Wednesday, 13 September 2017

"It's different this time"

From City AM:

British banking is an “accident waiting to happen”, according to a new report from think tank the Adam Smith Institute marking the 10-year anniversary of the Northern Rock crash.

Today’s paper, authored by Durham University finance and economics professor Kevin Dowd, also claims the Bank of England’s stress tests are “seriously flawed” and that banks are still too highly leveraged...

“It is disturbing that 10 years on from Northern Rock, the best measures of leverage – those based on market values – indicate that UK banks are even more leveraged than they were then. The biggest risk facing the UK banking system now is the Bank of England’s own complacency...”

The findings of the report have drawn criticism from a number of figures, including Jayne-Anne Gadhia, chief executive of Virgin Money, which now owns the “good” assets of Northern Rock.

“My experience, and the objective data, say to me that the interventions that have been made since Northern Rock crashed mean that a crash of that type, in my view, could not happen again,” she told City A.M.


There's a credit crunch/land price bust every eighteen years, no amount of banking regulation will prevent that, you've got to change the tax system (or adopt other measures to depress land prices).

Even if that were fixed, banks are run by criminals. There's another scandal every couple of years. There's a good list here. Libor fixing, PPI mis-selling, totally unnecessary interest rate swaps, money laundering/assisting with tax evasion, and rigging exchange rates. Not to mention the usual background insider trading, market rigging, overcharging etc. And that's just UK banks. I once found a longer list going back decades and all of it seemed rather familiar.


Lola said...

And those 'banks that are run by crooks' include - IMHO - Central Banks, who patently 'rig interest rates every day'.

Lola said...

Oh, and one other thing, as I keep reminding everyone we the FS industry were told to sell PPI.

And there is no such thing as 'mis-selling'.

Mark Wadsworth said...

L, I knew this story would cheer you up.

Graeme said...

So portfolio theory has been telling us for years to diversify across asset classes. What do banks do? They all follow the bandwaggon and do whatever the other banks are doing. So it becomes systemic risk and, if one bank goes, it's touch-and-go as to which banks survive

Lola said...

MW. Yeah. Well. The tragedy is that banking as a service of account management and the supply of credit is a very useful thing indeed. And fundamental to a functioning exchange economy. I have met a lot of good bankers in my time (and a lot of absolutely useless ones). The problem is that for complex reasons that have little to do with competitive capitalism banking has become corrupted. Those reasons are largely down to government and bureaucratic failure and the financing of the Ponzi welfare warfare state.