December 7th - will there be a run on the banks?

[Greybeard]

I'm not sure you fully understand fractional reserve banking (FRB) correctly.

 

I'm not sure you do either.

 

I believe the BoE requirement is currently a fractional reserve of 3.1% for UK banks. You appear to think it should be 100%. How do you suppose banks could lend money if they had to keep all deposits on deposit ?

[Greybeard]

Savings accounts at NatWest don't get interest any more:(.

 

 

Not quite true....

 

E-saver instant access - 1%

 

E-ISA - 2%

 

2 year bond 3.5%

 

There are better instant access accounts available from other banks - just move your money

[I1L2T3]

I'm not sure you do either.

 

I believe the BoE requirement is currently a fractional reserve of 3.1% for UK banks. You appear to think it should be 100%. How do you suppose banks could lend money if they had to keep all deposits on deposit ?

 

I understand it completely thanks. You don't. Using your example their minimum reserve (liquidity) is only 3.1% of total deposits. That, in theory, is the problem if an abnormal demand for withdrawals arises.

 

As for where the banks get the money to lend out Northern Rock managed to have lent out 172% of saver deposits just before the run on them. They don't just lend what is deposited - they borrow on wholesale markets as well.

[I1L2T3]

You missed the part of my post about the effect on their customers so I'll fill that bit in for you.

 

Increased bank borrowing, calling in loans early (where they are able to) and the other methods of increasing reserves will cost the banks money. This will inevitably be passed on to the customers. They can't exactly reduce the interest rates they pay on deposits any further so that means the costs will be passed on to borrowers - i.e. the people least able to afford the burden.

 

Do you really think that is worth it to teach the banks a lesson?

 

I think anything that sends a message to the banks is worthwhile. They've already stolen hundreds of billions of pounds from us and people like you just think we should take it.

[I1L2T3]

But what is the point of the protest?

 

Ostensibly it's about collapsing the financial system. There is no chance of that happening on Dec 7th though. I'd prefer to see it as some kind of protest against the banks.

[Greybeard]

I understand it completely thanks. You don't. Using your example their minimum reserve (liquidity) is only 3.1% of total deposits. That, in theory, is the problem if an abnormal demand for withdrawals arises.

 

It's a problem created by the regulator, in the UK the BoE, who set the fractional reserve.

 

How do you propose the banks should meet the situation of an abnormal demand for withdrawals ?

 

The practice of borrowing short wholesale to lend long retail is a completely different issue.

[I1L2T3]

It's a problem created by the regulator, in the UK the BoE, who set the fractional reserve.

 

How do you propose the banks should meet the situation of an abnormal demand for withdrawals ?

 

The practice of borrowing short wholesale to lend long retail is a completely different issue.

 

Like others have said they could suspend withdrawals. But it's basically the beginning of the end for a bank that does that.

 

If they let the run happen the banks can do whatever they think they need to. Borrow from the markets. Go to the BoE. Call in loans. Liquidate assets. Whatever.

 

My point about Northern Rock and its 172% lent out was to illustrate that the banking system has introduced many extra risks, beyond the obvious and widely accepted ones created by FRB.

[Rupert_Baehr]

I agree with protesting against the banks but as a poster on the Grauniad's website put it "It's like hacking off your knackers to treat testicular cancer"

 

Not quite.

 

More like chopping off your nuts and swallowing them to prevent you from coughing.

 

If you've got £500 in the bank today and you do nothing (and you've no planned withdrawals) then you'll still av the same amount next month.

 

You don't need to do anything.

 

If you take the money out (you are entitled to do that) where are you going to put it? Will it be safer if you put it there, or will you appearto be more of a prat? (I don't know ... nor do I care.)

 

Am I going to experience any problems because of Mr Cantonana's outburst?

 

Well, in a word (albeit a short word, because nobody from the tv or newspapers is interviewing me on this matter:

 

'No'

 

"Oh, bugger me!"

 

"Not while there's good dogs on the street"

 

"You mean ... we've talked to Rupert and he isn't panicking about a run on the banks?"

 

"No. It appears that Rupert is spending most of his time sorting out his skis for the season."

 

"But isn't he interested?

 

"Not really"

 

"But what do we do if people won't destroy the banks?

 

"Well, around here you go skiing. In England, you'll probably go to Mc Donalds."

 

Your choice. I can't stand worm burgers.

[upinwath]

There is a Europe wide bank run being organised to take place on December the 7th.

 

http://www.guardian.co.uk/world/2010/nov/20/eric-cantona-bank-protest-campaign

 

http://www.examiner.com/finance-examiner-in-national/french-protesters-calling-for-bank-runs-other-euro-nations-following-suit

 

What do you think?

 

I think it's french and commie so it's guaranteed to be rubbish and a flop.

Add that idiot footballer and you have a large pile of stinky poo poo.

[Cavegirl]

If someone can tell me a true benefit to anybody from undermining the entire world banking system then I'll genuinely consider taking my money out in protest.

 

I would argue that there are a number of good reasons for bringing about the end of the banking system as we currently know it:

 

1. Banks lend irresponsibly under the current system- for a decade leading up to the '08 crash banks were complicit in offering mortgages and loans to those with incomes that were too low to repay them once interest rates rose. We also know, though don't like to admit, that banks lend money to weapons dealers and manufacturers as well as other unscrupulous agencies.

 

2. The system is broken through enormous debts and we've just bailed out banks by creating more debt which has basically created a situation that makes it look like we're in a recovery when really we're in yet another bubble. Unfortunately, this time the bubble is much much larger than the real estate bubble or the dot com bubble because it has occurred simulataneously across many banking systems in many countries.

When this bubble bursts (as we've just seen in Ireland) we can't fix the subsequent crash with more cuts to services because we've cut everything, we can't lower interest rates that are at rock bottom and we can't issue more money in bailouts because this would cause hyperinflation and a new great depression. We'll have to turn to the IMF and this will give this international agency huge political clout in this country.

 

3. The banks are not lending to the public, but are instead hoarding the bailout money we paid them. It's interesting to note that after the crash of 1929 the money supply shrunk by 33% in 3 years. In 2008 our money supply shrank by 40% in just 1 year. Our solution was to print all this stimulus money and give it to the banks who would then lend it out and ease the situation. Instead the banks have kept the money and have begun paying themselves huge bonuses again.

 

4. If we do nothing we'll all suffer in the long run. All this borrowing to pay off debt will continue to bite us back. We were struggling to afford the interest on our national debt before- those interest payments rose enormously with each huge loan we made from the banks to first bail out and then stimulate the banks. We're selling ourselves and future generations into slavery to the banks as when the government eventually wants to borrow money again, probably to join another war as that seems to be the only large new national project that occurs these days, then the banks can dictate where the public cuts will be made in order to pay them their interest.

 

What will bringing down the banks acheive? Well, the public, for once, will be in the driving seat. We can insist that the government lends money from the the Bank of England without having to pay interest on those loans. We could insist that the government outlaws usury as a means of profit-making.

 

The public would be able to use banks for free rather than paying interest on loans whilst the private banks would make money by charging a competetive fee to companies for the much better service they provide them anyway. We can also insist on transparency regarding who the banks deal with therefore allowing us to make informed decisions.

 

We could legally separate merchant from commercial banking thus ensuring our savings are safe from casino banking and we could insist that the fractional reserve system either goes or is dependant upon 50%+ of reserves being held as real money in the bank rather than the current -10%.

 

Finally we could insist upon a better standard of education in schools with regard to what money really is, how banking works and an overview of the history of the private banking cartels (for example, how the British manipulated the US currency by creating and dumping huge numbers of forged notes into the US during the war for independance) thus ensuring that the 'bewildered herd' as the bankers and politicians like to refer to us as is too well-informed to allow this to happen again.