Actually, scratch that - 450k base means higher pension costs and also makes it more expensive to sack them. So maybe I prefer bonuses. But the point I was trying to make is that we should look at reducing total compensation and not get hung-up on the word bonus.

7. At 11:55am 6th May 2011, CyranoinLondon wrote:

Without following your example and trying to get personal, blaming governments for the current depression is a bit like blaming the police for the crime wave sweeping London.

Granted, the governments and the regulators have to share the blame for being asleep at the wheel at best. But absolving bankers from any blame is just irresponsible - after all these so called "professionals" should see the bubble when it was developing and act on it. They get paid very handsomely indeed for just such type of expected expertise. Or are you just admitting they are simply gamblers (something most people on this blog know anyway) playing with one-way only bets - those of the "heads I win, tails you lose" variety?

You say regulators didn't understand the investment banking products. I say investment bankers did not understand them either - it was a bit like blind leading the blind. The foreclosuregate scandal in US is just one of many examples - do you think these guys look like they knew what they were doing...?

Investment banking instruments spreading the risks? You mean the ones provided by the likes of AIG, monoline insurers or the esteemed investment banks? Well, that worked well all by itself, didn’t it? Do you think they would still be around, "spreading the risks", without government's assistance? Even the mighty bankers who were "doing God's work" tripped.

There is no idiocy behind the idea of splitting the banks - this is what kept us from depression since 1930s. It's only once Glass-Steagall has been revoked that we are back there again. Separate retail and investment banks were working just fine up to that moment with no systemic failures requiring wholesale taxpayer bailout everywhere.

I can see how keeping the two parts of the bank - the retail and casino operations - is so attractive to those gamblers (sorry, investment bankers). That way they can get guaranteed bonus contracts and get "rewarded" regardless of performance. It happened in the past that casino side made losses whilst the cash cow retail operations performed well - guess who received pertinent (i.e. not just crumbs) bonuses at the end of the year...?

I respectfully suggest you refrain from hurling personal abuses on this blog – it only shows you off as somebody with very little real arguments to play with.

15. Deanarabin

"Or am I just saying that the sale of Girobank should never have happened (sic)"

An interesting point. I want a bank that I can trust and which sets the standards for other banks. I don't believe the private sector can provide this.

From the cost of mortgages to the endless incentive to exploit in the desperate search for profits - the banking system will never cure itself of these ills and regulation is impossible. Everybody who handles money is forced to play along with these institutions and they will never get it right.

The days of the UK setting the standard about how things should be done seem to be over however. We will carry on along the same old road and these problems will recur endlessly.

No one is happy with how banks work. No politician has a solution.

If it makes anyone feel better, I may be guilty of abusing my bank! During the boom times, I changed over to a "Flexible Tracker Mortgage". This is set at just 0.49% above BOE base rate for the life of the mortagage. I have some savings and have transferred this and "equity" from the mortgage into a high interest (3%) instant access account with the same bank. I am not really that financially astute, think I just got a bit lucky, but it is a nice feeling that my bank is now paying off a big chunk of my mortgage ;-}

The only way that banks will change what they do is if consumers make the right choices. They wont. They are stuck in habitual forms of behaviour and don't feel they have a choice. The banks operate in much the same way as one another in what is effectively a cartel. Governments are unable, and probably unwilling, to do anything about "The Banking Problem" and consumers aren't ready for change. What change there is will be very slow indeed and in the meantime, lots of people will be continually ripped off/exploited and waste their time, energy and money engaging with the banking system. Come back in 2050.

7. At 11:55am 6th May 2011, CyranoinLondon wrote:

> loose monetary policy and poor oversight) led to the banking crisis

Are you on another trip into wonderland? It was a BANK crisis, involving BANKERS and caused by BANKERS. The key people were greedy bankers and they got caught up in their own greedy, stupid and madcap schemes. That's the public verdict, so get with the programme.

> The banks that ran into trouble did so because of poor credit control

They ran into trouble because bankers were (and remain) incompetent nincompoops who could not be trusted to run a bath, never mind a financial system.

> Investment banking created instruments that spread the risk - ie increased systemic risk

Thank you. At last, some truth. But straight away, you're off in the wrong direction. Blaming everyone (regulators, politicians, taxpayers blah blah blah) but the greedy fat-cat bankers themselves. At least try to show a little common sense here.

> The only difference this time was that when the problem emerged it was
> worldwide because banking is now a global industry not a national one.
> Governments therefore struggled to deal with it.

Here we go again. Now it's the taxpayer/governments etc. When will you learn? I know bankers can only understand very simple messages, but this is getting ridiculous. No-one forced bankers to take outrageously selfish risks with money they didn't have. They did that of their own volition, and now they have to take their medicine – all of it.

Break 'em up I say - and hit 'em where is hurts _them_ the most – in the pocket

As with the twin towers the irelephants of fire walls will become apparent once jumbowe dumbowe arrives in the room, looking for a park up facility for the big grey area in the middle plus great balls of fire on either side before the king of the bungle arrives on mane st {with a mightierroar and a mouth fuill of gold fillings } to have another shot selling the confettidancetrick to themasses till Tarsand of the AAApes IS UP AND RUNNING

@ 21. At 13:31pm 6th May 2011, Againstthetide wrote:

> What use is a firewall when it's the retail/group side of the bank that is failing?

The idea of robust systems depends heavily on isolation. The goal is to reduce coupling in the system. Tightly coupled systems (such as the banking system) are rubbish. When a banking components fails, other components are destroyed as well. Total rubbish.

With isolation, a components fails and that's that. No dominoes-effect. No chain-reaction. With isolation, just that part fails.

The Oxymawon Banksters of the forbidden AAArts hope that the more they wave about their magic wands the more likely are their QE rabbits to pop out with their playdoe

Ihave only one thing to say to Banksters

"Go FORTH WITH YOUR shed of LIZZARD SKINS AND MULTIPLY or use BERNANKES BIG CHOPPER TO FILL IT WITH MORE FIREWOOD

And if we're in the business of comparing the two partly nationalised mega banks, Lloyds and RBS, both still look some way from being in a fit state to see taxpayers' huge stakes privatised at a profit to all of us.
-------------------------------------------------------------------------------
Why the hurry to privatise, Robert? Investing can be (and usually is) a long term thing - the potential is for the taxpayer to do well out of Lloyds and RBS if we hold on long enough (to the right point) and the Chancellor and Treasury don't pinch the money.

It could be fifteen to twenty years before it is right to sell.

Very easy option for any government with guts. Either put in firewalls or we pull your licence end of discussion.

#26: "If it makes anyone feel better, I may be guilty of abusing my bank! During the boom times, I changed over to a "Flexible Tracker Mortgage". This is set at just 0.49% above BOE base rate for the life of the mortagage."

It does not. One of the symptoms of living under a command economy, where an elected or, in our case unelected, body tries to direct the flow of resources, is an unworldy disconnection between supply and demand: We are living through a time in which it is no longer sensible to invest in growth because Zombie sectors present a much greater degree of asset protection relative to risk.

An old African saying

You cannot stop dung beetles when they are on a roller caster and their horn is leading the way toot toot! too...tsee the back of beyond.

@ 21. At 13:31pm 6th May 2011, Againstthetide wrote:

> What use is a firewall when it's the retail/group side of the bank that is failing?

Isn't the point that the retail side might well fail, but if it does it will be much cheaper for the government to save. That is the commitment the government is prepared to make, they want to support savers. They don't want to support gamblers.

Jacques:

"They ran into trouble because bankers were (and remain) incompetent nincompoops who could not be trusted to run a bath, never mind a financial system."

And yet were (and apparently are still) able to evade what you call the public verdict. Does that make us even more stupid? I reckon people who are merely nincompoops would not have been able to this.

Whilst it feels good to denigrate your opposition it is probably unwise to underestimate their craftiness.

Be warned all you Beeb bloggers and counter-bloggers. The Beeb's going dumb. Check out the other correspondent's blogs and you will find that comments are now being limited to about 400 words.

This is going to be a big problem for those of us who have something very big to get of our chests on a daily basis. You know who you are!

Just what is Sirloinsaaalot taking?

RP - can you answer a couple of questions for me that the press do not seem to be addressing.
1. How can RBS become profitable in the short-term with the hundreds of six-figure-plus redundanies that have happened in the last 12 months and are scheduled to happen well into 2012?
2. Why is there no discussion about the number of jobs at RBS that have been/are being moved to India? It feels as though we, as tax-payers and therefore 'shareholders', are condoning UK jobs going overseas.

How fortunate it was that the bonuses were handed out last quarter and not this. How does UKPFI allow the numbers to be juggled by the banks management for what could be construed as their own benefit. Surely it is time for the regulator to make the boards of these two banks in particular put all of their fire damaged and potential loss making assets on the table so they can be managed effectively and not just drip fed at the whim of the board. After all we saved these banks as an asset to the nation not to the businessmen who run them.

"34. At 14:42pm 6th May 2011, jmor wrote:
#26: "If it makes anyone feel better, I may be guilty of abusing my bank! During the boom times, I changed over to a "Flexible Tracker Mortgage". This is set at just 0.49% above BOE base rate for the life of the mortagage."

It does not. One of the symptoms of living under a command economy, where an elected or, in our case unelected, body tries to direct the flow of resources, is an unworldy disconnection between supply and demand: We are living through a time in which it is no longer sensible to invest in growth because Zombie sectors present a much greater degree of asset protection relative to risk."

jmor, I think I agree with what you are saying. I am maybe a bit financially naive however I believe the banks no longer serve any socially useful purpose. They seem to have the whole world and especially poiliticians by the balls!! Unfortunately, apart from the odd sabre rattle from a wayward politition, nothing significant is being done. The banking system needs total change but we need the strength and leadership from somewhere to sort it out - I really cannot see this bunch in power at present or those on the sidelines having much effect. In the meantime I will continue to try and abuse my bank as best I can;-}

If you have a mortgage then I would say that upto 50% of the time you spend at work is for the banks. Good eh?

I think its unreasonable to expect the banking system to change in any way as they are doing such a good job. They bend over backwards each and every day to look after the nations interests and they really care about their customers (money - i.e taking it all).
No, really, I know the system has its imperfections but I'm sure the banks know this and have really turned over a new leaf. Gone are the days when banks dreamt up incredibly complicated instruments to con everyone out of their money. From now on its going to be a happy land where we all benefit from the existence of banks in their current form. Just look at the adverts. They really care about you. What a relief. I feel good now.
P.S. What I'm on is much better than what sirloinsaaalot is taking.

Missus_naive,

If 50% is for the banks, and 50% for the government (average tax take as a percentage of GDP), doesn't leave much for us then.

Missus_naive

P.S. What I'm on is much better than what sirloinsaaalot is taking.

Can't be - you are coherent!

39. At 15:37pm 6th May 2011, treacle_01 wrote:
Just what is Sirloinsaaalot taking?
-------------------------------------------------------------------

At least Sirloinsaaalot (and his previous incarnations) offer a little light relief from the self serving propaganda spouted by your friends the BBA.

#42

I may not have explained well. You are seeing the effect of a policy designed to keep zombie sectors afloat: Sectors that are not zombies, but badly managed financially, would just acquire new owners.

Perversely, I do believe the banks serve a socially useful purpose if properly constituted.

However, I do not believe that the current constitution of the Bank of England is socially worthwhile: We have the situation where individuals are making social and economic policy based on their own belief systems. I think, after this experiment, this power should revert to elected representatives.

If you start your useful working life with some strength, a willingness to work and perhaps some skills but nothing else and would like a place to live, some tools to work with and a van to drive around in - it is a socially useful function that a rich uncle lends you the cash for the tools, a building society gives you a mortgage for modest dwelling and a bank lends you some cash for the van. If you prosper you can do pay it back and perhaps borrow some more to expand your business or buy a bigger house for starting a family. Fine. If it all goes wrong and you cant pay back the debt, the bank, the building society and your uncle all go bankrupt - thats life provided that you and the lenders dont take the whole financial system down with you. We are however so far away from this simple model - so far up **** creek without a paddle that getting back to a reasonable way to run a banking system is so fraught with risk and downside that no-one has the courage to do it.

1. Of course the big banks should be broken up.

2. Of course retail and investment banking should be separated.

3. Of course naked credit default swaps should be banned and maybe even any CDS instrument.

4. All derivative finance products should be licenced (just like drugs) and their volume of sales limited by institutions.

5. Of course all finance institutions above a certain size should be required to reduce their gearing and have a minimum capitalisation much more than at present.

But getting from where we are to that perfect future state is extremely difficult balanced as we all are on the edge of the financial precipice.

RP - "... still look some way from being in a fit state to see taxpayers' huge stakes privatised at a profit to all of us".

We'll never see any money back. Banking is a scam, run by insane greedy stupid bankers in collusion with corrupt politicians, that will soon have fifty per cent of global assets held offshore. RP's comment assumes these people give a damn about the suffering of others. They do not.

Break them up.

With 25% of our economy made up by the banking sector, these boys and girls have nothing to worry about. Today's settlement is tomorrow morning's profit and the governmnt can't do anything about it. Reading this https://www.ppiclaimsuk.co.uk/blog/ppi-claims-news-lloyds-banking-group-wil-not-appeal/ just made me even more angry as LLoyds says it's prepared to pay back victims of PPI mis selling.

It shouldn't even be news and it wouldn't be in any other industry, banks get away with whatever they like because they're not accountable. The energy companies get fines and rulings straight away if they don't drop their prices as soon as possible, but the self-regulated banks just get a new porsche and ruffled hair.

An economy based on engineering and exports - Germany has it right.

Weren't internal firewalls one of the things that got torn down during the much vaunted big bang?

#51 johnsonbox
"An economy based on engineering and exports - Germany has it right."

You are right but didn't Britain used to do engineering and exports?
My afore mentioned city big bang finally put paid to them.

Then there is the little problem of competition. If you do real things then countries end up competing against each other. Resulting in WW1 - WW2 culminating in the Iron and Steel community leading to the EU.
The unwritten agreement was that Germany did all the work and Britain did the paper shuffling.
It will never last though.
Commodities are the real deal. Energy being king.
And who has that? Russians. And so we go on and on.

52. At 19:26pm 6th May 2011, prudeboy wrote:
Weren't internal firewalls one of the things that got torn down during the much vaunted big bang?
---------------------
You're right, I'd forgotten that. In Thatcher days The OFT were shaping up to hammer the Stock Exchange (under the Restrictive Trade Practices Act) for requiring the two 'capacities' of broker and jobber to be kept apart. I think what happened was that the then Secretary of State for Trade got rather fussed about the august Stock Exchange being hauled up before the Restrictive Trade Practices Court, and surprise, surprise, the Stock Exchange expressed a willingness to negotiate. Nobody in the circle believed at the time it would end up with the Big Bang (that's how it got its name, because at the outset something rather more gradual was envisaged; but once the negotiations got going that's how it had to turn out).
But then Stockbrokers lived in places like Virginia Water, arrived for work at 10, and didn't see the approaching army of sharp-suited barrow boys that would take over from them... Of course the Banks were broadly honest institutions with great gravitas; you felt you could trust them, and probably could. And you could walk in and talk to a real person about your account

52. At 19:26pm 6th May 2011, prudeboy wrote:
Weren't internal firewalls one of the things that got torn down during the much vaunted big bang?
------------------------------------------------------------------------

Have the academic institutions ever studied whether Big Bang has really improved our economy?

I expect there are no academic papers as the funding for research would have to come from the financial community and one has to ask if they want the truth to be out (if that was the finding).

A bit technical, but surely RBS has to make contingency provision in the accounts for the potential huge PPI claim otherwise how does RBS justify this to their auditors. According to the prudence concept, RBS must make provision for potential known liabilty???

RBS opposes internal firewalls is the title of Mr Pestons blog.

How tedious and predictable. RBS - what a joy.

GRIMUPNORTH77 is spot on.

51. At 17:45pm 6th May 2011, johnsonbox wrote:
An economy based on engineering and exports - Germany has it right.

I worked for a major UK engineering firm as a commissioning engineer in the Middle East in the early 90's and felt very proud and satisfied in my job. However, upon my return to the UK the firm got eventually dissolved into a monstrous conglomerate. First thing they did was get rid of the research and development department. Surprisingly, after being in existence for nearly 100 years the company ceased to exist

53. At 20:22pm 6th May 2011, prudeboy wrote:
#51 johnsonbox
"An economy based on engineering and exports - Germany has it right."

You are right but didn't Britain used to do engineering and exports?
My afore mentioned city big bang finally put paid to them.

Then there is the little problem of competition. If you do real things then countries end up competing against each other. Resulting in WW1 - WW2 culminating in the Iron and Steel community leading to the EU.
The unwritten agreement was that Germany did all the work and Britain did the paper shuffling.
------------------------------------------------
Not really. I don't know who told you about Germany doing the work and Britain shuffling the papers, because the UK didn't join the European Coal and Steel Community when it was etablished by the Treaty of Paris in 1951, but only with our accession to the Three Treaties (ECSC, EEC, and Euratom) in 1973 (aka 'Joining the Common Market')
There was no carve-up of responsibilities on any of the three areas when we joined the ECSC. (I can say that for certain because I was there ) The ECSC had a strong competition policy, built on a 'basing point' pricing system. This was not easy for our steel industry, which had a very different pricing system, and we had to accept it with only transitional provisions. Some might say it served us right for persisting with our delusions of Imperial grandeur in the '50s and turning out back on what was happening on the European mainland. But that's another story.

IT IS DEMAND A WELL AS SUPPLY. THE UK CONSUMER IS PURPOSEFULLY DELEVERAGING (WHICH IS NEEDED). MAKES FOR A GOOD HEADLINE THOUGH.

@Kit Green
"At least Sirloinsaaalot (and his previous incarnations) offer a little light relief from the self serving propaganda spouted by your friends the BBA."

treacle_01 is a spokesperson for the British Bankers Association? That explains why treacle_01 can only refer to "compression" and "CCS", or whatever it was called, and not explain it, discussed in the previous thread. He only spouts out that allegedly, once introduced they save the world from the bad effect of credit default swaps, the financial weapons of mass destruction which are currently being triggered in the Eurocrisis.

As the hankies folded over the mounths of Japanese helped them to protect themselves from the radioactivity released in Fukushima! (That is what treacle_01 would have told us if he had worked for TEPCO instead.)

@feedbackloop
"3. Of course naked credit default swaps should be banned and maybe even any CDS instrument. "

Very good point, and all the others you have made.

But the question must be this. Why is that not being heavily advocated in the media? Why do we not read about it? Why is there no campaign for these things in the press, why not on television?

That must be the real question here. The embedded journalism, which serves the financial industry, and not the public, must stop. We pay the licence fees for the BBC, not the Banking Industry, not the spivs and chancers who work as hedge fund managers and investment bankers.

The media have a role as an additional voice, the fourth power in the state. They have a role to bring about a cultural revolution in the financial services industry. They should use that power. And we should insist that the BBC hire a financial markets consumer champion to make that point!

What will perhaps spark some controversy is that the provision of credit to small businesses fell 7%.
RBS says weak demand.
SMEs say scary borrowing terms because of the incestuous relationship between investment side and retail side and the lack of a Chinese wall.
RBS opposes internal firewalls. Why? You would only oppose, if you could foresee the inevitability of stepping over one. Ouch!
RBS says that the Independent Banking Commission's recommendation that universal banks like it should
- erect internal firewalls, or
- put their retail and investment banking operations into separate subsidiaries, are "likely to add to bank costs. Give me a break! Not having these walls in place has cost the taxpayer billions. Is the RBS saying it would cost more than bailouts?
If the RBS isn't overjoyed at the unilateral decision made yesterday by Lloyds to make comprehensive restitution to those mis-sold PPI loan insurance, I have one question: Why not? RBS, you are not looking good or trustworthy! You know the old saying: You do the white-collar crime, you do the time.
Also and perhaps more importantly:
(1) The European Commission is probing whether the 16 banks active in the so-called CDS (credit default swap) market colluded to pass on insider data to one firm.
(2) The EU is also investigating whether nine of the banks involved received preferential treatment from ICE Clear Europe, the largest CDS clearing house in Europe.
Have you taken note of the investment banks under investigation: JP Morgan, Goldman Sachs, Bank of America, Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, First Boston, Deutsche Bank, HSBC, Morgan Stanley, THE ROYAL BANK OF SCOTLAND (RBS), UBS, Wells Fargo/Wachovia, Credit Agricole and Societe Generale.
Until this investigation is complete, until the report is received, we cannot know what these investments have been up to re CDS/derivatives, and why it may not be possible right now to build essential firewalls or to make SME loans.

28. At 14:02pm 6th May 2011, Jacques Cartier wrote:

Break 'em up I say - and hit 'em where is hurts _them_ the most – in the pocket


hmmmmmmmmmmmmmmmmmmmm

A hit on their back pockets only hardens them aswellas HO HO HONING them for high orrifice and 666 of the beAAAst where they can carry on with their visual aids promotions to themasses of love being the tender claptrap


AAAPLAUSE ! AAAPLAUSE!



a short list prepared
The results of the SirLoinsaaalot inkblot tests will be announced soon AND a short list prepared for IMF Aand assoseahated tripeaaartite Positions that are being evacuated

@CyranoinLondon

Using the logic of your argument, if I kill someone, it's not my fault - I was just taking advantage of my ability to kill and that ability was insufficiently controlled when I did - so it must be someone else's.

Of course, I agree that politicians and regulators failed to control the situation but I can't for the life of me understand how that can possibly justify absolution for the perpetrators of the stupidity, much less the timidity with which Gideon effectively rewards them.

" No-one forced bankers to take outrageously selfish risks with money they didn't have."

I thought, Jacques, that the Sub-Prime fiasco was caused by someone requiring banks to make loans to people who couldn't afford to repay them. --- Then the bankers got creative and invented ways to lay off the risk.

67. At 22:20pm 7th May 2011, The-itinerant-ex-pat wrote:
I thought, Jacques, that the Sub-Prime fiasco was caused by someone requiring banks to make loans to people who couldn't afford to repay them. --- Then the bankers got creative and invented ways to lay off the risk.

What puzzles me is how the value of 'the guarantee' (that is, the support for this bank by every taxpayer in the UK) is shown in the balance sheet as an asset and a liability. I suppose creative accountants have this well handled for the benefit of the shareholders (that is, every taxpayer in the UK).

67. At 22:20pm 7th May 2011, The-itinerant-ex-pat wrote:

> the Sub-Prime fiasco was caused by someone requiring banks to
> make loans to people who couldn't afford to repay them.

Who was this "someone"? And what did he use to force the banks to throw all their money away? A big stick?

69. At 09:25am 8th May 2011, john_kenilworth wrote:

> What puzzles me is how the value of 'the guarantee' (that is, the support for
> this bank by every taxpayer in the UK) is shown in the balance sheet
> as an asset and a liability.

The RBS balance sheet (which is available online) shows what we are owed and own, and what we owe. AFAICS, no mention is made in the online copy of any guarantee. The guarantee is implicit for every bank - no contract exists - because we know that Govt will clear up any mess (from previous study of Govt behaviour).

Are you sure the guarantee is in both side of the balance sheet, and under what sections?

I dont believe in the conspiracy theory so far as the banking sector is concerned - ie that a group of people knowingly erected the tower of babel expecting that it would crash down at some point, but that by then they would have trousered so much dosh that it wouldnt matter. In general I tend to believe the cock up theory of history and this usually turns out to be right. It is however the insufferable hubris that seems to ouse out of the pores of the finance industry elephant that really sticks in the craw.

They all thought they were being so clever with their complex derivatives and hedging instruments designed to spread the risk - but in fact this merely encouraged them all to engage in super risk lending - but hey no real reason to check it out propery because we can hedge it or parcel it up to some other mug who does the same. No capital to back the first lender, no capital to back those underwriting it and an increase in gearing at each step. Plenty of bonuses sucked out and oh were being so clever ! Then surprise surprise we eventually run out of cash when everyone is sucked in so deep that we cant afford the whole lot to come crashing down.

Goverment sucked in to begin with by the bumper tax receipts - off on its own unsustainable spending spree and too blind to see and jo public sucked in as well cranking up a burden of debt we cant really afford based upon the illusion that the houses we live in were making us all rich.

And now government too scared to make root and branch reform to this sorry mess becuase they know that to do so would make a nucelar winter of a recession that no-one would be prepared to stomach.

The problem with the current plan to achieve the 'correction' by a gradual seeping away of value and standard of living from joe public (and that by the way what is going on, has to happen and is planned by the BOE) is first that it can still fall over half way there and second that we come out of it (if we come out of it) with all of the banking nonsense that was at the heart of the problem still in place.

The problem with dealing with it all now properly root and branch is that the 'correction' would have a steeper gradient and could dip pretty deep into the abys before we can climb out again.

Heads we loose tails we loose.

But while this all goes on please dont let the finance industry continue to perpetuate the mass delusion that was (is) at the heart of the mess.

and by the way please dont let the last government%2

escape the verdict of history ie that they made a bad situation much worse by failing to regulate effectivey and by pumping unsustainable tons of cash = debt into an unreformed public sector.

Break up the banks and do it now.

68. At 22:44pm 7th May 2011, AnotherEngineer wrote:

67. At 22:20pm 7th May 2011, The-itinerant-ex-pat wrote:
I thought, Jacques, that the Sub-Prime fiasco was caused by someone requiring banks to make loans to people who couldn't afford to repay them. --- Then the bankers got creative and invented ways to lay off the risk.



There you go again, letting the facts get in the way of the story.

--------------------------------------------------------

Another engineer you are letting the story get in the way of the facts

The subprime loans granted to purchasers with a poor or non existent credit history were initially granted at teaser rates to initiate debt addiction with an implicit promise that regular payments would later qualify the mortgagee for a prime mortgage at prime rates [ more arrangement fees] however a liquidity crisis emerged in the financial sytstem as more and more mortgagees ,not necessarily subprime were unable to roll over their "prime debt"

The shortage of liquidity led to a stagnation in property prices this ment that even regular payers of subprime couldnt

Cont

Regular payers of subprime could not qualify for lower rated prime mortgages since house prices had stopped rising and they had no equity to justify a shift in their mortgage status so double digit increases in interest rates in their original contracts were allowed by the banks to kick in ,DOUBLE DIGIT INCREASES THAT THE MORTGAGEES NEVER EXPECTED TO HAVE TO PAYPAY.

THe USA bankink system short of liquidity and too clever by half decided to use subprime mortgagees as the fall guy

However the non compliant fall guy with a non recourse mortgage sent jingle mail [the keys]to the mortgage broker and walked away ,whist leaving the CDO structured financial system having effectively shot itself in both feet[in keeping with morefees law] droppig to its knee in preparation for the federal reserve and Bernankeys big chopper, like the twin towers its symbolic precursor.[It had been openly speculated for a decade that terrorists could hijack an internal flight and fly into the twin towers and surprize surprize it happened ]


]
IN BRITAIN LESSONS WERE LEARNT AND MORTGAGE INTEREST RATES DROPPED

Cont



As the financial turmoil emerged Moses Owe bama came down from the debt mountain with two tablets for the finacial system [one of them was a picture of Bernankeys big chopper with" the end is nightalk on it"

the other had
" In AAA Security holes we thrust"


and said " let my subprime][people ]go!"

and

"God bless America"

after which he performed the civil union between the feederhole reserve and wall st thus adding more i dodo s to the soon to be eggstinked dodo

It seemed like a good idodo at the time, but it will never get off the ground

If the bankers had paid attention in the spelling classes at school they wouldnt have become what they are today. Faffing about over ppi proves my point.. Am thinking about declaring to all comers that my little empire is too big to fail.

63. At 06:45am 7th May 2011, matt_us wrote:

I just got my first payment from the CDS conspiracy. I feel a bit guilty being bribed to 'state the bleedin' obvious' but I might as well take the money as no-one else seem bothered. I was a bit surprised to be paid in drachmas; I had asked for lire since we are going on holiday to Tuscany in October, but I suppose that Greece will get kicked out of the Euro first and Italy will follow later (I think that I.m allowed to tell you that).

"For the bank as a whole, the charge for debts going bad seems to be on an unambiguously declining trend, from £2.7bn in the first quarter of 2010, to £2.1bn in the final quarter of last year, and just under £2bn in the latest quarterly figures."

Can you enlighten us exactly waht form these debts take that are going bad. What exactly are they...? Home repossesions? Corporate bankruptcies..? What..?

An accumulated loss of over six thousand million pounds seems a hell of a lot (sound more put laike that than "billions")

#60 deanarabin

The point I was making is that post Wilson the game was up for UK industry and membership of the EU has hastened it.

Some EU member countries cleverly subsidize their industries. The UK cleverly lets the bankers run amok whilst the UK industrial heartlands shrink.
UK energy industry is now all sold off to foreign owners. Ditto chemicals. etc.
What would be left of the UK should financial services be curtailed?
I think we will find out.

@70

The 'someone' was Bill Clinton and the 'Stick' was the Community Reinvestment Act.

It look almost 8 years for the thing to unravel. In that time Sub-Prime mortgages went from 5% to 30% of all mortgage lending. When the Troubled Assets Relief Program was announced Goldman Sachs estimated that US banks held sub-prime mortgages with a face value of $900 billion.

There is a real sadness here and that is that we need banks but we will not stop meddling in their affairs and the result is a disfunctional banking system.

We need banks to provide interest to savers but at the moment savers get no interest.

We need banks to provide loans for big purchases but at the moment first time home buyers need a 25-30% deposit and therefore cannot get a mortgage.

We need banks to provide loans for business start up or expansion to create wealth and jobs but at the moment such loans are too expensive or not available.

The banks want to do these three essential things. Its their role in life. But we continue to frustrate them not realising that it is the savers, first time home buyers and business that we frustrate.

The sooner we stop banker bashing, bank levies and disproportionate fines, and the sooner we give bank regulation back to the trusted Bank of England, the better. The only people who ultimately suffer are the savers and the borrowers as banks are forced to increase their margin (the spread between what they pay to savers and what they charge to borrowers).

There are plenty of professional out there who can do the so called casino banking better than the high street banks. They are the old merchant banks, fund managers, private equity funds and hedge funds. The high street banks were forced into investment banking to subsidise retail banking as we drove them to provide free banking to all and sundry when many personal bank accounts cost more than their provision.

fairly obvious why they oppose any restrictions they lose access to all that lovely loot sitting in our cheque accounts! They like gambling with some one else's money if it goes wrong they go cap in hand to the government.
They should be like any other business, raise capital by issuing shares or applying for loans from the retail side may be then they would stop this gun ho attitude and start undertaking risk assessments before they gamble just like any other business has to do.

What we need is news about the IMF and wether Brown is up to the job of occupieing the G spot in the euroweGenius zone.

He will probably face stiff competition. from themasses

Split the banks into "casino" and "normal"

Problem solved!

Now just what were Lehman's, Bear Stearns and Merrill Lynch?

Oh dear. They were "casino" banks with no retail operations.

That worked well didn't it.

PS. They were not even banks.

As you say, Robert:
"provision of credit to small businesses fell 7%. Once again, RBS puts this down to a weakness of demand rather than a lack of any determination on its part to supply - but that doesn't enlighten on whether it's the unattractive borrowing terms on offer that puts off some potential business borrowers."
As in "Now put your head on this block and agree to pay this rate of interest until your company inevitably bows under the pressure a few months down the line". What's the point?

Oh no not again when will they ever learn, all work and no play makes for a very uninteresting day. So grab that axe and step on through the dry wall; there’s Johnny and look he's got Danish.

@79

Q1 2011 provisions in millions of pounds

UK mortgages 61
UK Personal and credit cards 133
UK corporate 105
Ulster Bank 461 - mainly mortgages and property
USA 110
Non core assets 1,075

Not too sure of the exact composition of non-core assets, but will contain the remains of sub-prime and also has more Irish stuff in it.

80. At 20:45pm 8th May 2011, prudeboy wrote:
#60 deanarabin

The point I was making is that post Wilson the game was up for UK industry and membership of the EU has hastened it.

Some EU member countries cleverly subsidize their industries. The UK cleverly lets the bankers run amok whilst the UK industrial heartlands shrink.
UK energy industry is now all sold off to foreign owners. Ditto chemicals. etc.
What would be left of the UK should financial services be curtailed?
I think we will find out.
---------------------------------------------------------
I agree with most of what you say, except I believe the fault in it all lies here, and is nothing to do with the EEC/EU. How can we expect them to have saved us from ourselves?
In 1979 the British elected an anti-European Prime Minister who also wanted the British economy to be based on services. It wasn't entirely her fault that banking became the pivot for of it, and eventually our economy became dependent on spivvery, deception and sharp dealing - she had her own (misconstrued) ideas long before the Big Bang. Nor did Blair' seem to have been that much different: he's culpable in that he didn't stand up for manufacturing either. And Brown's concept of Regional Industrial Development was perhaps mainly confined to building vast warships we don't need - in Scotland
And by the way, you must know the EU Commission doesn't hit the British and leave the others unscathed. In my experience of dealing with them, the Competition Directorate-General's always been pretty even handed. The Germans and French moaned just as much as we did.

"RBS opposes internal firewalls". You'll be telling us "Top Gear" presenters oppose speed cameras next.

#85 treacle_01:

Split the banks into "casino" and "normal"

Problem solved!

Now just what were Lehman's, Bear Stearns and Merrill Lynch?

Oh dear. They were "casino" banks with no retail operations.

That worked well didn't it.

PS. They were not even banks.

+++++++++++++++++++++++


"Now just what were Lehman's, Bear Stearns and Merrill Lynch?"

Whatever they were, they failed. We should not have such risks attached to the retail banks. Firewalls sound like a weak compromise to the real solution of splitting up retail and investment.

Whilst I agree with the principle of splitting banks up or putting a firewall in place, as a veteran of the firewall process in BT I can tell you that it is a complex, expensive and disruptive process. Now clearly I dont know how much overlap there is currently in the banks, but processes, computer systems and most importantly hearts and minds need to be changed.

@91

They were split. That was my point. Didn't make any difference.

76. At 15:22pm 8th May 2011, SirLoinsaaalot wrote:
Cont



As the financial turmoil emerged Moses Owe bama came down from the debt mountain with two tablets for the finacial system [one of them was a picture of Bernankeys big chopper with" the end is nightalk on it"

the other had
" In AAA Security holes we thrust"


and said " let my subprime][people ]go!"

and

"God bless America"

after which he performed the civil union between the feederhole reserve and wall st thus adding more i dodo s to the soon to be eggstinked dodo

It seemed like a good idodo at the time, but it will never get off the ground

----------------------------------

Best post on here by AAA country mile.

#93. treacle_01 :

++++++++++++++++++++

Thank you for your clarification. The fact they were split meant that the taxpayer did not have to save them. They were not banks and they were not too big to fail. Life goes on without them. It seems we have had to bail out the 'universal' banks only. Makes it sound a good idea to split them.

Banker ! It is no longer a respectable occupation to be flaunted at the 'golf club' drinks circuit. It is a term of abuse. No wonder Fred Goodwin to out a 'super injunction' preventing the press from calling him a banker.

Hmm, the Shareholders got fleeced, and they say Firewalls are bad for Shareholders ?
No, foolish, poorly regulated investment banking is bad for Shareholders.
Ask anyone who owned Shares in RBS when they were Five pounds each !
Oh wait that was your Pension Fund.

Never mind, Bonuses all round !