Bankers Bailed Out

[Slim]

Don't know about Abbey's lending policies in UK but agree that there is a lot to be said for old fashioned banking including having a decent deposit, proper financial checks, making sure that there is a capacity to pay, limiting loan levels rather than lending 100 or 110% of asset values etc... it almost defies logic that many of the banks forgot the basics of sound lending.

 

If someone tells me that with the price of houses means that 110% loans are necessary I'd say that the only reason 110% loans are needed is because banks got greedy for profits, stopped lending responsibly and started pushing out as much securitised lending as possible - fuelling a house price boom and making homes increasingly unaffordable. Sowing wind and reaping whirlwinds?

 

Sure, but this attitude to lending was fuelled by central banks making wholesale lending cheap. Better regulation would certainly help, particularly when selling these risks on, but it's not all the banks fault.

[manshimajin]

Many banks weren't exposed to the US Sub Prme at all, Abby for example, yet they're still suffering with interbank cashflow.

The same edition of The Economist has an article on Spanish Banks. Whilst over-supply in the housing market and fire sales by cash strapped expats is causing a drop in property prices, to quote them:

"Spanish lending policies were certainly more conservative (than US banks). Loan to value ratios usually do not exceed 80%. Borrowers were even required to provide documentation proving things like income."

 

Sounds like - 'old-fashioned' banking

Hardly surprising since Abbey are owned by Spanish bank Santander. Nothing wrong with self-regulation and 'old-fashioned' banking - pity many more didn't do that.

 

Don't know about Abbey's lending policies in UK but agree that there is a lot to be said for old fashioned banking including having a decent deposit, proper financial checks, making sure that there is a capacity to pay, limiting loan levels rather than lending 100 or 110% of asset values etc... it almost defies logic that many of the banks forgot the basics of sound lending.

 

If someone tells me that with the price of houses means that 110% loans are necessary I'd say that the only reason 110% loans are needed is because banks got greedy for profits, stopped lending responsibly and started pushing out as much securitised lending as possible - fuelling a house price boom and making homes increasingly unaffordable. Sowing wind and reaping whirlwinds?

[manshimajin]

Sure, but this attitude to lending was fuelled by central banks making wholesale lending cheap. Better regulation would certainly help, particularly when selling these risks on, but it's not all the banks fault.

 

 

The Central Banks certainly opened up the candy jar by reducing bank rates - and the banks jumped in and forgot prudential conrol in the race to get money out. But now the banks are asking to be regulated - which says a lot about their past risk management (and possibly the level of central bank support they are now keen to get).

[Slim]

The Central Banks certainly opened up the candy jar by reducing bank rates - and the banks jumped in and forgot prudential conrol in the race to get money out. But now the banks are asking to be regulated - which says a lot about their past risk management (and possibly the level of central bank support they are now keen to get).

 

They're asking to be regulated so they know the extent of the exposures of other banks, it'll help confidence.

 

Albert, is nu shite also responsible for German banks?

http://www.marketwatch.com/News/Story/deut...5A5E97197276%7D

[WTF]

Many banks weren't exposed to the US Sub Prme at all, Abby for example, yet they're still suffering with interbank cashflow.

The same edition of The Economist has an article on Spanish Banks. Whilst over-supply in the housing market and fire sales by cash strapped expats is causing a drop in property prices, to quote them:

"Spanish lending policies were certainly more conservative (than US banks). Loan to value ratios usually do not exceed 80%. Borrowers were even required to provide documentation proving things like income."

 

Sounds like - 'old-fashioned' banking

Hardly surprising since Abbey are owned by Spanish bank Santander. Nothing wrong with self-regulation and 'old-fashioned' banking - pity many more didn't do that.

 

Don't know about Abbey's lending policies in UK but agree that there is a lot to be said for old fashioned banking including having a decent deposit, proper financial checks, making sure that there is a capacity to pay, limiting loan levels rather than lending 100 or 110% of asset values etc... it almost defies logic that many of the banks forgot the basics of sound lending.

 

If someone tells me that with the price of houses means that 110% loans are necessary I'd say that the only reason 110% loans are needed is because banks got greedy for profits, stopped lending responsibly and started pushing out as much securitised lending as possible - fuelling a house price boom and making homes increasingly unaffordable. Sowing wind and reaping whirlwinds?

 

 

looking at it in very simple terms, there is no problem lending someone 110k to buy a 100k house and do it up a bit and buy a car IF you expect the house the loan is secured against to be worth 120k in a years time. the snag now is that house prices seem to have peaked and the big % increase in value per year is now not so big and shrinking. so you end up with people who owe 110k on what has now become a 95k house and you enter the realms of negative equity.

[manshimajin]

looking at it in very simple terms, there is no problem lending someone 110k to buy a 100k house and do it up a bit and buy a car IF you expect the house the loan is secured against to be worth 120k in a years time. the snag now is that house prices seem to have peaked and the big % increase in value per year is now not so big and shrinking. so you end up with people who owe 110k on what has now become a 95k house and you enter the realms of negative equity.

 

The problem of lending 110K to buy a 100K house is not just the risk of negative equity when the property market turns down. The other issue is that lending more than a property is worth removes the pricing constraint that exists when the buyer has to contribute a deposit of say 20%.

 

By funding the 'deposit gap' the banks were stimulating house price inflation and achieving a (temporary) self-fulfilling prophecy that values would rise. They were also encouraging families to over-extend their debt (good for bank income) and become vulnerable to interest rate rises. Long term they were once again (viz. late 1980's) exposing themselves to big bad debt provisions (now happening).

 

In the hyper-inflating house price scenario the winners were the bankers earning more money from margins on larger and larger loan amounts (plus all the add-ons they tried to sell with the loan), the commission based sectors (ie estate agents and advocates) whose incomes rose as the average price of a house increased (though the amount of work involved stayed the same) and the developers who could ride the inflationary wave.

 

Forgetting the property investors, hyper inflation in property prices did not help the average family. They still ended up with an average home to live in. But now this cost a lot more to buy and used up more of their income to service their mortgage with the bank.

[thebees]

How many banks are there? Every 'bank' I look into is RBS in disguise. Banks are a bit naughty and noone is big enough to give them the 'bloody good hiding' they deserve.