Saturday, 22 December 2012

Nobody move or the puppy gets it!

Splendid bit of shroud waving by the bankers in yesterday's Evening Standard:

Homeowners could struggle to get mortgages under proposals to stop a repeat of the financial crisis, banking chiefs claimed today.(1)

They also argued that small businesses may continue having difficulties obtaining loans if the blueprint, by the Parliamentary Commission on Banking Standards, is adopted.(2)

Today the commission, led by senior Conservative MP Andrew Tyrie, urged ministers to beef up government plans to ringfence banks’ risky investment operations from savers’ deposits...(3)

But Anthony Browne, chief executive of the British Bankers’ Association, claimed the commission’s proposals would impact on bank customers. “They urge for a smaller leverage ratio, and this could mean there is a constraint on business for banks (4) — they could actually be banned from offering mortgages even to good, safe homeowners: non-risky mortgages.”(5)

1) That bit beggars belief, if people already own a home, why would they need a mortgage? They might already have one, but as long as they keep paying, everybody's happy.

2) The debate rages as to how important bank lending to business is in the first place.

3) The plan itself is a bit pointless, and would do nothing to prevent leveraged land-price bubbles, but hey.

4) Outright lie. Increasing the ratio does little or nothing to influence the total amount of lending, all it means is that banks will have to finance themselves with relatively more share capital and relatively less debt or bonds.

5) If you are a borrower in this category, you have nothing to worry about, and these are the kind of loans which banks will always be able to make. It's the younger people with lower deposits etc who are being frozen out. If house prices were eventually to fall, then that would turn out to be a blessing in disguise for them, but Homey policy appears to be to try and concentrate land ownership in fewer and fewer hands, which is why high house prices coupled with strict lending rules pretty much hit the spot as far as they are concerned. Banks just want to collect as much land rent (in the form of mortgage interest) as possible, and they are probably happier collecting it from a BTL landlord than a first time buyer.


Ben Jamin' said...

Savers deposits are loans to banks. It's just this kind of bullshit doublespeak that causes all the trouble in the first place.

Rule number 1. There is no such thing as a free lunch. (economically speaking of course)

Mark Wadsworth said...

BJ: "Savers deposits are loans to banks."

Yes of course, the ratio they talk about is between shareholders funds versus savers' deposits.

The question is, which side of the line do bank bonds fall? Some are more like share capital, some are more like savers' deposits, but they can easily be changed into share capital.