Βι¶ΉΤΌΕΔ

Mr. Peston:

By the looks of things, the stress the banks are taking are already being taken to the enth-degree....So, @ this rate not many banks are able to continous taking this amount of stress...

(Dennis Junior)

Robert:

Do Britain's banks currently have enough capital to absorb additional losses generated by a second recession and further sharp falls in asset prices?

As your remarked in your comments, Yes....But, in theory how many strikes will they be able to absorbed at the current rate of things failing like in a pyramid.....

So, it is not that they have "unlimited" resources to take on stress forever!

(Dennis Junior)

> All that said, if the FSA's worst fears materialise and we enter a
> second recession (which plainly in the light of today's weak
> industrial production figures is not inconceivable), we should be
> worrying about other things than the solvency of our banks (although
> those other things, such as the credit-worthiness of the government
> and social cohesion, aren't exactly trivial).

Good word, cohesion. The English are famous for their lack of cohesion (aka
the class system). If they are to become a more cohesive society, such as Wales
or Canada, then they will have to cease their endless internecine feuding.

Yes. Sorting out the banks is trivial in comparison to sorting out the English.

i feel that the outlook mentioned is somewhat optomistic.

Does the FSA know something we don't?! Just seems very worrying but we are in unchartered waters as far as the economy is concerned. When interest rates go up, we are all in for a very unpleasent time.

Golly. A Banking story.

While we see signs of recovery in China as the orders start flowing into there factories I have to say what does that tell us? Personally I see that as a sign the western retail stores are replenishing stocks and filling shelves hoping consumers will return to the stores!
The problem then becomes the debt load going on to consumers shoulders as the stimulus money is withdrawn and the taxes are increased on the remaining people still in work.The stealth tax indirect taxes on spending will fail to materialise because people are not going to start spending again.Most consumers are still paying down the debt from the last consumer binge, and there lies the problem the double dip is innevitable in my view.
You have not really cured the problem with the stimulus money you have just delayed it, banks will still see a massive increase in house repossions and loan defaults as people struggle with there existing debt load.

Jacques Cartier - thats exactly why I left England the constant bickering over the different classes. The Tories look after the business people, Labour look after the poor but who really looks after the average Joe paying his taxes and supporting both of them?
Both come round at election time saying they represent middle England and they will look out for you but both end up shafting you with higher taxes!
The plain truth is nobody represents middle England the silent majority that just shuts up and pays up.
And so the endless class war goes on, playing the political fiddle while Rome burns and only the ashes will be left shortly.

So in fact what will happen is that the banking fraternity will continue to re-build their balance sheets at the expense of their customers. I've always said it'll be like shooting fish in a barrel for them.

Social cohesion hmmm when the mess hits the fan on a double dip and thousands of people start losing there homes do we really care about the banks.
If its a choice between a man protecting his family and putting food on the table the banks will see the biggest withdrawal of cash and savings from ALL of there accounts!
Nothing is worse that threatening a couples family period.
But heres the catch 22 the businesses need to start hiring to bring the confidence back in every consumers mind or they risk being the instigator of the biggest collapse in the western free market economy! Then it will be the 1930`s all over again period.

The stress on the banks is really important Robert.
UKPLC has no, I repeat - no, other income.
The bankers have triumphed.
If it wasn't so pathetic it would be comical.
And the bit that really grinds?
If manufacturing does show it's face then the banks will soon see it off.
After all the banks need protecting more than anything else.
It just wouldn't do to have industrialists making money.
That is a bankers prerogative.

CHrissy 29 yep the big 5 clearing banks have the UK market stitched up, its a cartel in disguise thats for sure. Why is there no foreign banks on the high street have you ever asked yourself that?
You got HSBC which is the Hong Kong and Shanghai Bank but who else is foreigh owned? There is no real effective competition they all charge similar rates its similar to the supermarket chains they all agree on what you are going to pay for a commodity.
Market rigging is every where there is no such thing as a free market economy, go to China and check out the price of items there it will really open your eyes up.

Time to list the guilty again -- (those who were in change and on whose watch the bubble was allowed to grow and the inevitable crunch was not foreseen) Mervyn King, Hector Sants, the entire MPC, Nick Macpherson and his predecessor Gus O'Donnell at the Treasury. None of the list should remain in post as it was their responsibility to prevent the economic catastrophe (that was so predictable!) We need to make sure that these men are no longer in post as they have proved themselves unfit to manage a whelk stall, let alone the regulation of the UK economy. We must not forget!

The problem with 'stress testing' is that there is no international policeman (and there will be no such organisation!) to make sure that the international banks actually do what they are told to do. This situation continues to highlight the problem that the banks have returned to business as usual.... (with all its risks for them and us!)

Did they pull a rabbit out of a hat too? There is no "credit crunch", there was a misappropriation of private citizen wealth by scheming bankers who created an empty box to insure bad loans that they knew would end up being paid by the taxpayers. There were presentations to governments plainly stating that the system was heading for a collapse seven years before it happened and the banking lobbyist made sure no changes were implemented. You make this sound like some flaw in the system rather than the unethical behaviors of bankers and elected officials. Please, try to be honest. Without regulating and downsizing the banks and making the gambling of depositors money for the purpose of enriching the bankers illegal, it will surely happen again. Apparently you and they believe that every 100 years the banks and goverments will be so corrupt that they will collude to steal the people's money. Seems a bit cynical, even though it is true. The people may get fed up with all this and change the structure of government, ban lobbyist and require banks to act in a responsible way to protect the hard earned money of people. Sounds like a fiction story, but it could happen, or a brief period of anarchy before some new order is established. The FSA is describing an economy that sounds close to pre-Hitler Germany....

Don't mention Stress

How much stories about the banks can we take?

The root cause of all of this global mess can be traced back to the universities that taught the max leveraging theory to the students.
Those same graduates now run most of the western economy and they have made a complete mess of it somebody needs bringing to task.
All of the off shoring has brought about a house of cards scenario,we all know the bottom layer of cards has gone like - mining, steel, textiles, car component manufacturing, hell even car manufacturing, even banks have moved to the new markets of Asia in preperation for working the same scam on the new tiger economies. All thats left is fast food joints,gambling, call centres and invisibile earnings (paper shuffling).
If collusion was the intent and its a systematic pull out by MNC to avoid paying pensions, insurances etc effectively walking away then criminal proceedings need instigating against the people that have done this.

"I'm Robert Peston, the Βι¶ΉΤΌΕΔ's banking editor. This blog is my take on the banking stories and issues that matter to banks."

If the collapse was an orchestrated event so that banks and insurance companies could walk away from the west and move our hard earned cash over to the east we have a major fraud on our hands.
To create such a situation everybody at the top level would have to be sworn to secreasy. Now we know why they are all FreeMasons the collusion steams from there.
Can you imagine the picture in every lodge while they figure out what they are going to charge for every commodity they sell to the average Joe.
Price rigging on a grand lodge scale! interest rates, price of cars, food stuffs, houses, holidays etc.

Amazing. The banks are finally going to be held accountable to what is the norm for "real" industries. Imagine how we might respond to an aircraft manufacturer that justified a crash by explaining that it was a one in ten year event that brought the plane down. Or a nuclear utility executive who explained that a radioactive realease that was caused by a ten year storm. And lets remind ourselves that bank crashes have a greater capacity to kill and ruin lives than any sort of industrial catastrophe, even in the nuclear industry. There is a failure of imagination here. Making bankers accountable for their failures in the same way that utility companies would have to account for catastrophic failure might stimulate bankers to make a more realistic appraisal of risk.

I don't often agree with you Mr Peston but this is a sound and serious question. The FSA 'worst case' scenario is worth revisiting:

"A further decline in GDP of 2.3% from the end of 2009 to the end of 2011, with gradual recovery thereafter. Alongside this fall in GDP, the scenario includes a rise in unemployment to a peak of 13.3% in 2012, and allows for a 'doubledip' in property prices, with house prices falling by 23% from current levels and commercial property by more than 34%.".

Many people are reluctant to give fears of such economic failure credence but I believe it is entirely possible, even quite likely. You could in fact reasonably imagine this is what the economy might look like today had we not thrown all those billions at disguising its true shape, in the hope that things improved before we got found out. Were this scenario to prove correct it would mean we had been found out already. And then you would be right. We would have appalling new challenges to face, no doubt in an environment of rapidly deteriorating humor levels amongst a population that was beginning to discover the real meaning of pain. Many for the first time. Meaning we would likely be trying to hold the breach against serious civil disorder (presumably a worst case scenario of your social cohesion concerns).

The domestic economic situation might be further stressed by the same geo political fundamentals that were coming into play so dramatically before the financial system fell over in September 2008. These really haven't changed. Rising commodity prices as the BRICs economies forge ahead with their growth and the rapidly swelling ranks of their middle classes demand a larger slice of the pie (more meat for example, it taking about four times more grain to get the nutritional benefit if you process it through a cow or whatever). They will expect to own a car too. That combined with the industrial appetite of their growth can only mean energy prices start getting tricky again and I would caution that contrary to the beliefs of some conspiracy theorists it really wasn't the speculators who were doing most of the driving when oil hit $148 a barrel (they were truthfully responsible for no more than 10% of that spike, just a canary in a cole mine). The fundamental cause hasn't gone away and actually oil has been holding steady at $80 a barrel for a while - you will remember it was when it reached $90 in late 2007 that eyebrows started to be raised and we now accept $80 as normal... In late 2006 it was $40.

When the light comes on and people in the UK realise that their cheap labour force in the east is now doing better than they are it could get really snaky. Nothing is more guaranteed to brings out the worst in a person, especially if they have lost their job and their house is worth half of what they thought. Food riots? Blood on the streets? It doesn't bare thinking about, does it.

I hope the awful scenario I have painted doesn't come to pass, but it easily could and in surprisingly short order. That would be a very bad time to have to worry about the solvency of the retail banks, so yes, it matters. There was a wide spectrum of risk management standards and stress testing models across the banking industry before the crisis. It is no coincidence that the ones who were good at it are the ones who are in great shape now, much to populist disgust. And guess what, the tax payer doesn't own those ones. The tax payer is stuck with the lemons. Its the FSA's job to force the poor performers to raise their risk management game to the highest common denominator. Let them get on with it.

You're asking if the banks can risk making their own mess but being asked to clean it up themselves.

I'd like to know how much of a stomach do the public, not just here, but globally, have if they are being asked to watch the same shambolic mess all over again, and then being asked to put their hands in their pockets to support more unemployed, more bankruptcies, more broken families, more broken services, diminished pensions, cut working hours, lower pay... while they bankers whistly off to the champers bar with another bumper bonus?

Whatever is in the next budget, I do hope that Alistair, dear boy, has a mallet, a big one, to thump the very people, the very organisations, who created this mess.

17. KeithRodgers

Agreed. I've sat in business lectures and been absolutely disgusted at the tripe, the lack of thought being dished our and sponged up by the hapless business students; problem solving in the business workd amounts to 'dump it on to someone else, thus you have dealt with the problem'.

There are a lot of people out there who should be held to account, criminal negligence is what I believe this to be. If it isn't then it is time we had some decent anti-social laws aimed at those supermen who cause harm.

How many people are too frightened to sleep tonight, worried about the heating bill and finding a way to pay for it, frightened that the company they work for is clinging on by the finger nails, how many people are sitting on the edge of their beds right now, head in hands with destroyed careers, some of which have yet to even begin?

The problem with the banks, utilities and all the other big players is that there is no morality or social responsibility in the system. Profit is God.
Is any company, lets say like British Gas, making a 55% profit this year moral ? Its taking too much.
All companies should be allowed to profit by say 7% a year. Any profit over that would be given to 20% staff bonuses, 30% to shareholders and 50% returned to the loyal customers.

As far as the FSA's(hedged) pessimistic analysis goes: I believe thats the most likely scenario. Its going to be sickening but good medicine. Average house prices will have to come down to at least to 3x the average wage.

None of this is going to make the blindest bit of difference while
1. most of the banks debts and transactions, like CDSs and CDOs, are still off-book.
2. the banks are still too big to fail, are mixing there trading and loan operations.
3. bankers and directors are being incentivised to take excessive risk.
4. or until bankers are seen as a bunch of hyenas, and should be regulated as such.

Interesting comment Jacqui Cartier,
You would think the class system was unique to poor old blighty. But the class system exists practically everywhere in the world in one form or another.

Mr Keith Rogers, Jacqui's friend ? HSBC was founded by 2 Scottish dudes. It is as British as Quebec is Canadian.

Great Blogs fella's!

Surely the only stress test in town ought to be whether or not taxpayer bailout will be needed again, I mean ever again?

The B of E has halted QE and is in itself a kind of real-life stress test. So far there have been sufficient takers of Gilts, without leading to an immediate and sharp fall in the availability of credit as evidenced by any sharp rise in interest rates. For the moment we have to assume the Bank of England is telling the truth about interest rates, (in that they insist inflation will fall dramatically later in the year.) If private bank cash is once again pouring into gilts though, how long will it take before the net effect of this registers in the form of higher interest rates? If it's sooner, rather than later, this would seem to imply there's a distinct lack of cash in the system. If that's the case inflation should remain low and house prices must deflate? It will be interesting to see if Sterling rises on the back of higher interest rates. If it doesn't foreigners will be shunning it and they would only do that for a "good" reason, (bad for us in the UK though!)

The thing for ordinary borrowers to fear most is that banks look to strengthen their financial positions even further by, in effect, bullying borrowers (risky or not) into move their borrowing to another lender, by hiking up the price of their credit by such a margin as to be the next best thing to extortionate. A bit like Northern Rock did after it was nationalised - they had a good old clearout. Self-preservation mattered more than customers, as did the need for a government to say it had made a profit. But the point was it was at the personal expense of ordinary people. Northern Rock is now back, it will be interesting to see if it has a new business model and what it sees as being an adequate rate of growth. WIll it be getting back into the saddle of the proverbial 125% mortgage, (as that ghastly American expression goes) "anytime soon?" But at least savers may be able to breathe again. (Not that I'm a saver, sadly.)

With interest rate rises, tougher regulation, higher taxes all to come, it ain't gonna be pretty!

Maybe the question should be how much stress can we take, (never mind the banks?)When I borrowed all I was trying to do was build a house and a family.........If I lose that,try telling me it's irresponsible to riot - to my face at least, (that's if you have anything about you. No point blogging it on here, I wouldn't have the means to read it by then anyway!)

By the by. I got a letter from my Credit Card Company today saying that that interest rate is going up from an obscene 17.9& APR to a loan shark 22.5%.

Disgusting !

Well, Robert, that's certainly explained something-

now we know for sure where all the mortgage money has gone-I know we've all suspected that banks weren't lending as they've been ordered to do (despite their 'reassurances') because of this tier 1 business, but now you've just made it quite clear. Thankyou.

Did Alistair actually get any kind of control of the banks when he agreed the bailout? Or did he back down as they held us to ransom?

Darn it! Got hooked up in a banking story-not so many of those I guess.

Wonder how many businesses went bust today Robert?

I'm done with this blog and have said it many times - there is more to this country than the banks. You did manage to mention something else though, right at the end of your article, almost as an after thought - "weak industrial production figures"

I know I shouldn't feed the trolls but Santander is very obviously not British and now owns about 20% of retail banking outlets in the UK.

I also do not know I which part of Britain you live that sees daily "class" feuding. I suspect you're a Daily Mail reader and/or don't live in Britain.

(As a complete aside the country where I have seen the most appalling and blatant class stratification is the US, and the divides are shamefully almost entirely coincident with race: only Blacks and Hispanics do menial jobs (with a significant minority of non-working "trailer park" whites in some places); the predominately White middle class frets that the Blacks might be trying to rob them and the Hispanics might be talking about them in Spanish; all lorded over by the almost entirely White elite who control the media/large business and live in gated communities so they do not have contact with anyone below their class. This situation appears to be something of an elephant in the room when it comes to political discussion within the US.)

I don't see the logic of having a go at Robert anout Banking stories when most of us seem to agree that the way they operate is the main problem that needs addressing before things can improve.

Or is this just a leisure activity to show off our sparking repartee and cleverness ?

One fundamental question Robert - what are stress tests based on.

The answer is past crises

"Past performance is not an indicator of future performance" we all read on our investment blurb.

...so why does it not apply here?

Answer - because they can't do anything else. The stress tests are not going to tell you anything except that we can avoid previous crises - which is no good as they have already occurred (and I guess we survived them)

This promotion of stress tests really shows the finance and Governments complete lack of understanding of risk.

......and we want to stop these fools leaving the country????

#32

With fools of your calibre living here, UK is obviously fools friendly
:-)

Greenback 01010 comment 25
I think you are refering to the Midland Bank which may have been set up by the Scottish guys but this bank was taken over by the Hong Kong and Shanghai Bank in the 1990`s.
Its foreign owned now it may have started off as a Scottish Bank.
I remember it being called the Midland Bank.