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RBS: 'Regulators are the main risk'

Robert Peston | 10:18 UK time, Tuesday, 29 March 2011

Stephen Hester this morning gave a generally upbeat presentation on the outlook for the largely nationalised Royal Bank of Scotland at an investor conference organised by Morgan Stanley.

The chief executive of RBS made three points that stood out for me.

Stephen Hester

 

First, that RBS has a target of next year for weaning itself off one element of the support it receives from taxpayers: by 2012, it wants to exit from the asset protection scheme, the state insurance policy that has insured RBS against losses over £60bn on £282bn of poor quality loans and investments.

That would be an important milestone in RBS's recovery and in its journey from 83% ownership by the state towards privatisation.

Second, Hester said that he expected two interest rate rises in the UK by the end of this financial year. Which he would see as a good thing - because the rate rises would help the bank rebuild its margins, or the difference between what it pays depositors and what it can charge on loans.

That of course may make many of you rather grumpy: you may not like it that Mr Hester has to put the interests of his shareholders above those of millions of British people who fear they have borrowed too much and hate the idea of interest rates going up.

But what I find striking is that RBS's financial model calculates that the benefits to its profits of a widening in its margins outweigh the risk of the UK's economic recovery being seriously set back by such interest rate rises.

Plainly it would not be good for the UK or for RBS if those rate rises led to an increase in the number of consumers and businesses finding it difficult to keep up the payments on their debts.

With household indebtedness still at record levels relative to disposable income (the ratio of household debt to disposable income is still around 170%), the financial wellbeing of consumers is particularly sensitive to the level of interest rates.

Let's hope Mr Hester is right that not too many households - and businesses - would be put on the financial critical list by a couple of rate rises. But not everyone on the Bank of England's rate-setting Monetary Policy Committee would share his optimism on this point.

Finally, what I found particularly striking is that two of the three biggest sources of what Mr Hester called "downside" risk to RBS's ability to perform better for shareholders are "regulatory".

In other words, if RBS's share price were not to rise as much as Mr Hester thinks it should in the coming year, the blame should probably attach (in his view) to the Financial Services Authority and the Bank of England.

How so?

Well one of the big items on the agenda for regulators on the Basel Committee and the Financial Stability Board - the standard setting bodies for global bank regulation - are a review of the riskiness of banks' financial trading activities and the linked question of how much capital they should hold as a protection against losses on their trading books.

Regulators tell me that investment banks and the investment banking arms of universal banks like RBS and Barclays will be forced to hold much more capital.

And the other item on the Basel and FSB agenda is how much additional capital systemically important banks should hold compared with smaller banks.

As readers of this column will know, the Financial Services Authority and the Bank of England are what the banks would describe as hawkish on these issues.

The FSA and Bank believe there is a powerful argument for big banks being forced to hold perhaps twice the new 7% minimum ratio of equity capital to assets that is gradually being imposed under the new Basel III worldwide rules.

The argument of the Bank and FSA - made particularly by the chairman of the FSA, Adair Turner, and by David Miles, who sits on the Bank's Monetary Policy Committee - is that the long-term economic costs of the kind of banking shock we saw in 2008 are so great, that it would be very foolish not to force banks to have a much bigger shock-absorbing buffer.

Now the banks make a variety of arguments in reply - not all of them consistent. But their main one is that capital is expensive for them to raise. And the more of it they have to hold relative to their loans and investments, the harder it is for them to supply the credit requirements of a recovering economy.

You will have read the claim and counter claim by regulators and bankers on all this so many times in this blog, you may like me be losing the will to live.

So for today I am simply going to make one simple point.

When a bank as big and important as RBS says that the main threat to its performance this year is what the regulators do, you can assume that the punch-up between the bankers and the authorities on how to make the banking system and the economy safer is going to get nastier.

And if you think this punch-up has nothing to do with you, that you are a bemused bystander, think again.

Remember that we as taxpayers own 83% of RBS, and therefore it is of material interest to us whether the value of RBS shares falls or rises.

However far more importantly, the banking crash of 2008 may have condemned us to years of below-par growth. Which is why it is important to us that banks hold enough capital to minimise the risk of that kind of disaster happening again, but that they are not forced to build up their capital so fast that our insipid recovery is choked off into a new slump.

Comments

  • Comment number 1.

    Of course if the bank continues in public ownership the dilemma of lending and holding a higher ratio of equity disappears as the state effectively underwrites RBS activities which is fine as long as the bank is properly supervised. This is far more important strategically than making a fast 'buck' on selling the bank where the directors are rewarded for pumping up the share price and inevitably concentrate on the short term narrow and personal bonus interests of the management. Not regulation but supervision should be the watchword.

  • Comment number 2.

    What do you do?

    From the banks, too much regulation will choke growth, from everyone else, not enough regulation will bring about another financial disaster.

    I'd be more inclined to listen to top bankers if they seemed less interested in lining their own pockets, but it returns to the question of who holds the power?

    I think we'll see the banks getting what they want with a token effort of meaningless regulation.

  • Comment number 3.

    RP wrote: Remember that we as taxpayers own 83% of RBS, and therefore it is of material interest to us whether the value of RBS shares falls or rises.
    --------------------------------------------------------------------

    Yes, it is of interest, but surely the overriding need of the economy is a secure and stable banking system. That must also be in the longer term interests of the shareholders too.

    It is a pity in general that the long view on shareholding in individual companies has become so unfashionable.

  • Comment number 4.

    If the banks are required to hold more capital, then they will increase their margins to ensure they get it...an interest rate rise (or two) will probably mean that mortgages go up by ~0.75% while saving rates go up by ~0.25%.

    I personally think that Stephen Hester has it wrong on the point re growth - a lot of people (and businesses) are just about survivng due to the low interest rates and the ability at the moment to meet their interest payments...a 50bip increase could well force many under (although for some zombie-companies this has been the inevitable outcome for some time)

    We all borrowed too much and are now coming to the point where we will feel a rate increase whilst trying to repay the loans...the next 12-18 months imo could be very painful for UK plc

  • Comment number 5.

    Did anyone else spot Angela Knight in the wings, operating his strings?

  • Comment number 6.

    "Second, Hester said that he expected two interest rate rises in the UK by the end of this financial year. Which he would see as a good thing - because the rate rises would help the bank rebuild its margins, or the difference between what it pays depositors and what it can charge on loans."

    Now this is very interesting. The only defence for the BoE/MPC to rely on the counterfactual Japanese lost decade(s) argument for low rates and more QE is to rebuild balance sheets, but here is RBS wanting to do it the 'traditional' way.

    [Hopefully those members of the BoE/MPC who might, possibly, maybe bring a bias to the interpretation of both present empirical data and previous empirical economic studies might start to realise what needs to happen to rates ... before more QE becomes self-fulfilling.]

  • Comment number 7.

    Robert, your comment - 'what I found particularly striking' regards the RBS view on regulation. Hardly striking Robert. Are you sure you understand the banking business? Surely your comment should of been something like -'Totally predictable was the RBS reaction to regulation'.

  • Comment number 8.

    This would appear to be yet another "poor old banks" diatribe from Hester. I really want to know how much of the well-touted RBS increase in lending is actually new conditions on old loans and how much is to RBS subsidiaries to fund their purchasing of property at extremely distressed prices from RBS customers they have forced to the wall or into financial turmoil.
    As a small business owner and investor I can assure you that there is little or no money available to fund growth or even maintain our existing (profitable) status. One company, Excalon, has just been turned down for a very modest £250K overdraft (well secured by £2M+ blue chip debts) because the returns to the Yorkshire Bank weren't high enough! This is what the govt and the financial press must be focusing on.

  • Comment number 9.

    If the universal banks split their operations via "subsidiarisation" so we can see more clearly the scale of assets and derivative exposures in their trading operation then almost certainly they will need to hold much more capital to support those activities and to attract the necessary funding.

    But might not the retail banking business require rather less capital - ie a gain for such banks from greater transparency? Don't expect the banks to acknowledge this possibility in a hurry.

  • Comment number 10.

    RBS: 'Regulators are the main risk'

    What else would you expect from a greedy spivving bank that isn't even a real bank anymore ... it is a SOFOMT (some other form of money trader) ... that produces bent corporate accounts to maximise its leverage endowed on its establishment by the 'establishment' for its profiteering and naked opportunism of exploiting the well preserved vestiges of its own 'over-privilege'.

    The comment about the regulators is to divert the real inquiry regarding:

    1) UK national interest
    2) rights and privileges
    3) opportunity cost of sovereign Britsih currency and capital
    4) fair returns for all stakeholders
    5) ongoing corruption and sleaze
    6) structure of the UK banking industry
    7) the structure and strategic control of the UK economy with govt direction on all capital investment
    8) fair tax systems for global spivs and international exploitation vandals

    The bankers always talk about what matters least ...deleiberately ... if our gobt ever gets ... 1- 8 right above and has a clear definition of what is and isn't a bank ... the regulation of 'UK banks' will become a very small issue as most of the regulation will need to be focussed on the SOFOMT's.

    Thereby, Mr Hester does not wish to discuss the break up of the RBS SOFOMT ... because that would mean serving the interests of all UK citiznes and not just his own super greedy remuneration pot.

    He can fool all of the politicians most of the time but not not some of the people any of the time!

    We therefore need only sensible basic leag and accounting and other rules for real, ordinary, sensibly sized banks ... and a lot of different controls on the SOFOMT's ... on a case by case basis, if necessary.

  • Comment number 11.

    "You may not like it that Mr Hester has to put the interests of his shareholders above those of millions of British people...

    [and]

    ...the banking crash of 2008 may have condemned us to years of below-par growth."

    Yes Robert, I think it is fair to say that we don't like it, but it does not make any sense to Rage Against The Machine...

  • Comment number 12.

    Stephen Hester is right, in a narrow sense, when he says that regulation from the FSA and BoE will hit shareholders dividends, but that is not the whole story. If as a result of the regulation it leads to a stronger more robust banking system in the long term then shareholders dividends will increase accordingly. Its a short term thing and Hester knows this and is being disingenuous. Why doesn't that surprise me...

  • Comment number 13.

    RBS have been slowly but surely moving the bulk of their asset exposure from retail mortgages into more corporate loans in the belief that this market is less volatile with less downside. However there is still the real issue of security that underlies these assets.

    But a 7% equity is buffer is still laughable really given the amount of asset volatility they are undertaking in the current environment. Without the floor of the low base rate and QE I suspect even double this would be inadequate to offer the required protection.

    So it does indeed look as if that capital must be raised and / or loans reduced in order to get RBS (and most other banks) back to sensible debt-equity ratios. The initial way to achieve this is obviously to stop paying upwards of 40% of earnings in remuneration.

    The bankers want their cake and eat it. They want implicit tax payer support so that they can stretch their lending to equity to gross multiples. They want subsidised costs of finance. They want QE to put a floor under their overvalued assets - the costs of which are dispersed into the economy in the form of higher inflation.

    Strong regulation is required, perhaps at a coordinated at a EU/US level, to force ALL banks into restoring adequate equity and weaning themselves off government support and subsidy while maintaining the lending vital to the economy. Otherwise this is an industry that should be nationalised. Yes the raising will be expensive and it will dilute return on equity and the bonus culture but this is a sine-qua-non of reform. In order for banks to remain as private enterprises they must take these measures to become stand alone.

  • Comment number 14.

    Look, lets hang the sword of Damacles over the banks heads.

    Allow them free rein to do what they want BUT if it goes wrong, and the institutions come running back to us taxpayers again, well let the sword fall.

    The sword ?

    Well, all directors of finanacial institutions from 2008 onwards whether current or not, are thrown into jail and all their assets are seized even those they have transferred to spouses .

    That gives the bankers the freedom and a choice.



  • Comment number 15.

    To state that "we all borrow too much" gets it inadvertently correct.
    The debt-based money system forces us to borrow more and more so, unless we all become Luddites, the situation can only get worse.
    Only 3% of our "money" is created as cash; created interest free by the lenders of last resort (us, for our use) to spend into circulation.
    Therein lies the solution.
    Is it good that 97% of "money" is created as debt?
    As we stand, if there were no debt there would be no money.
    If the private banks are to have 7% or even 14% minimum ratio that suggests 93% or 86% window of risk, with the odds favouring the bankers.
    If I were offered elective surgery with those odds I wouldn't even consider it.
    Those old enough can now see the rolling out of credit which is then called in.
    In the press today there is a big add for a major credit card provider offering 20 months interest-free credit.
    Need I say more.
    Nationalise the provision of real credit, for it can only be backed by the lenders of last resort.
    Keep RBS and the rest and begin to put the bankers in their place.
    Instead of getting politics out of private banking, we must get private banking out of politics.

  • Comment number 16.

    11. Typo there sorry

    We therefore need only sensible basic LEGAL and accounting and other rules for real, ordinary, sensibly sized banks ... and a lot of different controls on the SOFOMT's ... on a case by case basis, if necessary.

    .................

    The legal point is IMO very important ... banking activities need to be be very clearly defined at law in balck and white because if the bank does something illegal ... then its Directors are/can be personally liable for the mess they create ... something that was missing in the credit crunch crisis ... personally liability by those running the 'bank(s)'.

    Getting the legal basis right e.g. banking activity and definitions of a bank/banking etc is more important than getting the 'regulation right' ... as regulation is either not needed or is/can be reduced in many cases, when/where something or other is clearly 'illegal'.

    The best way to clean up the banking industry is to get the basic UK banking law reform in place first ... and then see what needs doing with the SOFOMT's in terms of law, structure and regulation and accountancy practice etc.

    Many of us want to see real reforms that work and do not unnecessarily punish the handful of banks that have been run really well and without causing any problems themselves.

    However, it is not and indeed never to late to put a 'festoon of bankers' on trial!

  • Comment number 17.

    Someone mention Rage Against the Machine?

    http://www.youtube.com/watch?v=rO_FVVHXEjM

    Do the Wall Street Shuffle.

  • Comment number 18.

    Uh, no. Members of the public are the main risk...

  • Comment number 19.

    >"Second, Hester said that he expected two interest rate rises in the UK by the end of this financial year. Which he would see as a good thing - because the rate rises would help the bank rebuild its margins, or the difference between what it pays depositors and what it can charge on loans.

    That of course may make many of you rather grumpy: you may not like it that Mr Hester has to put the interests of his shareholders above those of millions of British people who fear they have borrowed too much and hate the idea of interest rates going up."

    It's in everyone's interest to cut back on debt. The 2008 crash was essentially about 10 years-plus of growth funded by debt. So let those who borrow beyond their means sweat - let them learn lessons.

    The current, stupidly low base rate is already seeding the new bubble (see article elsewhere on "Borrowing up again").

    Besides, the shareholders who will ultimately benefit, as you mention elsewhere, is us lot. Until RBS buys its shares back from the taxpayer, we - well, I, at least - want RBS to be thoroughly successful.

    Next: all this about capital adequacy: until Thatcher and others got in and pulled earlier regulation to pieces, a capital ratio of 8 to 10% was normal. Might it not be better to tell the banks that thev've had a 20 year jamboree and now it's back to feet-on-the-ground again?

  • Comment number 20.

    What seems to be becoming clearer is the lack of personal liability and moral hazard that is all pervading in the banking industry. Bankers and traders are naturals at sniffing out or creating strategies, deals, products that offer vastly assymetrical payoffs - profits are taken by the deal-maker - losses are absorbed by customers, bank balance sheet (equity holders) or the tax payer. This is what casino banking has become and will remain until the issues of moral hazard and personal liability have been resolved.

  • Comment number 21.

    re 13
    Capital inadequacy can be tackled by hiving off the high risk investment arm leaving the main business less subject to the regulation Hester is complaining about.
    Of course, the cost of borrowing money for gambling then rises to the extent that the game's not worth the candle, but that's as it should be.
    It won't happen though because that would reduce directors' remuneration.

  • Comment number 22.

    Planning moving to a presumption of consent and the deflationary nature of the move to an internet enabled economy are the big deal. Everything else is noise.

  • Comment number 23.

    Hester is of course right.

    Interest rate rises would help rebuild Balance Sheets. They would also be welcomed by the millions of savers (who far outweigh borrowers by number) who are recieving miniscule returns. Savers are in effect subsidsing the people who stupidly overborrowed.

    As a business owner I have factored in rate rises to my budgets - I am surprised that others have not.

    Over regulation will indeed destroy UK Banks. It is interesting that Northern Rock HBos etc operated predominately in the UK market and were "small beer" in Banking terms. Cable, Peston and their herd like followers constantly ignore the truth in their comdemnation of HSBC and Barclays who are truly International Banks.

    And no "writingsonthewall" I do not work in any part of the Financial Services Industry

  • Comment number 24.

    "But what I find striking is that RBS's financial model calculates that the benefits to its profits of a widening in its margins outweigh the risk of the UK's economic recovery being seriously set back by such interest rate rises."
    Bubbles. The banks seem to operate in them, ie what we do has no effect on the wider economy. Its this kind of thinking that brought the whole thing down in 2008. And its this kind of thinking that causes them to resist any attempts to make the whole system more robust. It seems they have learnt very little, and are unwilling to change their ways.

  • Comment number 25.

    It is so DISAPPOINTING that Mr Hester is not actively embracing a better standard of financial regulation. He is a 'government approved' appointee, he is making a fair personal financial fortune out of everyone else's financial misfortune, can he just look a little bit further into the future than next year's company profits? Obviously not. Banking regulation may be an enemy of the 'fast buck casino bank' but the great RBS money giveaway and debt fiasco of Fred Goodwin cannot be allowed to happen again.

    There I've said it Mr Hester (in whom I am DISAPPOINTED to the point that he should be removed from the job as an example to his minions)........... health, stability, happiness and financial wellbeing are more important than money.

  • Comment number 26.

    All this user's posts have been removed.Why?

  • Comment number 27.

    Stephen Hester is fighting for RBS, BUT the banks destroyed us! They have to leave behind the daft way they threw money around of the last decade as this is what did the damage. However unless they are forced through tough regulation to do this they will revert to the old ways and this will create a far worse bubble economy.

    Remember, banks lent too much money which inflated asset prices to totally unsustainable levels and this has still not been deflated and until it is, normal economics cannot resume. Banks must be forced to take some of the losses on collapsing asset prices. Bank shareholders who profited in the last decade must pay their part in the new prudence.

  • Comment number 28.

    @nautonier re #16

    I can't spot the typo you mentioned... please enlighten me...

  • Comment number 29.

    19. At 12:09pm on 29th Mar 2011, doctor bob wrote:

    "It's in everyone's interest to cut back on debt. The 2008 crash was essentially about 10 years-plus of growth funded by debt. So let those who borrow beyond their means sweat - let them learn lessons."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    The problem - growth and profit are debt.

    I work for a week making "stuff" that cost £20, my boss pays me £20, where does the company profit come from - debt. Lets say I work for a week producing nothing just services, my boss pays me £20, where does the company profit come from - bigger debt. Banks need debt, the economy needs debt, the customer needs debt, unfortunately at the moment they all need excessive debt to sustain an existence and this is why RBS or any other bank will fight regulation.

    Private shortfall = public debt. To bring the equation to equilibrium you have to actually make something, banks don't make anything other than misery.


  • Comment number 30.

    23. At 12:43pm on 29th Mar 2011, Decentjohn wrote:
    Hester is of course right.

    Interest rate rises would help rebuild Balance Sheets.
    ========================

    No, this is wrong. It is part an underestimation in the RBS models (which through some consultancy work I am very familiar with) of the amount of loan impairment that would be caused by a very modest increase in interest rate, and part a bluff called by Hester - raise rates that'll be good for us - in the full knowledge that the opposite is true.

  • Comment number 31.

    15. At 11:51am on 29th Mar 2011, thomas_paine wrote:
    To state that "we all borrow too much" gets it inadvertently correct.
    The debt-based money system forces us to borrow more and more so, unless we all become Luddites, the situation can only get worse.
    Only 3% of our "money" is created as cash; created interest free by the lenders of last resort (us, for our use) to spend into circulation.
    Therein lies the solution.
    Is it good that 97% of "money" is created as debt?
    As we stand, if there were no debt there would be no money.
    If the private banks are to have 7% or even 14% minimum ratio that suggests 93% or 86% window of risk, with the odds favouring the bankers.
    If I were offered elective surgery with those odds I wouldn't even consider it.
    Those old enough can now see the rolling out of credit which is then called in.
    In the press today there is a big add for a major credit card provider offering 20 months interest-free credit.
    Need I say more.
    Nationalise the provision of real credit, for it can only be backed by the lenders of last resort.
    Keep RBS and the rest and begin to put the bankers in their place.
    Instead of getting politics out of private banking, we must get private banking out of politics.

    ..........
    Alas Tom, there are those that still dont accept that nearly all money is created as debt, despite compelling evidence from Steve Keen and others. Only after the "big one" happens will common sense prevail.

  • Comment number 32.

    "Second, Hester said that he expected two interest rate rises in the UK by the end of this financial year. Which he would see as a good thing - because the rate rises would help the bank rebuild its margins, or the difference between what it pays depositors and what it can charge on loans"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    So Hester wants RBS to mirror the BoE rates rises when the didn't follow the reductions. Increased lending rate margins will certainly get JFH what he asks for, half a population in bankruptcy court.

    RBS lend irresponsibly, take major risks then expect to rebuild their balance sheets at the expense of secure customers. There's irony in there somewhere!!

  • Comment number 33.

    It is a fact that british banks have to operate in an international world and therefore need to compete with other financial institutions. It follows therefore that in order to get the right people to do the job you have to pay them approximately what they can earn elsewhere or they won't earn the money we need them to to repair the damage the banks participated in. I understand that most of the people that lost money with ill thought through and leveraged financial products lost their jobs when the fools market that allowed those products to exist was seen for what it was. That means the people who are left are probably doing what we wanted them to do in the first place. Make money. In the old days banks used to pay tax now with brought forward losses some won't pay tax in the same way for years. They can however make money restore the shareprice and place the shares, repaying us the tax payer as a result. Over-regulation is as much a problem as under-regulation. The business of banking should be about maturity transformation and so long as that's done conservatively and without the over-exposure to the products of 2007 thats a good thing for all of us. It sticks in our throats but we need as a country to move on 'bankers' is a generic term that covers those that bet the balance sheets of their employers in 2007 and the clerk in a village branch who clearly did not. They are not the same. Lets hope the people who now manage these organisations learn from the mistakes that cost them rather than rely upon regulators to make sure they have enough capital in case they've learnt nothing, which I rather doubt.

  • Comment number 34.

    #23. At 12:43pm on 29th Mar 2011, Decentjohn wrote:

    "As a business owner I have factored in rate rises to my budgets - I am surprised that others have not."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Maybe others can't factor in rate rises due to reducing incomes and steep inflation. Just a thought.


  • Comment number 35.

    Sorry for being off-topic, Robert, but is there any chance of a blog post on "Startup Britain"? I would really love to hear your thoughts on it.

  • Comment number 36.

    "...22. At 12:42pm on 29th Mar 2011, sizzler wrote:
    Planning moving to a presumption of consent..."

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

    According to the Replacement Unitary Development Plan where I am, there already is a presumption in favour of development and has been for years. So that would appear to be "no change".

    That presumption is then tested against various criterions. I'm not aware of any proposals to change that basic principle.

  • Comment number 37.

    All this user's posts have been removed.Why?

  • Comment number 38.

    33. At 13:03pm on 29th Mar 2011, Batster wrote:
    I understand that most of the people that lost money with ill thought through and leveraged financial products lost their jobs when the fools market that allowed those products to exist was seen for what it was.

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

    Fascinating post!

    What exactly is your understanding based on? I would be interested in knowing, since my understanding was that basically almost everyone involved at high levels kept their job, and the higher up the organisation they were, the less likely they were to lose their job.

    In other words, the opposite of what you would expect, since in most situations being higher up and better paid entails more responsibility when it all goes wrong. Very happy to be put straight on this, but evidence, please!

  • Comment number 39.

    #34. At 13:07pm on 29th Mar 2011, NorthSeaHalibut wrote:

    Maybe others can't factor in rate rises due to reducing incomes and steep inflation. Just a thought.


    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Thats no reason not to factor it in. You should factor in expected rate rises, inflation and fall in income.

    Would you argue, "i cant afford business rates so i wont factor them in". No, beacuse you have to pay them. As your business plan essentially demonstrates your expected profit level at different turnovers and how to achieve this, by leaving things out you're just fooling yourself and building up a nasty surprise later when you find out your actual profit is lower than expected, or even a loss.

    Just a thought.

  • Comment number 40.

    26. At 12:49pm on 29th Mar 2011, burnallmoney wrote:

    The recovery is in danger of being overstated!

    .................

    I read the whole report and not the headline so this line needs to be stated here

    The criticism is of the IFRS framework. There is no suggestion RBS or any other British bank has broken the accounting rules.

    However, if IFRS was brought in because of Enron and therefore all banks had to comply, surely they would have done a parallel run with existing systems before moving over in 2005. If they had, it would have been spotted that IFRS was massively overstating assets compaired to GAAP (in the UK).

    Call me cynical, but would bankers have realised that this change in the accounting system would mean bigger bonuses. If they did, then they kept their mouths shut thereby allowing the risks to build up in the system.

  • Comment number 41.

    Fair point Robert, but don't be giving us the impression please that the only source of money for an investment-led recovery is bank borrowings!

    There is an awful lot of cash out there doing very little at the moment, and those companies holding it are in a fabulous position compared to their borrowed competitors, who just cannot invest and take any big bets at the moment. The cash rich guys should start doing what they're paid to do and go out there and risk money on the development of new products.

    And this whole obsession with small businesses (of which i am one) being totally reliant on being able to borrow more money is a load of rubbish. The SME sector in the UK is LESS BORROWED, for heaven's sake, than the large company sector that the CBI represents.

    But this question was always going to arise with any state-ownership of banks - the extent to which making money on a few shareholdings should influence overall economic policy.

    The answer is, of course, hardly at all.

    We absolutely must not be diverted from the end result required which is nothing less than a "new financial system" in the UK..... not totally biased against the ordinary person, and in favour of the few tens of thousands of people in the City of London - the banking UberClass - that use 'our' implicit state guarantees to perpetrate a tens of billion pound heist over us.

    This new financial system HAS to offer, very fundamentally, the elimination of any semblance of a state guarantee to all banks.

    And we know the elements of this:
    - the complete separation of retail from casino banking, and hence the separation of any type of government guaranteed money from investment banking
    - much higher capital requirements and levels of disclosure imposed both on the casino banks and the retail banks.
    - a transaction tax to get rid of high frequency micro-second trading
    - the abandonment of tax subsidy to corporate debt interest

    We must expect the bankers to kick and scream and continually threaten to move elsewhere - but, for the sake of 99% of our countries population, let's see it as pure unadulterated self-interest.

    If me and my mates £6m p.a. jobs were at stake, we'd sure kick up a hell of a fuss!


  • Comment number 42.

    28. At 12:54pm on 29th Mar 2011, rock_and_roll_economics wrote:

    @nautonier re #16

    I can't spot the typo you mentioned... please enlighten me...
    ..................
    Post 11 - 7th word of the last paragraph should say ... 'legal' ... as corrected in my follow on post (No 16).
    Sorry about that ... Trying to type in too much of a hurry!

  • Comment number 43.

    Personally I am more inclined to the regulators side than RBS'. 7% capital seems too low. Historically (ie pre 2000) most banks operated on a 8-10% capital cushion and I see no reason why that should not be required again. It also seems reasonable that systemically vital banks - in other words the big ones - hold more capital than smaller banks. So maybe the rules should be 8% for small banks and 10-12% for the big boys.

    If that reduces profits at RBS so be it.

    I saw from this morning paper that it has been pointed out that the international accounting rules resulted in bank profits being flattered and that real profitability in 2006-8 was lower. The accounting rules is something I have commented on before. This rules have to be changed

  • Comment number 44.

    Of course regulators are the biggest threat to the financial system - although not in the sense meant by RBS. I have had many dealings with the FSA in the past (as an insurer rather than a banker) and I can confirm two things about the FSA. Firstly, they know nothing about what they regulate. I had to explain basic terms and facts about insurance to their staff. Secondly, they recruit the dregs of the industry who are unable to hold down jobs in companies. This is partly because the salaries and opportunities they provide (at junior and middle level) are uncompetitive. The result of such recruitment is staff unable to carry out their function of regulating and, in some cases, with a grudge against companies for recognising their shortcomings and refusing to employ them. The reorganisation of regulation may help a little, because the BOE is certainly more competent than the old FSA but regrettably the functions not being transferred to the BOE will simply be used to build a new empire by the inadequates left behind. As for banking capital requirements; it rather depends on how they are applied. A classic problem is the difference in oversight between nations. In the UK assets (including property and mortgages) are written down to lower values when prices crash. In Spain all the banks (including those with international operations) continue to hold such assets in Spain at par. Unless regulation is not only international but also supervised internationally the problems will just migrate to those jurisdictions which provide easy terms of business.

  • Comment number 45.

    Well, the solution for Mr Hester's problems is very simple:
    - Spin off RBS' Global Banking and Markets via an IPO

    If it's such a great money maker on it's own, then surelly the stock market would be paying a premium for it.

    RBS would then:
    - Receive a large one off sum from the sale of RBS GBM which would go to buy back some of the share of the bank that's in the hands of the state.
    - Not have and investment banking arm anymore and thus not be subject to the higher capital ratios that are needed to compensate for the increased riskiness of investment banking operations
    - Focus in their core competencies of Retail and Commercial banking
    - Reduce their political exposure in issues such as banker bonuses (most of such bonuses are paid in the investment banking arm)

    Win, win, win!

    Of course, if RBS GBM's success is mostly due the implicit government guarantee that RBS has because to their Retail and Commercial arms and thanks to having access to loans directly from the Bank of England (at laughably low rates), then it wouldn't exactly be worth much once separated from the main RBS.
    But then, if RBS GBM is dependent on the guarantee and cheap money from the UK state, that means it's being state subsidized, and we can't have that in a real market economy now can we ...?

  • Comment number 46.

    Good tightrope walker required. This will test Osborne's new financial management arrangements & the ability of the Government to get its fiscal/expenditure/monetary & regulatory policies proerly synchronised. So far, the omens don't look promising. We also need to ask, how will these policies ensure that our economy is "re-balanced" (ie financial services, notably banking, play a less important role in the economy).
    Perhaps Osborne & his chaps in the Treasury might put their "genius" minds to this.

    Incidentally - one of the things that never seems to have emerged from the 2008> crisis is what the Treasury were up to. Did they warn the previous Government from c2005 onwards that too much revenue was coming from, in effect, a financial bubble? Or were they so busy helping Gordon Brown try to run the whole of government that they,too, took their eye off the ball & failed in one of their central functions?

  • Comment number 47.

    The banks should have the ability to opt in or opt out of being regulated!

    As long as the following is made clear.....the government will only save or provide a "safety net" to investor/shareholders, employee's and most importantly the banks customers if they "opt-in" to a new more stringent regulation
    or
    If they choose to opt-out then all who take part risk winnning/losing it all!
    That the banks clearly state this to all concerned...... the investor/shareholder, employee and most importantly the customer can then decide!

    "takes your money, takes your choice"

  • Comment number 48.

    #39
    You budget for business rates as a known constant, you factor in affordable unknown variables as a ptecautionary messure. See "Affordable".

    Keep thinking.

  • Comment number 49.

    > Which is why it is important to us that banks hold enough capital to
    > minimise the risk of that kind of disaster happening again, but that
    > they are not forced to build up their capital recovery so fast that
    > our insipid recovery is choked off into a new slump.

    The other way to reduce risk is to wean those bloated, greedy bankers off the giant bonuses that drove them to cause the credit crunch in the first place.

    When we see the bonuses reduced way down to almost nothing, then we can afford to allow banks to build less capital. If bonuses remain high, then banks will be compelled to reduce risks in ways that more painful for them.

    We must let greedy bankers decide: cut the bonues, or increase the capital ratio and be size-taxed. One way or the other, their threats must be cut down to size.

  • Comment number 50.

    that's strange, Hester didn't mention "the main risks" as a housing downturn in the UK and exposure to Portugal and other euro area banks, and having to be bailed out by the UK taxpayer again??

    who does he think he's kidding?

  • Comment number 51.

    18. At 12:05pm on 29th Mar 2011, DeusExMacintosh wrote:

    Uh, no. Members of the public are the main risk...
    ....................................

    With comments like that as aimed at us peasants ... the situation/debate is unlikley to be anything other than 'tasty' ... unlike RP, I avoided saying it would be 'nasty'

  • Comment number 52.

    @ nautonier re #42

    You will find that YOUR comment (with the typo) was #10
    #11 was MY TYPO-FREE comment... :-)


  • Comment number 53.

    34. At 13:07pm on 29th Mar 2011, NorthSeaHalibut wrote:
    #23. At 12:43pm on 29th Mar 2011, Decentjohn wrote:

    "As a business owner I have factored in rate rises to my budgets - I am surprised that others have not."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Maybe others can't factor in rate rises due to reducing incomes and steep inflation. Just a thought.

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

    I cannot do anything about the reducing incomes of others - I do however face the same rates of steep inflation - and that also has to be factored into my business plans.

    Just a thought - If others at both a personal and business level did the same planning perhaps we woulld not be in such a mess

  • Comment number 54.

    Glass Steagall act was not popular amongst bankers: It was repealed in 1999
    The argument for preserving Glass–Steagall (as written in 1987):
    Conflicts of interest characterize the granting of credit (that is to say, lending) and the use of credit (that is to say, investing) by the same entity, which led to abuses that originally produced the Act.
    Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.
    Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
    Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

    The argument against preserving the Act (as written in 1987):
    Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.
    Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.
    The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.
    In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.

    I wonder what happened?

  • Comment number 55.

    Einstein once said; "Insanity is this; doing the same thing over and over again and expecting different results". For some reason, this seems to be most fitting of the banking industry.

  • Comment number 56.

    49. At 14:26pm on 29th Mar 2011, Jacques Cartier wrote:
    > Which is why it is important to us that banks hold enough capital to
    > minimise the risk of that kind of disaster happening again, but that
    > they are not forced to build up their capital recovery so fast that
    > our insipid recovery is choked off into a new slump.

    .........
    I believe most of this 'insipid recovery' seems to be more to do with QE money printing that any other real recovery, but I suspect the effects of QE are beginning to wear off. Or perhaps the next GDP figures will 'surprise me'.

  • Comment number 57.

    It seems that there is some opinion that we can regulate against all risk......you cannot. The longer we take any risk the more likely it is that that risk will occur, no matter what the odds are against it are. The only thing you can do is reduce the losses if the worst happens.

    For example, our roads are policed, regulated by law and we have to be licensed to drive on them and yet still people die on them every day. Would more laws save lives? Possibly, so at what point would we cease to regulate to stop RTA's. A blanket 5mph speed limit would probably stop all road deaths in the UK!!

    Gordon Brown believed that under his chancellorship the boom bust economy was gone forever only to have a completely unexpected set of circumstances lead us into the credit crunch. To extend the earlier metaphor this would be similar to believng that now we had a 5mph speed limit there was no necessity to drive with our eyes open.

    The credit crunch was so catastrophic because banks had become too big, felt themselves to be invulnerable and assessed their risk accordingly. What was the solution? To save a bank that was too big to fail and create one that was too big to save should we have a recurrence of 2008.

    The only way to limit the damage from the unforeseen is to spread the risk among many smaller banks. The essential action that will not be taken is to use the opportunity of owning RBS and much of Lloyds is to break them up into smaller units.

    We may of course inadvertently turn them into smaller banks by over regulating and hence damage our investment and if we under regulate we could find all our eggs in one basket case. The line drawn between the two will move with the times.

    Why will we not take break the banks up? They have become too big and powerful and once they are back in private hands it won't be long before they start plotting to change by stealth the regulation we impose today in any case.

    Slumps, recessions, and downturns are inevitable but if Lloyds went the way of Lehman Bros then so potentially does the UK and that seems as ludicrous as driving with your eyes shut.






  • Comment number 58.

    Someone should explain very clearly to bankers that they cannot expect taxpayers to insure them against bankruptcy and not accept whatever degree of regulation taxpayers regard as necessary to eliminate all risk.

    Perhaps they would prefer the only fair alternative, which would be to allow them to operate as they wish, but to make it very clear to them, their depositors and their shareholders, that there would never again be any possibility of them being bailed out by taxpayers. They would be required to explain the situation very clearly to their customers, who might wish to bank elsewhere.

  • Comment number 59.

    53. At 14:57pm on 29th Mar 2011, Decentjohn wrote:
    34. At 13:07pm on 29th Mar 2011, NorthSeaHalibut wrote:
    #23. At 12:43pm on 29th Mar 2011, Decentjohn wrote:

    "As a business owner I have factored in rate rises to my budgets - I am surprised that others have not."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Maybe others can't factor in rate rises due to reducing incomes and steep inflation. Just a thought.

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

    I cannot do anything about the reducing incomes of others - I do however face the same rates of steep inflation - and that also has to be factored into my business plans.

    Just a thought - If others at both a personal and business level did the same planning perhaps we woulld not be in such a mess
    .........
    Awful lot of assumptions. People dont plan to be made redundant. They cant plan to have the wages eroded by infllation. They cant plan for business owners to offer no pay rise or below inflation ones in order to preserve profits. They dont plan for the government to freeze public sector pay rises. Many factors are outwith personal control. You cant blame people for not taking into account these things over which they have very little control. I suspect you would object if these same people took to the streets to argue for pay rises in line with inflation.

  • Comment number 60.

    54. At 15:01pm on 29th Mar 2011, Dillers wrote:
    Glass Steagall act was not popular amongst bankers: It was repealed in 1999
    The argument for preserving Glass–Steagall (as written in 1987):

    .....
    My recall is this act came into being after the 1930s crisis. So much time has passed, so little learnt. Shows what happens when you trust the banks. It suggests that we should stop listening to their whinging and make the necessary changes that are required.

  • Comment number 61.

    57. At 15:38pm on 29th Mar 2011, Abysmillard wrote.
    "Slumps, recessions, and downturns are inevitable but if Lloyds went the way of Lehman Bros then so potentially does the UK and that seems as ludicrous as driving with your eyes shut."
    I dont think they are, when you understand the real cause. Its the failure to tackle the causes and focus on the sympthoms that is the reason why they keep happening. We never seem to learn the lessons of the past as we allow vested interests to prevent change.

  • Comment number 62.

    Did you plan for the credit crunch then?

  • Comment number 63.

    Interest rises from the BoE this finacial year? And regulators should back off? Wrong on both counts. I bet he'll still be raking it in though come next bonus pot decision time.
    Bankers eh? Don't you just trust 'em. And the time for remorse is over, so they say.

  • Comment number 64.

    Afternoon Robert,
    regulators are not the main risk and that nice Mr Hester knows it!
    I understand that the "too big to fail" banks are now larger in terms of liabilities than they were during the crash of 2007-8.
    Would you care to comment on that aspect Robert?

  • Comment number 65.

    #59. At 15:42pm on 29th Mar 2011, Averagejoe wrote:

    "Awful lot of assumptions. People dont plan to be made redundant. They cant plan to have the wages eroded by infllation. They cant plan for business owners to offer no pay rise or below inflation ones in order to preserve profits. They dont plan for the government to freeze public sector pay rises. Many factors are outwith personal control. You cant blame people for not taking into account these things over which they have very little control. I suspect you would object if these same people took to the streets to argue for pay rises in line with inflation"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Absolutely. I don't want to blow any trumpets here but I manage a corporate property budget of £22Million and if anyone would like to tell me how to manage unknown variables I'd appreciate it. I have to counter company insolvency, inflation, salary fluctuations but worst of all government policy. Most of the costs incurred are reactive totally unknown and impossible to budget for, rent reviews, service charge reconciliations, rating list appeals, dilapidations and maintenance outside mandatory scope all are unknown until they hit my desk. My only choice is to pool money and hope.

    Linear costs like rent, rates, fixed contracts etc are piece of cake and put no stress on business plans, unknown variables however can bring the house down so I have deep sympathy with small buisnesses, anyone with affordable factoring provisions has a luxury most do not have as I know to my cost when companies crumble mid project.

  • Comment number 66.

    #59 AJ - I take your point in that if one is at or near the poverty level then your argument about lack of control - is true but the vast majority of the rest of us have choices. If one chooses to use up all the income and borrowing capacity one has - leaving no margin for circumstances that are 'beyond ones control' then when it rains it pours. I guess decent johns point is that this isnt very wise. The banks werent of course very wise by leveraging their position to the hilt without making sufficient capital provision for the downside. The fact of course that the fluctuations are so large (i.e the volatility) is what many have had difficulty coping with. In general one can reflect that a 50 year party of increasingly cheap money = debt has changed our society to the point where the majority of families have trillion times more stuff then they would have had in 1950, but also substantially more debt. Some reballancing would seem to be a good long term plan - including the part about margins ie contingencies for when **** happens - ditto the banks.

  • Comment number 67.

    @ 57. At 15:38pm on 29th Mar 2011, Abysmillard wrote:

    > Slumps, recessions, and downturns are inevitable

    That sounds like some article of faith. You'll have to back it up if you expect anyone to believe that. I would have thought that a fair goal is to avoid slumps, recessions, and downturns!

    > if Lloyds went the way of Lehman Bros then so potentially does the UK

    Then make sure that those who operate Lloyds know they'll be put in jail forever if that transpires.

  • Comment number 68.

    62. At 16:17pm on 29th Mar 2011, Abysmillard wrote:
    Did you plan for the credit crunch then?

    ...........
    No. But then I knew very little about all this before the credit crunch. I have spent a lot of effort increasing my knowledge base since. There were a number of people that predicted the credit crunch/downturn, but they were dismissed by the mainstream as being mavericks. We should listen to these people more. At present they are still being ignored because those in a position of responsibility dont 'like' what they say. Like I say, so little seems to be learnt. Science would never had made any progress with such an attitude. I dispair. What makes economics so different?

  • Comment number 69.

    Yes and it is human nature a factor that you have to account for and learn from. We will have wars, fraud and human error until the second coming and a vested interest is just another way of saying interests in which we do not stand to profit from, therefore any interest is in some way 'vested'.
    There were several causes of the crunch. Greed, complacency, expedience, incompetence, arrogance...........etc. How can we legislate against human frailty?

  • Comment number 70.

    Robert wrote :
    However far more importantly, the banking crash of 2008 may have condemned us to years of below-par growth. Which is why it is important to us that banks hold enough capital to minimise the risk of that kind of disaster happening again, but that they are not forced to build up their capital recovery so fast that our insipid recovery is choked off into a new slump.

    We are already in that slump, and its only going to get worse for the foreseeable future, our commitment to bailing out other countries in trouble far and away outweighs any cuts the Government envisage.
    All money that has been put into the system has just gone straight to the bankers balance sheets we are deluding ourselves that we will ever get a return to match the guarantees we have given, how much is the going rate for insuring 222Bn of losses ??? and thats just 1 bank !!!

    The only time i will ever believe a bank is sound is when they can turn round and say they no longer need the depositors Guarantee, and that isnt going to happen .

    Its a very cute move from Mr Hester to now pass all responsibility to us for how well his bank performs, damned if we regulate, damned if we dont....

  • Comment number 71.

    For all your savvy in predicting the crunch, Robert, you have rather missed the boat about its aftermath.
    What is wrong with Britain at the moment is not that its banks are too big too fail, rather it is that its nationalised and part-nationalised banks are being made too-small-to-succeed.
    At RBS they are completely right to see that the future risk to both the RBS and UK plc as a whole comes from knee-jerk and Pestonite Regulation along the line that Banks must never again be allowed to fail;that to do this we must ensure a lending squeeze, a property slump , and a contraction of our financial services sector; and thereby that we must keep our economy down in the dumps for the next 10 years.

    But all the awfulness of what happened pre-crunch is nothing compared to the impact of the negativity following the crunch.

    Why should we not not go down an uber-regulatory road?

    Because nothing ventured, nothing gained.
    With over-regulation you get:
    No borrowing.
    No chance for entrepreneurs.
    No risk.
    No development.
    No profit.
    No work.
    No spending.
    No tax receipts.
    No reduction of public sector deficit.
    NO WAY TO RUN AN ECONOMY!

    Consider this ..... with mortgage lending at an all-time-low, a slump in which the fall in lending was far greater than even in the nineteen thirties, why is it that property prices have held up ? How come the wipeout did not happen ?
    In part it was with interest rates dropping so low to avoid a slump.
    But it is also because of the extraordinary resilience of the British people.
    Is it not due to the fact that demand is still high, that borrowers have been cautious, lenders have been cautious,that debt is actually far from toxic, and that the lenders have shown plenty of good governance?
    Is it not the case that banks which have had their fingers burned self-regulate, and reduce lending, and increase margins, and minimise risk of their own accord ,anyway?
    And have done so without the over-reactive regulation you so crave!
    The very excesses of the system result in a sef-correcting crash , albeit one that the public had to dig deep to bail out.
    But rather than seeing the banks as corporate disasters unworthy of salvation, it is actually more sensible to look on them as the guardians of our houses, our savings, and of our futures.
    Saving them was the only right and proper thing to do.
    We did not bail out the banks, we bailed out ourselves.
    Letting them fail would have been bonkers, and letting them fail in the future would also be bonkers.
    Shrinking them to the point that their failure is also irrelevant is also equally self-destructive.
    It was broke and it is getting fixed, so for goodness sake do not smash it up again with further masochistic restrictions on already minimalist levels of borrowing.

    You have well and truly done the crunch, Robert, but is there not another journalist out there who can tell us about a boom?

    And is the crisis not as much about a crisis in valuation, a loss of faith in our recent and present prosperity and in our future prosperity , such that we stopped believing that we can be what we can be?
    Note that stock markets can close when prices fall more than a few percent.
    Is there an argument for doing this with corporate loans and with property too, so that sudden denials and expiries of credit lines, and idiotically low valuations are not allowed to happen , as they are more dramatic, less realistic ,and more de-stabilising than the property price increases usually decried as insane bubbles.
    And yet amazingly , there has not been the massive slump in actual demand that was predicted.In UK, though it has happened in Ireland, Iceland and America.
    Certain sectors.....some commercial deals, some speculative apartment developments, were badly affected.
    But many of the builders, most of the banks' customers ,most of the workers and business ....have survived. A lot of basketcases went under, and quite a few otherwise viable projects were lost, but in the main we are still here.
    Because life goes on, we really do move on.
    People still want to extend, move uptown,downtown or out to the country, get a garden, buy a love nest, a student flat ,make an investment, upsize,downsize, cure burnout,get out, come out, comeback , regroup, recoup, recover and regrow.
    Surely we need to relax the lending regulations just now, when lending criteria are tighter than ever, and let the cycle restart!
    When and if funding becomes available, is a rise in property prices coupled with judicious lending not the way forward?
    Increased asset values will result in greater equity allowing the sale at a profit of those assets currently in limbo and not on the market... in limbo because why would you sell at a loss if you did not have to ?
    Because that way people can pay backtaxes, sell up and even pay CGT , while new buyers will pay bank fees, stampduty, legal fees, estate agents can re-open, builders can start building and normal service resume.
    Because I don't know about you ,Robert, but the rest of us are crunched out ...and feel that cyclicality for all its perils, is a lot safer than the joyless doldrums you want to condemn us all to.

    Amore upbeat valuation of the assets held by banks would go a long way towards making the toxic assets a lot less risky and re-establishing stability.
    The banks failed because of shareholder panic causing market capitalisation to crash, media-frenzy-inspired deposit withdrawals , a sudden inability to refinance mortgage bundles ,and the loss of the ability raise funds on rights issues ......much more than it was about levels of deposits in relation to the amounts being lent out.

    You are not factoring confidence into your equations Robert.....it may be nebulous but it is absolutely vital.
    And over -regulation will smash confidence by shrinking the pool of funds available.
    Let a new age of Economic, Optimistic Post-Apocolyptic Re-appraisal begin!

    Onward Economics!

    Because life is for living, and we all need cash to do what we have to do.

 

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