10 Years on from the Credit Crunch

by Property 118

2 months ago

10 Years on from the Credit Crunch

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10 Years on from the Credit Crunch

We are now 10 years on from the Global Financial Crisis and in particular in the UK from that infamous news report by the BBC’s Robert Peston.

Peston reported on BBC news he had heard that banks were no longer willing to lend to the Northern Rock bank and that unsecured savers need not panic yet, which they obviously immediately did causing the scenes of queues we all remember outside Northern Rock branches the very next day.

Since then and the resultant further bank bail outs and the collapse of interbank lending we have had 10 years of unprecedented stagnant living standards and a Housing Market that is in crises with Landlords suddenly taking the blame in the last 2 years.

However, are the banks that own your Buy to Let and main residence mortgage debt and hold your savings any safer now?

To mark the 10 year anniversary the Bank of England have issued a summary of why they think the UK banking system is now a safer place now it has been given responsibility for the supervision of individual banks and building societies along with the creation the Financial Policy Committee tasked by Parliament to monitor risks in the financial system that could cause problems for the wider economy.

8 Key points why Banks can now survive more substantial losses:

  • “With capital requirements on large banks ten times higher than before the crisis, banks have raised more than $1.5 trillion of capital.
  • Banks are now disciplined by a leverage ratio. This protects the system from risks and uncertainties that are hard to measure through risk weights and models.
  • Large global banks are taking fewer risks trading in financial markets. Trading assets have halved.
  • Banks are less dependent on each other. Interbank lending has fallen by two thirds since the crisis.
  • Banks have raised over £130bn of true loss absorbing capital. As a result, the average ratio of capital to risk weighted assets has increased from 4.5% to 14.3%.
  • The Bank of England’s first line of defence is intrusive supervision of banks and building societies.
  • The second line of defence is to stress test lenders to make sure they have the strength to deal with very severe recessions without cutting back on lending. Last year’s test showed that even after suffering losses of £44bn. Losses that would have wiped them out ten years ago. Major banks would have a capital base more than twice as strong as in the run up to the crisis 10 years ago.
  • Banks are less dependent on short term wholesale market funding which has fallen from 25% of total funding in 2006 to just 10% now.”

Comments

Adam Withford

2 months ago

Is the point we are safer with regards our saving capital? I wonder how much use that is if things go into hyper-inflation?

Does anyone believe that the system is really fixed? The figures above may sound significant but maybe these are just of use to a domestic situation?

If it is now true that the US gov can't even pay the interest on it's 20 Tril debt at these historically low rates what happens? Are they just thieving from those who pay them and those they promise to pay? How far can it go before they declare bankruptcy?

The bigger picture of how the world is intertwined financially may be more relevant, and quite frankly is supposed to be the source of why 'we' all fell over in 2007/8 anyway.

I'm not keeping any of my liquid capital in banks accounts or ISA's, the stock-market or anywhere that can be shut down by a 'national emergency'. Why would I with these rates they offer? What security do they really give? No -one is going to hold up a bank for their hard-drive, hence why you can't even draw out much cash anymore.

Of course the new stress-levels the banks are forcing on us with our mortgages are less about being responsible as it is about not having more toxic-debt on their hands in the case of a meltdown. Their meltdown, not ours, we would still travel along fine on the previous standards.

I can't help thinking that the S24 issue is all designed to be an even further stress-test and to start weeding out those who could not survive a crash now. We have not been given suitable answers to the question we have posed up to date on S24. None of it points to common-sense economics or as an effective way to change the UK housing market. I think bigger things are at play here and that rings true by just hearing their flaky responses.

The fact that it also increases government spending by a nock-on increase in council tenants' rents maybe negligible compared to the vast sums that are already at risk. Maybe the gov is happy that we will increase rents because that will only pad us further from a fall?

Of course they are happy to sell off all those expensive new-build hi-rise apartments in London to foreign 'inestors' and keep them empty. Why would they risk loaning to residents who are over-leveraged and have to clean up the mess later?

Yes I'm cynical, but I think justifiably given the bullshit we have had to suffer for the last 10 years.

Appalled Landlord

2 months ago

Hi Adam

Any increase in rent that is imposed to cover the S 24 levy on finance costs will not pad landlords from a fall, it will be paid over to HMRC. Landlords themselves will be no better off.

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