Should the Bank of England really be rescuing investment banks or save themselves for the high street banks if and when.
I think the whole thing is a farce and the BoE would have done well to have kept out of it.
Investment banks are banks which pay high dividends because of the investments they make on your behalf. The whole thing is speculative and you know it.
That said, the High Street banks are behaving not unlike investment banks and this is wrong. They are risking our money by making loans to Third World countries which are then written off and/or overextending to their own so as to support an inflationary economy where it`s all Starbucks coffee at 拢3 and dinner for two (at an average place, poss sub-average, at 拢80) Take a tip from France or Italy where small privately-owned bistros are still in style.
So what do you think? The Bank of England in its capacity as the banker for the high street banks and their bank of the last resort has to provide liquidity to them, whenever any one of them have liquidity problem with its depositors who want their money back on demand or when there is a run in the bank.
That is its duty to help the high street banks because it has given them the banking licenses to accept deposits and to lend out those deposits to do their banking business.
Those high street banks must also deposit with the Bank of England a percentage of their deposit from their customers in the form of a statutory deposit
As for Investment banks which are not common in the UK but more in the US. They are more like investment brokerage institutions dealing more in investments and other advisory services for their investors. Such Investment banks does not fall into the category of commercial banks which are require to be regulated by the Bank of England or the FEB. So they are not entitled to be rescued by the Bank of England or the FEB.
When Investment banks made bad investments and suffer losses, they have to incur such loses themselves and do the necessary write downs, and cannot expect the central banks to bail them out. To continue trading in their business they need to inject more capital either from their shareholders or from interested investors or just close shop. Bear Stearns no. Northern Rock yes. Report It
The Bank of England had pumped in billions of pounds into Northern Rock to stop the run on the bank. That hugh amount of money should be able to help the Bank to function but it seems it have more problems to look into. Report It
oh yyyyyyyyyyyaaaaaaaaaaaaaaaaaaaaa yes Hello,
(ANS) The REAL point here is that if the BoE didn't support the five big major banks then the fear would be of an extreme financial crisis. And if any of the big banks collapsed due to a lack of liquidity (cash flow) then that would be totally catastrophic NOT just for the UK but it would ripple out across ALL financial markets across the entire world. It would be like an atomic bomb being dropped.
Why? because we now live in a global financial system, so what happens in one country i.e. the USA sub prime mortgage crisis does affect us here in the UK we are directly affected.
CONCLUSION,
So its NOT about if this is morally or ethically correct but it is about avoiding a major economic & financial disaster. If that disaster actually happened every single person in the entire UK would be directly affected. The value of the banks themselves would be affected, shareholders, dividends, the value of sterling, and so on and so forth. NOTHING would remain untouched by such a collapse. No cash at the ATM, savings would be worthless, pensions etc,etc. So I think the government & the BoE are trying to avert disaster so what they have agreed to lend more money to the major banks I just hope its enough and works to repair any risk or potential damage.
We live in scary financial times in my opinion. There appears a risk to the bed rock of capitalism itself.
Ivan I think you are confused about the definition of Investment Banks and High Street banks.
Firstly, they are largely one and the same. Barclays has Barclay's Capital, BoS the old Nat West Markets... and so on. Even Lloyds, not known for investment banking, has a small and growing Investment Bank. "Investment Bank" is just the American name for what used to be called Merchant Banks.
Secondly, they are not named as such because they make investments on your behalf. That's a Hedge Fund or a Unit Trust. They make money by providing innovative financial products largely for Corporate clients. They are invaluable for helping business to manage interest rate and fx risk, and also for getting higher returns for their money.
However, you are correct to say that sometimes they take a punt on something without hedging. Hedging means to take an offsetting position so that the risk of loss is controlled.
Should the central banks be supporting them? Yes, up to a point. They are essential for the economy. If they started to fail it would be a disaster beyond the scale of the Wall Street Crash. I think that the Bank Of England made a right hash of Supporting Northern Rock (which incidentally does not do investment banking), however the Fed did a very good job organising JPMorgan to buy out Bear Stearns before it failed.
Which other investment banks were you thinking of? Are you referring to the lending liquidity that the central banks are providing at the moment? OK, it's a bit more than usual... but this is their Job! That's why we have central banks - to be lender of last restort and to manage liquidity in the system. Some say in the media it is a case of putting a clothes peg on your nose and putting up with the sickening moral stench of bailouts for the overly rich. No own wants to pay anything to rescue the bankers and assorted debt pimps who got us into this financial mess, and in doing so exposed our societies to such harm.
Personally I at least would relish the delicious moments of pleasure watching these swine being thrown into poverty even if it produced some short-term hardship for the population getting rid of them. But unfortunately it wont happen. The Bank of England will have a whole pocket full of excuses why they have just got to help out their friends at these banks.
In case it鈥檚 not clear lol!! My answer is yes -- throw them to the wolves. Investment banks are high risk, however apart from shareholder returns they create wealth and employment, which means jobs at Starbucks I see your point but.......
I've worked all my life.
I've saved all my life.
I've never been in debt apart from my mortgage.
I'm certainly not rich however.
I've now managed to put away some savings and sorted out a reasonable pension, all at my own expense. If the banks collapse what happens to the money I've knocked myself out for all these years building up? Obviously if I had spent my life on the dole scrounging I wouldn't be concerned because my benefits would be safe. | 