What colour are your spectacles ?

“Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.”

 

-       Dan Quayle.

 

What a mess. Still only part way through one of the biggest banking crises in history, yet having suffered grievous losses across multiple asset classes, we don’t appear to have learned very much. Relations between the UK’s tripartite oversight authorities seem to be deteriorating into acrimony and turf warfare even as the regulatory pendulum gains in weight and momentum. The banking and financial services sector is fast becoming a political football. Taxpayers deserve better. Maybe they will get mildly less incompetent treatment from the next government. Meanwhile, Wall Street firms that are only in existence due to the unconsulted largesse of US taxpayers are planning to boost executive pay. Citigroup (current share price: circa $3, which makes it the equivalent of a penny stock), having received $45 billion in “government” bail-out funds, now wants to increase some of its banking salaries by up to 50%. Did the events of 2008, during which the taxpayer rescued Wall Street and the City, never actually happen ?

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Comments

[Tradebot]

...with the oncoming avalance in Gov't debt supply, is James still happy recommending long Gilt position? :)

Altough I agree with Tim that the banks are not out woods yet, I'm still convinced the big story for 2010/2011 will be funding the huge deficits which will drive the govi yields up - currently the short end is being held up as the so-called liquidity facilities are gobbled up by central bank sponsored carry trades and long end being held by threat of further QE. This state of affairs will not last forever as the improving credit markets will allow central banks to start withdrawing the injected liquidity and allow return to normal cost of funding.

[timprice]

I'll let James fight his own battles, but at our investment seminar he was pretty relaxed about holding Gilts. His argument is that in all previous big banking crises, banks end up ploughing more of their assets into government bonds. If history is a guide (and I think the current debacle is too global to be realistically compared with more localised difficulties), then Gilts could be supported by purchases from the banks. But for my taste the supply argument, being somewhat emotional / psychological, trumps any theory.

[Tradebot]

That might have been the case of Japanese experience post 80's, however all the major western banks are shrinking their b/s assets now.

For the FSA changes to liquidity reserves, there was consultation paper in December, but this issue seems to have faded out - it was originally driven by systematic bank failure issues. Implementing the increased liquidity requirements now would drain available funds for bank lending , hence the effective silence on the issue from FSA, BoE and Gov't.