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The £1.3 trillion pound question: what should we do about the banks?

It was a big week for bankers and their customers as the US published its analysis of what went wrong and the row about breaking up the banks picked up pace.

 
The £1.3 trillion pound question: what should we do about the banks?

Taxpayer-owned banks have had a pretty difficult week. Alongside weak economic figures, there has been talk of greater regulation and the incessant chatter over whether the banks should be broken up.

Splitting the banks

On Saturday, the chairman of the Independent Banking Commission, John Vickers, made it clear that he and the other four members of the panel were considering a variety of ways of spitting up the banks. These range from forcing a complete separation to ring-fencing some activities and separating the finances of different business units. 

This barrage of news was reflected in the banks' share prices with RBS down nearly 4% over the week and Lloyds down more than 7%.

Given that the government has an 83% stake in RBS and a 41% stake in Lloyds that means we as taxpayers also lost money, and we were already sitting on a loss with shares trading below the price the government paid for them. The public finance figures this week showed just how much it has cost us to save the banks: £1.3 trillion.That is the official assessment of how much more in debt the UK is because it helped to prop up the banks.

Further losses?

There were plenty of warnings this week that we could lose even more.

David Cooksey, chairman of UKFI (the body which looks after the taxpayer interests in Northern Rock, Bradford & Bingley, RBS and Lloyds), pointed out on Thursday that uncertainty about what might happen is weighing on shares and that he may struggle to secure a profit on our investment if the banks are broken up.

UKFI's chief executive Robin Budenberg warned that clamping down on banker pay may also be damaging to our interests as taxpayers. Of course we have to weigh that against the risks that were taken in the name of making profits. Cooksey conceded that concerns about making a profit could conflict with our desire to improve customer service and grow competition.

Who wants what

On Wednesday, with the publication of a summary of responses to the banking commission, we were provided with a clear steer of what groups as diverse as Which?, Yorkshire Building Society, Lloyds and the unions think should be done.

At over a thousand pages, reading them all is a daunting task, but the views provided plenty of food for thought for us all.

The 150 submissions make it clear that whatever the commission recommends and whatever the government finally decides to do there will still be risks.

A bigger buffer

One other area of concern for us as consumers is the debate about how much cash banks set aside in case things go wrong.. Bank of England governor Mervyn King has always said that current rules remain too low.

A Bank of England discussion paper this week suggested banks need to lay aside twice as much as the current rules suggest.

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63 comments so far. Why not have your say?

Mike Hardy

Jan 28, 2011 at 17:49

As soon as possible the banks should be broken up with the risky parts set aside. Those risky parts should be allowed to fail in future. The parts that are necessary for us to function as a society should not be allowed to take any risks at all. In fact I would condider nationalising them.

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jeff lampert

Jan 28, 2011 at 18:14

I am clearly very very stupid!

As I see it, I am told we needed to bail out the banks in 2008, for whatever reason.

I am also told that due to "fractional banking" the banks have the right to produce money out of thin air.

I am also told we need to pay "Fabulous" bonuses so that the banks have the most brilliant minds to make profits

Then we are told that there are "plenty of warnings" if we do not bail them out again, they will go bust.

Someone tell me what i am obviously missing

PLEASE.

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Anthony Tinslay

Jan 28, 2011 at 18:47

No Jeff - you are certainly not stupid although a little basic common sense might answer your quandary. You are forgetting about a) Human greed; b) Balls, Brown and other buffoons who showed no responsibility in looking after taxpayers monsy as well as cutting back on Financial regulation and c) for good or bad we have a democratic capitalistic system.. All this leads to the 'fun' in the situation we have today. By the way it is the uncertainty of the current Vickers led commission that is responsible for lowering Bank share prices and that is why there is a paper loss on the Government 'investments' .

Wait another year when decisions are made and I would expect to see some handsome Taxpayer profits on the table.

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John B - (Not the sloop)

Jan 28, 2011 at 18:55

For the life of me, I do not understand why some "Nitwits" cannot understand that the problems that were created regarding the banks were due to greed and averice.

The banks were at fault for irresponsible lending to all and sundry, but the public and commercial entities were also responsible for their own greed, and the "Must have it now" culture.

"Liar loans were commonplace, we are all guilty for the present financial difficulties. Stop kicking the banks, the bank bashing bandwagon has run its course, we have everything to lose by doing so, our credibility. as a global business centre in London is at stake.

The banks have the expertise and incentive to get us out of this financial mire, let them get on with the task without further political hiderance. .

I am not a banker, in any sense of the word.

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Greg Bone

Jan 28, 2011 at 18:55

The "cost...to save the banks" will not be anything like £1.3 trillion. This is more like the figure for capital injections and nominal value of guarantees issued by the Treasury to support the system. A huge sum indeed but there is every possibility that the taxpayer may actually make make a profit upon liquidation of the bank holdings.

Certainly last March, as reported by Bloomberg, "Alistair Darling scaled back his estimate for the cost of bailing out Britain's banks to £6 billion from £10 billion". That is less than 0.5% of the figure quoted in your article.

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Dave R

Jan 28, 2011 at 18:56

The remaining four HSBC Barclays, RBS and Lloyds should indeed be broken up into perhaps ten banks. What we need is more competition, a return to good old fashoned and honest banking, Instead these mega banks do not know enen their customers except what they see on their computer screens and they treat their customers like dirt and exploit them at every available oppertunity Yes I say split these Banks up.

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Ines

Jan 28, 2011 at 19:03

John B '...the banks have the expertise and incentive to get us out of this financial mire' - they had the expertise and incentive to get us into it, and they still have the incentive to get us into it again - ie big bonuses!

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bb 42

Jan 28, 2011 at 19:39

Stop talking rubbish about lack of regulation you are the same people that don't want regulation.

Once the Capitalist system goes on a binge as has happened with the banks and happened with .com boom not long ago the momentum just can't be stopped.

I thought you lot who talk with marbles in your mouth would have understood Mrs Thatcher when she said you can't buck the market or have you lot just lost your marbles.!

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Jonathan

Jan 28, 2011 at 20:45

£1.3 trillion doesn't mean anything to a lot of people. When the government announces a figure they should also put it in terms of cost per household. There are approximately 25 million households in the UK. So £1.3 trillion represents a cost of £52,000 per household. That makes the figure £1.3 trillion much more comprehensible.

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Jonathan

Jan 28, 2011 at 20:58

In December 2010 the country's net debt is £2.3227 trillion

http://www.statistics.gov.uk/pdfdir/crbslbg0111.pdf

That is a debt of £93,000 per household. This doesn't include the additional PFI debt that we will be paying back for the next 30 years. Add to this amount any debts/mortgage your household has and also take into account that there are many households who's occupants are pensioners or non-working and you can see why Mervyn King is breaking bad news to us. There is nothing we can do individually to save the country, we just have to sit back, watch and see how Merv can devalue the GBP by keeping interest rates low and printing money to monetize the debt, the government can raise taxes and put a freeze on pay. These are there only tools to get out if the mess we are in.

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mikeran

Jan 28, 2011 at 22:03

The "Banks" is a generic term, and seems now following the recent US 633 page report to include not only the popular names lke Lloyds etc. but Investment bankers, and the well known Finance Houses of Wall st and the City of London. Not to mention Moodys. All of whom through Human error( not Computer Systems throwing a Wobbly), contributed to Job losses, bail outs , the Financial Mess, most of us will be paying for some time to come.

Those same people as well as Politicians are now charged with correcting it. But there is still a divergence of views on the method and direction needed. And some sections in part responsible for the mess, continue to operate as if nothing has happened and business is normal . Some indeed continue to prosper from this unstable situation. Indeed some hedge funds and Investment bankers pronounce their best ever profits.

Something is wrong here, when taxpayers finance bail outs and suffer job losses and wage freezes and higher VAT in order to foot this bill.

Now while the Taxpayer owned Banks are righting themselves and their progress will be measured during Feb. Results, their share price is controlled by trading organisations and continues to again generate profits for those same organisations at the expense of the taxpayer.

The result and conclusions of the Vickers Committee are by no means certain to provide anything sufficiently constructive to implement or to produce the results necessary to give a return to the taxpayer.

Do the Politicians really understand what has and is going on.??

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jeff lampert

Jan 28, 2011 at 22:22

mikeran

Does ANYONE understand what is going on?

Particuarly when you get "black swans" like Tunisia and Egypt.

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ICD

Jan 29, 2011 at 01:16

First point: let’s not concentrate on human beings. Many of them exhibit greed, or to make it sound better, respond to incentives. That won’t change soon, so let’s accept it. What we should do is re-organise the financial industry because it is out of control. Skilled teams can make money in casinos legally, (although the operators show them the door when they recognise them) and I believe experts on horse racing can make money from skilled betting. I don’t mind these activities going on, but I would strongly object if they were using my money to do it, and also the financial health of the whole country depended on it. On reflection, being human I probably wouldn’t object as long as they were successful. If an individual or an organisation carefully assesses some business and decides it is well run and has a good future I see nothing wrong in investing some money in that business. Corporate bonds, gilts, funds if properly managed by professionals who work hard and get results, all that seems perfectly reasonable to me. But we all know it is not like that. The casino banking is out of control. Retail banks are, however, essential and should be safe boring places, who will look after your money safely and give you 4 or 5% interest, and equally lend money cautiously and charge a slightly higher interest rate, and we can all live happily ever after. So banks should be split up. And there should be more competition. That’s why they make so much money. As a writer in the FT said a while back about bonuses, “we make all this money, what are we supposed to do with it? We pay out more to investors than anyone else (true at the time of writing, I think) and the rest we pay to ourselves”. The difficulty in sorting out the mess, apart from vested interests and getting the world to agree is that the UK depends rather heavily on all this dubious money generated by the financial industry, so the politicians, who want to be re-elected have to go rather carefully in how they handle reforms.

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Frankie Dee

Jan 29, 2011 at 04:02

Personally I cant see where 1.3 trillion came from secondly if the government acted like a sleeping partner not the big shot owner i am sure RBS Lloyds & Northern Rock will return handsome profits back and what they paid was a snip.

I am of the feeling LLoyds & RBS are trading at well below their true value primarily as every time the price climbs someone has to put their beak in to knock it back.

I topped up today another 25k shares in RBS this is Nat West Churchill & Direct LIne i also have no issue with the breaking up this will be a good thing that in due course will add more shareholder value.

I do not believe that the government will allow the taxpayers bailout to lose money so whatever happens will happen to secure the investment.

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Alan Cork

Jan 29, 2011 at 10:31

Did you mean to say spitting up the banks in your story? Was it bad proof reading or being angry enough to spit? The banks are completely responsible for our current economic crisis but there would have been rioting in the streets if the government had not bailed them out but allowed them to declare bankruptcy. What is responsible is greed and bad business practice by the banks in which loans and mortgages were marketed to people who could not afford them. It caused the 1990s recession and now it has happened again. Do we ever learn from the past or do we continue to make the same mistakes again and again? And why should anyone who had a hand in creating this crisis get a bonus? They are lucky enogh not to have been sacked.

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roger cole

Jan 29, 2011 at 11:41

ICD makes a lot of sense and especially:

The casino banking is out of control. Retail banks are, however, essential and should be safe boring places, who will look after your money safely and give you 4 or 5% interest, and equally lend money cautiously and charge a slightly higher interest rate, and we can all live happily ever after. So banks should be split up. And there should be more competition.

Amen.

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G M

Jan 29, 2011 at 12:03

Dear Deborah Hyde,

From where did you get this 1.3 trillion sterling figure... I guess from a wild dream!!!! This is absolute nonsense. The bailouts of Lloyds, RBS and Northern Rock all together did not total more than 130 billion sterling. This is only around 10% of your figure...

Do you mind explaining in detail how you arrived to this fantastic figure, or are you just a bunch of article dishing idiots!!!

Dr Omar Caruana

Malta

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mikest

Jan 29, 2011 at 12:18

I’m with Frankie Dee on this one. My guess is that Lloyds will be over 100p before year end, so I’m buying. This will represent a 61% gain which, added to my existing holding, will leave me 9.6% down on the whole sorry saga. Fortunately, if Jonathan’s figures are right, such a gain would just about wipe out our country’s net debt. Let’s hope the IBC recognise this probability and recommend accordingly.

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Jonathan

Jan 29, 2011 at 12:36

Frankie Dee, £1.3 trillion came from the UK National Statistics Website:

http://www.statistics.gov.uk/pdfdir/crbslbg0111.pdf

"In the period up to September 2007, before the classification of Northern Rock to the public sector, the level of public sector net debt (PSND) largely reflected central government’s net debt. By the end of December 2008, the classification to the public sector of, first, Northern Rock and subsequently Bradford & Bingley added around £130 billion to PSND. Including the Lloyds Banking

Group and RBS in the public sector finances, adds around a further £1,300 billion to PSND"

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Infrequent visitor

Jan 29, 2011 at 14:04

Re: the whole sorry saga, may I recommend an entertaining read. - The Game - How the City Really works, by Alex Buchanan (Elliott & Thompson Ltd.) and no, I do not know the author and nor am I being paid to plug the book.

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Greg Bone

Jan 29, 2011 at 16:35

Jonathan,

Those figures represents balance sheet items, not (so far) P&L items.

Liquidation of the Govt's holdings in RBS, Lloyds & Northern Rock should (providing that the populist posturing of the UK media, UK Govt & EU doesn't scupper the sale process) return a profit to the taxpayer (as others have pointed out).

Of course funding these investments adds to the Govt's interest burden but the true cost of bailing out the banks will be a tiny % of £1.3 trillion.

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Jonathan

Jan 29, 2011 at 16:56

Greg, With Northern Rock the profitable bit was sold of and the government kept the high risk loans that are more likely not to be paid. To say they will return a profit at this stage is just wishful thinking. Only after they shares have been sold back will the answer be known.

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Greg Bone

Jan 29, 2011 at 17:09

Not correct Jonathan,

As reported on Tuesday 18th January 2011 in the Independent:

"Northern Rock's return to the private sector was kick-started yesterday as UK Financial Investments, the body that represents taxpayers' interests in the banking sector, invited bankers to pitch for a mandate to work on "strategic options". "

And as the FT reported on 10th March 2010:

"Government officials said on Wednesday that the sale of Northern Rock could provide a modest windfall to whichever party wins the general election.

Alistair Darling, the chancellor, believes that the bank’s 2009 results – which showed that pre-tax losses narrowed to £257.5m from £1.3bn in 2008 – suggest that the taxpayer could make a profit from the sale of the “good” part of Northern Rock and the bank’s old mortgage book, which it is winding down."

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Jonathan

Jan 29, 2011 at 17:58

Greg, What do you mean by "Not correct"? Are you saying Northern Rock now is making a profit? Which bit of what I said do you think is incorrect?

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Jonathan

Jan 29, 2011 at 18:03

http://www.independent.co.uk/news/business/news/nationalised-northern-rock-split-into-two-1857451.html

Don't forget also that the BoE has had to keep interest rates at the historically lowest ever figures to prevent people who took out Northern Rock's 125%, 5 time salary mortgages from falling into arrears.

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Greg Bone

Jan 29, 2011 at 18:17

Fairly obvious what I meant.

No part of Northern Rock has not yet been sold of (sic). It may return a profit when it is.

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Greg Bone

Jan 29, 2011 at 18:17

Sorry for the typo. I'll ry again

No part of Northern Rock has yet been sold of (sic). It may return a profit when it is.

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Jonathan

Jan 29, 2011 at 19:02

Greg, lol, and you put "(sic)" - hahahaha!:

"No part of Northern Rock has not yet been sold of (sic) "

Is the (sic) for your double negative or just you quoting missing of an "f" from "off"?

What do you mean by "I'll ry again"? - hahahaha

Anyway, back to the point, Northern Rock was split into two separate banks in January 2010 with the objective of selling the profitable one and the government keeping the one with the high risk loans. The plan was to sell the profitable one off in the autumn. Do you know why they haven't done so yet?

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JohnKenyon

Jan 29, 2011 at 19:04

The US Govt is expected to make $20 billion on Citi Bank. Unless our Govt goes on mindlessly knocking the banks and the regulators cant control their impulses to overregulate the taxpayer should come out very happily from this whole saga.

And please Deborah Hyde PLEASE DONT KEEP TALKING ABOUT 'THE BANKS'!!!! It is a gross LIBEL on HSBC, Standard Ch and Barclays. You mean just RBSand Lloyds -and Lloyds were unreasonably pressured by the last Govt over HBOS it seems. NR was not 'saved'.

Smaller banks in general mean riskier banks - thats the evidence instead of the fantasy.

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bb 42

Jan 29, 2011 at 19:56

John Kenyon

Smaller banks mean riskier banks.

What a load of rubbish RBS wasn't a smaller bank.

And they are all benefiting from the artificially low bank rate the whole lot of them at the expense of savers.

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M Artian

Jan 29, 2011 at 20:23

Oh dear.

Here you earthlings go again with massive confusion about simple things like powers of 10.

Deborah talks about a 'trillion', yet according to your own earth-bound 'Wiipedia', this can be either 1 followed by 12 noughts (1 000 000 000 000) or 1 followed by 18 noughts (1 000 000 000 000 000 000). I think that most of you will realise that there is a difference.

Or perhaps not, and that may be why you are in such a mess.

Here is how we deal with powers of 10 on my planet ... I will use the example of number of bankers.

1000 bankers = 1 kilo bankers

1 000 000 bankers = 1 mega bankers

1 000 000 000 bankers = 1 giga bankers

1 000 000 000 000 bankers = 1 tera bankers

etc.

You might know that we can write these 000's in a compact mathematical way. So for example 1 000 is 10^3 (should be 10 (superscript 3), but you can't have everything. in e-mails).

Pity about your total lack of numeracy on planet earth.

M Artian

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JohnKenyon

Jan 29, 2011 at 22:00

Dont agree BB42! RBS made a bad business decision in taking over ABNAmbro which brought them down. They then did have a liquidity problem (although not insolvent) which could have been resolved by B of E promptly giving a guarantee to their depositors for a fee. I'm not convinced (also refer Tim Congdon) the Govt needed to take over control and destroy shareholder value.

But note BB42 I said in general smaller banks are riskier - think that's pretty obvious as they generally do not and cant spread their risk so much. We know risk is inescapably part of our wonderful cosmos!

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mikeran

Jan 29, 2011 at 22:28

Not only small banks and big banks-- Banks is a generic term to cover those parts of the Financial world involved in the demise of some and the bail out of others. Some have done well out of riding this train into the buffers, whether it be Lehman or Northern Rock to mention only a couple. of fallers.

BUT GS is amongst others putting up two fingers--

Wall Street firm Goldman Sachs Group has tripled the base salary of chief executive Lloyd Blankfein to $2m (£1.3m), up from $600,000.

And company filings show he was also awarded shares currently worth $12.6m, a 42% hike from the the stock bonus he received for 2009.

It comes even after the bank's profit fell 38% in 2010 to $8.35bn.

Banks were pressed to reduce bonuses in 2009 after the 2008 global economic collapse, largely blamed on bankers.

The financial system had been rescued by more than a trillion dollars of support from the US government, and there was public outrage from Main Street at the sums of money Wall Street bankers were being paid in salaries and bonuses.

But now bonuses for top executives for 2010 appear to be creeping higher again.

Last week Citigroup chief executive Vikram Pandit got a $1,749,999 pay rise days after the bank reported its first full-year profit since 2007.

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JohnKenyon

Jan 30, 2011 at 12:14

So Mikeran - why arent the shareholders complaining? Perhaps there's a reason??

I grant you that maybe shareholder rights need to be strengthened - shareholder forums?

But it isnt reason for others to bring in controls unless perhaps prhaps done internationally.

Dont we all need to get less obsessed about what others earn? Fraud needs combatting and we need free markets amap otherwise let it go and lets be thankful - these guys will never manage to spend it all in short time they have left!. I

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jeff lampert

Jan 30, 2011 at 13:23

What is in the "chatter" about?

The banks take our money.

They find exotic ways to gamble it in very large quantities.

When they win, they take bonuses.

When they lose they ask the taxpayer to pick up their losses 'cos they are to big to fail!

----end-----

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mikeran

Jan 30, 2011 at 15:05

JK- In reply I quote an extract from the 633 page US report of the Finacial Breakdown. " The report includes startling revelations, such That Goldman Sachs received nearly 3 billion dollars AIG bailout money for derivative trades it made with AIG on its own account. Goldman received the money after AIG's taxpayer rescue and it went straight into its own coffers, not those of its clients."

" Wall st. continued to create the Toxic Financial products that nearly destroyed the system even as warning signs of disaster were emerging"

" Charles Prince the former Citigroup Chief Executive , told the commission that a 40 billion $ position in highly rated Mortgage securities would " not in any way have excited my attention. Adding that he spent a small fraction of one percent of his time on those securities. " like Icarus they never feared flying ever closer to the sun " it states.

The report paints a striking picture of carelessness and risk taking practices. There were stunnig instances of governance breakdowns and irresponsibility.

From my own sidelines and of course my view I see little that has so far changed in this culture. But JK I feel sure some of the Shareholders were happy.Others perhaps need protecting.

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Brian Stafford Garthwaite

Jan 30, 2011 at 16:14

In the UK we have the huge deficit inherited by present Government - the difference between tax revenue and expenditure, the steps being taken to reduce costs and increase tax revenue are not in any way to be confused with the banking problems. We talk about "banks" - HSBC and Barclays were sound well managed Banks who took the precaution of raising extra capital to bolster their reserves. Reserves are used to make good losses which arise if customer cannot repay their loans. Lloyds were also a sound Bank but they took over HBOS who had lent out money which was unlikely to be repaid. Lloyds failed to undertake sufficient due diligence and it was only after they acquired HBOS that the problems emerged. RBS had also over extended itself - similar to HBOS. I would like to see the "high risk" investment banking activities separated from retail high street banking. Investment Banks should have no Govt guarantees and if not managed properly should be allowed to fail, - Lehman Brothers. Retail banks should be monitored by the Bank of England so that the bulk of their lending is financed by deposits received from customers together with a limited amount raised in the money market. This may mean the banks would have less money available for lending - something the present Government does not want to arise.As far as excessive lending to customers is concerned - well it takes two to tango - surely those who indulged in excessive spending on their credit cards and 125% mortgages must also accept some responsibility for the mess. I am NOT a banker,accountant,stockbroker or financial adviser - just a small investror.

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john errington

Jan 31, 2011 at 16:55

The bakers getting huge bonuses for "productivity" are investment bankers. We clearly need the very best minds for this so our banks make the best possible profit on investments.

HOWEVER ...

The investments are the stock market - and if one investor "beats" the market others must lose out as they are all picking from the same pot.

So why dont the bankers that do less well than the FTSE pay the bonuses for those who do better?

Bankers bonuses - like the funds they operate - are a big con.

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Jonathan

Jan 31, 2011 at 17:09

When the stock market goes up all bankers get massive bonuses, when it goes down they get small bonuses. The best tactic the banks can have it to have massive gains some years and massive falls other years. They seem to be achieving this quite well.

A better way for bankers' bonuses to be measured and calculated would be to grade their performance on how well their investments have done against the overall performance of the section of the market they are investing in. That way half the bankers would get no bonus as they would have done the same or worse than a robot would have done buying in the same market. As a disincentive to just gamble on outsiders they should get sacked if they are in the bottom 25% of the market performance and a pay reduction if they are in the bottom 50% of the market. That way you could get rid of bankers at whether the market is in a general upwards trend or downwards trend.

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joe stalin

Feb 01, 2011 at 09:29

Greg Bone is right. if the media backs off with their simplistic politically motivated nonsense and our hapless bunch of clowns in the Treasury, Government and the FSA stop their meddling with issues they don't understand we the taxpayers may actually realise a profit on our holdings in Lloyds and RBS.

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JohnKenyon

Feb 01, 2011 at 10:13

Of course Greg Bone is right - well .......almost.... the Govt WILL make a good profit from its investment (nothing was 'given') in RBS and Lloyds unless they plus regulators plus media plus the public insist on destroying the profitability of the whole UK banking sector. Time to listen to those who know something aboout banking instead of wild emotion and playing of politics - telling public want they want to hear and believe..

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dinker Waghmarae.

Feb 01, 2011 at 10:29

I agree with John B. I say avoid past mistakes.,But let the banks get on with what they do best-making money. They are the foundation of the Capitalist System which works best in a free environment. Dinker Waghmarae.

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Ines

Feb 01, 2011 at 10:51

We have no reason to believe that bankers know what they are doing, apart from stacking up bonuses for themselves. The screw up regularly - as a glance at the history books shows.

If they separate the investment banks and the retail banks then the investment banks can do what they like - but the taxpayer does not have to pay for their failure. Retail banks should be compelled to have a bigger reserve and to match the timescale of their lendings to the timescale of their borrowings, not lending long and borrowing short which is part of the current debacle.

It might mean that there would be less retail bank lending available for mortgages: the housing market might cool (to the joy of many I'm sure), on the other hand other lenders might come forward - after all a mortgage is a dependable income stream for your investment.

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JohnKenyon

Feb 01, 2011 at 11:49

Ines - again you are making the mistake of talking about 'THE BANKS'. Are you saying HBSC and others don't know what they are doing??? Thats not a balanced view! Like any business/person they wil from time to time make mistakes in an unpredictable world.

They dont screw up regularly! (Unless you mean every 50/100 years.) They are vulnerable to times when there is a total loss of confidence and that is where Govt support in the interests of the whole nation can play a part and charge for it.. In this credit crunch the last Govt took considerable advantage of the situation by grabbing a whole lot of shares cheaply. They then since then for political reasons have done quite a lot to undermine the banks and the regulators are now going over the top and it seems probably doing a lot more damage.

The banks over many years have made an enormous contribution to our wealth and the support of our people. Not out of charity of course but as businesses. We the public need to start pressurising the politicians to get real and start building confidence with sensible regulation and making UK attractive to all businesses including banking.

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joe stalin

Feb 01, 2011 at 11:57

The problem with a bigger reserve is that it produces no income. The banks are simply saying to raft of busy bodies pouring over them at the moment is that if you want us to hold absurdly high capital ratios then you can get stuffed when you come to us for a loan. The banks bought mortagage paper peddled by the likes of Goldman Sachs and certified as pucker by Moodies Fitch et al so to be able lend more and pay out more in interest to savers who were demanding ever higher returns on their money. As we all know well there is no such a thing as a fre lunch for most of us, the exception being Goldmans who knew the stuff they were peddling over here was toxic. The busybodies should be going after the crooks who sold the dodgy merchandise not the mugs who were legged over by the US investment banks and the rating agencies. maybe our banks should have been more street-wise and maybe Fred should not have gone after Amro and let Bobby Diamond have then instead. The fact is it has passed and we have survived. The body is dead and no amount of post mortem analysis is going to bring it back to life unless the halfwits get their way and create another Frankenstein's monster. If they stop screwing around with the banks we will even make some money if they are nice to them we will make much more.

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Jonathan

Feb 01, 2011 at 12:41

If anyone thinks it's that easy got the government (tax payer) to make a profit from the massive mistakes HBOS and RBS made think again. If the share price does rise to anything that looks like it would make a profit and the government decide to sell. Then what do you think would happen if the government put £1.3 trillion of shares (£52,000 per uk household) on the market? Does anyone really think the price would remain the same? - hahahaha! Also, just think where the money came from that the BoE used to buy these shares! It was just printed, created out of thin air, electronically by the BoE. That means that when these shares are sold back on the open market, £1.3 trillion is expected to come out of the economy to shrink the BoE's balance sheet back again. This amount of money coming out of the stock market can only have a negative effect on the entire uk stock market.

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joe stalin

Feb 01, 2011 at 13:00

Ever heard of share buy backs Jonathan?

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JohnKenyon

Feb 01, 2011 at 13:09

Very helpful comments Joe - thanks.

Johnathan - they wont put them on the market as you surely know?!

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Ines

Feb 01, 2011 at 14:27

John Kenyon - We all make mistakes, but usually we have to pay for them ourselves, we don't take the entire country with us.

HSBC - and Barclays - and Standard Chartered - were able to right themselves. Was this luck or was it judgement or was it just a function of their business being big enough to absorb the losses? HSBC were deeply into subprime loans in the US, for example. What is sure is that, for HSBC and Barclays (retail as well as investment - Standard Chartered not a retail bank in the UK) if they had been in trouble we would have had to support them and, especially in the case of HSBC, that would have been BIG!

I haven't got time to look it up but I think you will find that Nat West and some others made a big hash of investments in South America about 40 years ago and only made it through because the UK government allowed them to launch credit cards with obscene APR's which saved them.

If you look at Greg Pytel's submission to the Treasury Select Committee you will see what the destructive potential of our current banking system is. (Google his name, something will come up). It is very, very scary.

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Jonathan

Feb 01, 2011 at 14:53

joe stalin, whatever method is used to buy them back it still adds up to £1.3 trillion coming from somewhere which will be out of the economy to shrink the BoE's balance sheet back and there is little chance of the money coming from China again. Whether it's Lloyds that buy back the shares or the general market really makes little difference in this respect of the money coming out of the economy. Also, what will happen if house prices do not recover, the banks will be in even more trouble than they were before. It really is sad to see the Bank of England desperately trying to prop up the economy by fighting market forces. Some of use remember what happened when Norman Lamont tried fighting market forces in 1992 with some mad idea to prop the value of the pound up.

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G M

Feb 01, 2011 at 14:57

Dear Jonathan.... first of all this article was a big farse from the beginning since absolutely NO 1.3 TRILLION BAILOUT EVER OCCURRED. Are you insane... NOT EVEN ALL UK BANKS PUT TOGETHER have a total market value of 1.3 trillion!!!! [for eg. Lloyds has a total value of around 43.7 billion, RBS 24.5 billion, HSBC has a total market capitalisation of 121.5 billion, Barclays 36.1 billion and Standard Chartered 39.2 billion] - that only makes a total of 265 billion...... The governement only owns 83% of rbs and around 41% of Lloyds.

Therefore, next time before posting stupid comments do bother to check things out....or else just shut up!

Thanks

Dr Omar Caruana

Tarxien, Malta

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JohnKenyon

Feb 01, 2011 at 15:30

Johnathan - I'm afraid Dr Caruana is quite right! I think you are mistakenly referring to the asset side only of maybe RBS Balance Sheet forgetting to take off liabilities in doing your valuation.

Ines - we dont HAVE to support a bank in trouble but the Govt may choose to do so for its own interests. We live in a relative and interdependant universe and so can't isolate ourselves - to try to do so or to try to eliminate risk totally is madness - need to deal rationally and with balance. The Banks are an essential part of capitalist structure - we need them and they need our support not this politicised self interested and mindless bashing. If we do we shall hurt ourselves and the poorest in society most.

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Jonathan

Feb 01, 2011 at 15:58

G M,

What does it mean in this document from the Office for National Statistics http://www.statistics.gov.uk/pdfdir/crbslbg0111.pdf when it says:

"In the period up to September 2007, before the classification of Northern Rock to the public sector, the level of public sector net debt (PSND) largely reflected central government’s net debt. By the end of December 2008, the classification to the public sector of, first, Northern Rock and subsequently Bradford & Bingley added around £130 billion to PSND. Including the Lloyds Banking Group and RBS in the public sector finances, adds around a further £1,300 billion to PSND"

Are you saying the Office for National Statistics is wrong and you are right?

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G M

Feb 01, 2011 at 16:17

Jonathan,

The PSND is not composed solely of bailout money, one has to distinguish between money given to banks in return of ownership [ie shares] ...this is what everyone calls 'bailout' and other loans given to banks under schemes such as the special liquidity program etc. It is normal in every country that the central bank loans money to banks. In reality banks do still own the goverment 100s of billions in loans but this is something different from share capital. The govmt can only sell the ownership stakes in rbs 83% and lloyds 41%. You can do the maths of the total govmt stake right now in those 2 banks.

Hope this makes matters clearer.

Dr Omar Caruana

Malta

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joe stalin

Feb 01, 2011 at 16:53

well put GM alittle dacha for you on the Black Sea :-)

Both RBS and Lloyds appear to be looking at ways of exiting the rescue scheme at the earliest opportunity as the rates being charged by the Govt bear no relation to level of defaults experienced to date on the troubled assets parked in the scheme. As we have seen on corporate assets which were changing hands as low as 7 pence in the pound at the peak of the crisis some a re now changing hands at between 95 and close to par. Liquidity is returning to the market which is affecting the value of the assets covered under the scheme. In addition to buy backs think write-backs and a balloning tier one ratio

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Jonathan

Feb 01, 2011 at 17:06

GM, If the Bank of England puts £1.3 trillion into the economy whether it be through quantitative easing, lending banks money, buying mortgage backed securities or even banks. All these type of purchases increase the monetary base just as if the BoE had performed more quantitative easing by purchasing an equivalent amount of government debt. The BoE plans the £1.3 trillion to be a temporary measure, i.e they expect it to be paid back. When the BoE does remove this money from the economy, by it being paid back, it can only reduce the amount of money in the economy. You are probably wondering why we hare having higher than expected inflation at the moment?

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joe stalin

Feb 01, 2011 at 19:19

Jonathan I think you mat find that inflation has more to do with the fact the regulators on both sides of the Atlantic dont have the guts to take on the specialist funds and outfits punting in commodities. Furthermore the Govt has put through a whole raft of taxes and duties which are now feeding through.

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joe stalin

Feb 01, 2011 at 19:19

Jonathan I think you mat find that inflation has more to do with the fact the regulators on both sides of the Atlantic dont have the guts to take on the specialist funds and outfits punting in commodities. Furthermore the Govt has put through a whole raft of taxes and duties which are now feeding through.

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joe stalin

Feb 01, 2011 at 19:19

Jonathan I think you mat find that inflation has more to do with the fact the regulators on both sides of the Atlantic dont have the guts to take on the specialist funds and outfits punting in commodities. Furthermore the Govt has put through a whole raft of taxes and duties which are now feeding through.

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Jonathan

Feb 01, 2011 at 19:27

joe stalin, When you put money into an economy it is widely acknowledged, that it is impossible to dictate how it is spent, the money is there and it is up to the people who have their hands on it to decide how to spend it, monetary policies are very blunt instruments. I have no doubt some of the money that has gone into the economy from the BoE's rescue packages is now being used to speculate in commodities.

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G M

Feb 02, 2011 at 00:22

One pertinent thought that constantly haunts my mind is how the US managed to sell their stakes in Bank of America and Citigroup with relative ease and most major US banks have already paid the TARP money and the UK is still lingering with the same rhetoric of bank bashing, useless banking commissions, bank splitting, constant proposals to change tax regimes concerning banks etc etc etc... a never ending counter productive nation the Uk has become, constantly over zealous to shoot itself in the foot.

Dr Omar Caruana

Malta

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JohnKenyon

Feb 02, 2011 at 11:30

Are too many of us obsessed with 'fairness' and 'equality' rather than being pragmatic and focused on growth and success? So politicians/media are playing the game of pandering to those who are 'outraged' by 'THE BANKS'. This is pretty clear from a lot of the corres in Citywire!!

But you are right GM its damaging to the UK. We should be moving on and the FSA brought to heel!

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Ines

Feb 02, 2011 at 13:04

We had 'growth and success' for ten years of Labour rule, and then discovered it was based on fantasy and the taxpayers and the savers in this country are now paying for other people's 'growth and success' - the pay and bonuses not only of bankers and other financial services but also the pay and pensions of other occupations which have been recalibrated in accordance - not least government employees - another reason why council tax and general taxation has had to go up.

It is beyond the resources of this country to underwrite economic disasters on this scale without robbing the prudent via inflation and taxation as we are witnessing at the moment. Certainly governments can get away with unfairness and inequality almost indefinitely as long as the benefit receiving classes are happy, but at some point the money and the government's credibility will run out.

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