Saturday, 15 March 2014

A British banking ponder

A thing that often confuses me, usually during formal conversations with terribly intelligent and important economists, is the extent to which context gets forgotten about. By this I mean stuff like the fact that interest rates have been negative, after taking inflation into account, for almost 6 years now, and very negative since base rate was cut to the 300 year low of 0.5% in March 2009. So in contrast to what the terribly dim economist Andrew Sentence said in 2009, things got and remain pretty ghastly – because if they weren’t base rate would be more than 0.5%!

Another bit of context that tends to get forgotten about is the major structural changes seen across British banking. For retail customers, the high street looks very different now that the Bradford and Bingley, Alliance and Leicester, the Brittania, Northern Rock, Bank of Scotland, the Halifax, the Dunfermline and what no have variously failed and/or been taken over. Online there are no more Icelandic banks (remember them?) offering enticingly high savings rates or the subsiduaries of US investment banks making mad mental mortgage offers.

The situation is pretty similar for SME/commercial banking customers, particularly those minded to dabble in commercial property. Previously, there would always, it seems, have been an Orish bank or former building society ready to throw money at anything involving British bricks and mortar (and caravans). Now? None.

Moreover, its not just the number of banks/building societies willing to lend (or borrow) that’s changed, the terms those still standing offer are a lot less “generous”. You could argue this is due to a reduction in competition, however,  I don’t think this is necessarily the case. Many of the banks that left after 2007 were relatively new entrants i.e. they did things few of the mainstream banks had ever been especially willing to do. Alongside them were a few established players hellbent on achieving  ridiculous growth targets that in turn drove them into increasingly dumb lending. So arguably instead what happened is that banking lost its lunatic fringe.

Except all of the above is so far removed from the ring fence investment banking tosh that constitutes the bulk of the political and regulatory response, it keeps getting lost sight of. This is a shame because, well for starters, it flags up how monumentally awful financial regulation in Britain was and how culpable the regulators were (alongside all the CEOs and their direct reports at the failed banks).

It also provides some context for the tosh politicians come out with e.g. banks need to lend more – which ones, the ones that failed due to not having a clue how to lend in the first place or the ones that did and are unwilling to do high LTV mortgages off their own back?

And then there are the wonderful rating agencies who rate the surviving banks using a methodology that appears to involve plucking out whatever they last had lodged up their jacksies, wiping it down, then committing it to PDF.

More generally though, there seems to me to be broader questions, besides those of justice and fairness, about what happened and what it means that aren’t getting asked. To give just one example, many of the failed banks had distinct local identities, you know Bradford, Dunfermline, Leicester etc., what does their loss mean to those locales? I’ve no got a scoob, but it still strikes me as being worth a ponder.

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