The bank manager came to call

It was a sign of the times. A regional commercial manager of one of our leading banks said he wanted to come and talk to me as a local MP in his area. I agreed to see him yesterday.

He brought along a colleague with some Nulab type job title. They asked me what issues there were locally for their bank.

I said I thought the biggest banking opportunity I knew about for them in Wokingham was the Town Centre redevelopment. The Council is meant to be close to choosing a lead developer to breathe some life into a much needed redevelopment of part of the shopping centre. What was their approach to commercial property lending? Had they been in touch with the short list rivals to see if they could agree something in principle? Did they have money to lend?

I repeat this here to be fair to their rivals as well as them, if there is any interest and competition left in our banking market. May the best offer to win the business, if the developer needs some borrowings. The redevelopment includes public sector land and permits as well as private sector land.

They seemed surprised by this response and then confessed they knew nothing about it. Not many marks then for understanding how banking could be involved in our local community. It might also make some money for the bank.

They repeated their question. What could the bank do better to help the community? I said, lend money to good projects and sound companies. We were missing each other in the dark fog of Nulab speak from their side.

I then ventured that they could also improve customer service substantially as most banks in the UK can. They could make intelligent use of the data they hold on all their customers to tailor the loans or savings plans better to the financial needs of each customer. I pushed furtehr and suggested they need to be more engaged, instead of handling so much from remote regional centres or on automated systems that drive people mad. They agreed there was room for improvement but did not come over with a plausible plan of how things would be better in the future.

They then said they wanted to talk about the good works they do in the local community. I said that was good of them, but the most improtant work they could do was to be an active and successful bank to us. I reported small businesses who feel they do not get the service or the access to the loans they need. They reported that some small companies are now being broken by losing suits at tribunals for unfair dismissals. Apparently some of the fines and charges imposed are sufficient to bankrupt a small business, leading to the loss of the rest of the jobs as well.

There is a lot to do to sort out this mess. Too many people in senior roles are tallking old speak, Nulab political correctness. We need a newer speech, based on practical solutions to the large number of business and personal finance problems that have built up thanks to the mess the government has created with its over regulation and boom bust approach to economic managament. Does anyone out there in the government and big corporate world speak commonsense any more?

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38 Comments

  1. oldrightie
    Posted August 8, 2009 at 8:19 am | Permalink

    “Does anyone out there in the government and big corporate world speak commonsense any more?”

    A rhetorical question, surely, Sir? If not then the answer must be a resounding NO!

  2. alan jutson
    Posted August 8, 2009 at 8:28 am | Permalink

    Gone are the days of the old Bank Manager who had a degree of freedom of action, who could use his local knowledge to good effect for both the Town, for local Business and his Bank.

    Now it would seem we have it all Regionalised or control by central office. This sounds familiar !!!!

    John your blog raises a few questions.

    1. Was the Bank in question one of the majors who already have a branch in the Town ??

    If so it begs the Question, why did they not know of the Town redevelpoment. Talk has been going on for nearly 10 years with various plans submitted and approved.
    Evidence is available to be seen, we now have 12 empty shops on the main drag of Peach Street (I counted them yesterday while in Town) as some leases have run out, and short term ones offered, not taken.

    2. How old were the representives of the Bank ??

    For too long Banks seem to have simply waited for people to approach them for business, they seem to have not been proactive in the commercial world for years. Younger members of staff simply have no experience of having to be proactive and competitive, they have simply stood back and the money has rolled in with little effort.
    Business relationships/trust, Oh so yesterday !!!!!

    For the past few years its been more like:
    These are the terms, we want a charge on your house, and we will have our money back on demand, anytime we like, no matter how well you are trading.

    Times are a changing for everyone methinks, Banks included.

    Reply: Yes the bank is locally represented. The reps were quite old enough to have mature judgement.

    • alan jutson
      Posted August 8, 2009 at 11:50 am | Permalink

      Oh dear

      Finger on the pulse, I do not think so.

  3. backofanenvelope
    Posted August 8, 2009 at 8:36 am | Permalink

    “They then said they wanted to talk about the good works they do in the local community”

    The primary purpose of a bank is to make money for its owners. The government should make policy and regulate the banks to achieve its policy aims. If these people would just stick to their day job……..

    • Stuart Fairney
      Posted August 8, 2009 at 4:57 pm | Permalink

      Exactly right. Altrusim does not a successful bank make and the point of banking seems to have been missed in a maelstrom of community work.

  4. Brian Tomkinson
    Posted August 8, 2009 at 8:41 am | Permalink

    JR: “Does anyone out there in the government and big corporate world speak commonsense any more?”

    No they don’t and that goes right through all their organisations. Having to deal with many large businesses is often irritating, time-consuming and frustrating. The extent to which the NuLab malaise has infected so much of every day life cannot be overestimated. That’s why we need a radical change of attitude from an incoming Conservative government. The question I keep asking myself is – will your party provide that change?

    • Johnny Norfolk
      Posted August 9, 2009 at 6:43 am | Permalink

      A very fair question. I think many of us are concerned that Camerons Conservatives will be be soft and Heath like. We do need very strong leadership I am not sure Cameron has it. his type tend to feel guilty about their backgrounds so they are never strong enough.

  5. Bill
    Posted August 8, 2009 at 8:55 am | Permalink

    Quite right, John. More generally, I really do despair of my country a lot of the time. One feels like saying, what is the point. I don’t see how politicians are going to be able to improve things. In a sense Maggie’s job was easier: sort the economy and the unions. Now its the economy and the whole fragmented ousourced infrastructure. A much more difficult task. What is the point of being an MP? The EU and /or the courts do as they see fit.

    • Bazman
      Posted August 8, 2009 at 12:31 pm | Permalink

      Banks Bill, banks are your new threat replace your prejudice of of unions with a far larger threat to this nations wealth. Most unions only want a fair days work for a fair days pay. Bankers do not want this for anyone, and poverty for everyone if they can get rich.

  6. Paul
    Posted August 8, 2009 at 9:07 am | Permalink

    NuLab has no idea about real life any more. No idea about running a company, employing people, or anything that’s wealth producing. They’ve no longer (most of ’em) even picked up what life is like for real people, which ex-union Labour MPs did.

    Employment Tribunals are a microcosm of the whole country. It’s a no-lose no-risk situation for the complainant, who can go with the most ridiculous complaint and not suffer the financial consequences if they lose (e.g. paying the employers costs).

    At present as an ex-employer I would not advise anyone to employ anyone, certainly not in a small business, and then don’t employ anyone disabled, of a different race, or a woman of child bearing age either ; these are open invitations to unlimited compensation and highly expensive litigation.

    Not a nice thing to say, perhaps, but a direct consequence of New Labour policies (driven by fantasists like Harman).

  7. Waramess
    Posted August 8, 2009 at 9:27 am | Permalink

    ro the Adam Smith site today for those who might have missed it

    The freedom of speech and the freedom of the press have not been granted to the people in order that they may say things which please, and which are based upon accepted thought, but the right to say the things which displease, the right to say the things which convey the new and yet unexpected thoughts, the right to say things, even though they do a wrong.

    Samuel Gompers, Seventy Years of Life and Labor, 1925

    Pretty appropriate, I think; even for a bunch of bankers.

  8. Acorn
    Posted August 8, 2009 at 11:20 am | Permalink

    I don’t want to upset you even more JR but; have a read of the Tribunals Service annual report, where the small businesses are getting hammered by NuLabour employment laws.

    http://www.tribunals.gov.uk/Tribunals/Documents/Publications/239_016_TS_AR_2009_Web_Version.pdf

    If you want to target areas of legislation that need a very large dose of sorting, have a look at (document) page 121. You will see that Social Security, Employment and Asylum are the top three. You might want to think about making the Tribunal Service slightly more self funding, because going to a tribunal, is a lot like getting a free lottery ticket at the moment.

    Chapters 9 and 10 on staffing and benefits, are worth a read, particularly the bits about pensions (note 4. chapter 10).

    PS. Strictly for the Nerds. You may want to discuss why a public sector agency is using a “discount rate” of 6%, on its future pension benefit obligations.

  9. What about some real competition between banks
    Posted August 8, 2009 at 11:21 am | Permalink

    Working with two small business to implement Internet-based trading to broaden their market and open up new opportunities, I am disgusted at the banks’ attitudes towards the handling of credit/debit card transactions. Handling fees of the order of 5% of the gross transaction appear to be the norm. When you take into account that this includes any VAT element the true cost of handling a credit/debit card can be approximately 6%. That is a substantial costs that a small business has to bear just to sell goods/services through the Internet channel.
    To make matters worse the banks also commonly ask for a set up fee for the creation of an Internet Merchant Account (IMA) and impose significant account charges over a 12 to 24 month initial contract. This all adds to the cost of operating a small business.
    It is extremely questionable whether the banks can really justify these charges/fees – particularly as the transactions we are referring to are automatically handled electronically in huge volumes. But as there are limited choices of account providers for small businesses, they can get away with chargeing whatever they like.

    • Adam Collyer
      Posted August 8, 2009 at 9:19 pm | Permalink

      The issues about charges for setting up as an internet merchant probably have something to do with the huge losses the banks suffer from internet-based fraud. I suspect the losses are much greater than the banks publically admit. They make very little effort to tackle these issues, because they can recoup the losses by charging the merchants extortionate fees.

      The police aren’t even interested in a complaint about such fraud unless the complaint is made by the bank.

      The bank refunds the money, but they get it back by overcharging all the merchants, so they’re happy. (And of course the banks don’t want to admit the astonishing lack of security around “cardholder not present” transactions.)

      The customers are happy because they’ve got their money back.

      The police and the government are happy because it doesn’t hit the crime figures, and it would be SO much work to tackle the issue.

      Only the merchants are paying, and nobody cares about them.

      Don’t believe me? It happened to me, but with a bit of detective work I got THE NAME AND ADDRESS of the fraudster and gave them to the police. Were they interested? Were they heck. “Thanks for giving us the information, but we can’t act on it because you’re not the victim of the crime. Sorry sir.”

      • What about some real competition between banks
        Posted August 9, 2009 at 12:17 pm | Permalink

        Whilst I would readily accept the point that the banks need to cover the cost of fraud, I also know from having worked in the transaction processing that the fees charged to larger businesses are much lower than those charged to the small businesses and yet ‘card holder not present’ fraud is a risk on all transactions. So in effect the small retailers and businesses are forced to subsidised the larger firms!

      • Paul
        Posted August 10, 2009 at 4:06 pm | Permalink

        This statement is self evident nonsense (unless you used illegal means to acquire the information).

        If there was a rule that evidence was inadmissible *unless* you were the victim it would be impossible to convict anyone of murder.

        • Adam Collyer
          Posted August 10, 2009 at 7:16 pm | Permalink

          I agree it is self evident nonsense. I complained via my (Conservative) MP. I have a letter from the Thames Valley Police “Head of Quality of Service, Operations Directorate” that says:

          “…clearly your concerns are legitimate however I must point out that the law does place the Bank or retailer as the aggrieved party in such cases. We will only take action if they contact us, as clearly we need their involvement and assistance to effectively investigate such cases.

          Experience has shown that Banks will not report isolated cases and will only inform us if there is a pattern of offending or clear lines of enquiry to identify individuals. Banks employ their own security staff which look at the issues when they come to light and they make decisions about whether to ask for Police involvement.”

          So there you have it. I have done enough research on this to understand that this is the normal Police response to reports of credit card fraud.

  10. Neil Craig
    Posted August 8, 2009 at 11:43 am | Permalink

    GFair point about the damage unfair dismissal laws do to small (& large) businesses. I await seeing a top bamker coming out & publicly saying this. Despite what the common belief about bloated plutocrats riding roughshod over the public interest the fact is that the bigger the company & the higher the rank in it the more it has to genuflect to the inanities of government.

  11. None of the above
    Posted August 8, 2009 at 11:52 am | Permalink

    mmm…

    I see your policies of deregulation in financial matters (masterfully stolen by NuLab) have worked wonders Mr Redwood. And thanks to the, ahem, ‘economic miracle’ during Mrs T’s reign, we’re now working for longer, for much smaller (if any) pensions, with fewer working rights, a nation full of graduate’s in call centres that manufactures nothing any more and the general fabric of society is ripping asunder and we hate each other.

    way to go mate

    Reply: You may not have noticed but we have had a Labour government and Labour policies for the last twelve years, so blame them if you do not like the present. Under Mrs T incomes went up and we had the best pension provision in Europe through our private sector schemes.

    • Paul
      Posted August 8, 2009 at 2:30 pm | Permalink

      Now, be fair. The Labour party inherited an economic wasteland from the Tories in 1997 – economy in ruins, massive debt, unemployment through the roof. After twelve years of hard work they will hand to Cameron (probably) an economy in full bloom.

      ….. or have I got that the wrong way around ?

      Never fails to amuse me how Lefties blame poor Mrs T for everything. She left office nearly 20 years ago. It’s odd that Leftie memory never goes back *beyond* 1979 to the wondrous economic successes of the last Labour “government”, mind.

      Lefties faced with this minor detail (twelve years of a Labour govt) argue, get this, that the 1997-date government is a Tory one really and is following Tory policies

      ….. if only.

  12. Bazman
    Posted August 8, 2009 at 1:36 pm | Permalink

    It will be interesting to see how the next election turns out. A Labour government unable to tackle the banks and if the City has any sense, would see that they can do what they like under Labour and the mug taxpayer will pick up the tab.
    A conservative government will have blind support of banking. It’s their DNA quite literally. In fact most of them I suspect are Tory/banker or their mates/family are. Probably a mix of both cannot change the system. It is not in their interests to do so. This is why there is no hardman talk of smashing the city bankers like the union leaders there.
    The supporters of the Tories hate the idea of subsidy in any form. Had Labour let the system crash and mass unemployment and crime unfold this would have been Labours fault for not controlling the banks with tight regulation, which had been in place would have been seen as the cause of the crash so Labour would be duty bound to save the system with a subsidy. The market would have knew best. Free hand of capitalism. Free? Never will be Free as anyone who can control something will. Labour not only caused the crash, saved the system and left the same people who caused it in place to do the same. Marvelous old bean.
    Any Tory supporter can do no more to help their cause then vote Labour and no Labour voter can do more to support their party by voting Labour. Difficult to see how you can support vested interests more. Except by voting Tory if you have some personal interest. Any cuts by any party should be judged on personal circumstances. An onslaught of cuts to the middle class social security gravy train and benefit scroungers should be a top priority for any party.
    Bonuses, trebles or beers all round Jack.

    • Waramess
      Posted August 9, 2009 at 8:57 am | Permalink

      Labour certainly caused the problem; that is not disputed by any branch of economics. Few, if any are saying they have saved the situation and many are saying they have made it worse.

      The only reason for voting New Labour would be to force them to clear up the mess rather than jeer from the opposition sidelines, whilst others try.

      But, therre is no point votiing Labour, even for that reason: they clearly have no idea of how to clear up the mess

  13. Paul (1)
    Posted August 8, 2009 at 4:22 pm | Permalink

    Accurate and perceptive as always John.

    Corporate speak and inaction is rife in the private and public sector.

    As a business owner ( and a current business “minor celebrity” locally) I was asked to attend a meeting a few weeks ago to discuss apprenticeships and work experience schemes.

    The meeting was all about stakeholder this, intiatives that, co-ordinated outcome targets, diversity spreads and underfunded resource budgets. It was waffle.

    When I got back from the meeting I rang round my contacts, put a note out on a business networking site ( LinkedIn) sent off a couple of e mails and within 4 days I had 3 businesses looking for interns for some very interesting projects, and 2 more who were very keen to hire upto 8 people between them on apprenticeships. I then called 3 of the taxpayer funded bodies and the County Council coordinator for work experience to arrange to get people in place.

    2 have not returned my calls still, 1 said brilliant great I’ll get onto as soon as the summer holidays are over and the County Council work experience coordinator said that they are quite capable of doing this and have their own program in place!

    So I did it myself. After a week I’ve found 2 interns who are due to start soon. A couple of apprentice wannabe’s lined up for interviews and I’m working on the other opportunities.

    Yesterday I received an email from a new tax payer funded Businesslink based organisation telling me that there is a meeting scheduled in a month to talk about the next round of apprenticeship funding.

    Big is B*******s in my experience. Small, lean organisation, focused on delivery of the service directly to the beneficiary is the only thing that works.

    The Megabanks should be broken up along with other oversized overstaffed and bloated public sector organisations

    • Bazman
      Posted August 8, 2009 at 9:09 pm | Permalink

      Chaps, Gels, Tories and vested interests. My argument entirely. Tell it how it is . We love you Paul…(1)!

  14. no one
    Posted August 8, 2009 at 5:09 pm | Permalink

    re “They reported that some small companies are now being broken by losing suits at tribunals for unfair dismissals” come on john you keep giving hints that you are in favour of breaking down any employment protection please do tell us where your thought process is, small businesses can in any case insure this risk cheaply – and simple fair play is a good defence

    my view is that yes it should be easier for employers and staff to part company amicably, without the wild accusations often dragged out now, however employers guilty of bullying, harassment, breaching any and many employments laws should be more criminalised and heavily penalised rather than it being down to the employee on their own to take them to tribunal and/or court

    there are some large organisations operating in this country, and the large indian outsourcing organisations spring immediately to mind, who are running little more than sweat shops where none of the norms of decent employee relations you would recognise are in place, indeed they openly flout the visa rules, and treat their staff both indian and european in the most outrageous ways, often paying ex gracia payments to keep disaffected staff away from courts, or getting rid of folk just before they have been there 12 months so that they loose the risk of being taken to employment tribunal

    yes i want a competitive workforce for the employers to operate in, but i want the employers not playing by the rules to be hammered much more to make competition from decent organisations possible

    i think a decent environment for employees, where they are treated with respect and fairly is perfectly possible in a conservative free market nirvana, i would like to see how the conservatives are going to implement this

    leaving it all to the markets and the millions of grads being churned out in india will shortly be doing all the jobs here, they will be subjected to the worst kinds of exploitation, and there will be no longer any european workforce

    is this where you want us to head?

    Reply: I was reporting an worrying issue raised by the bank I was talking to. I think we need to consider getting the balance right. I like you have no time for bad employers, but do not wish to see small businesses brought down by departing employees in the name of job protection.

    • no one
      Posted August 9, 2009 at 9:07 pm | Permalink

      thanks for your reply john

      im pretty much on your side BUT i can see you need to balance some of the things you say with some recognition of the problems real people feel out there! So for instance on this issue if you have no time for bad employers say so more often, and tell us how the system in Conservative UK will be setup to act against them

      I think we probably agree, but I think you need to speak to the employees suffering at the hands of terrible employers, simple changes could fix this so easily

      as an aside also been massively unimpressed with Andrew Lansley the last few days, access to my health records? more money wasted on poor computer systems no doubt. He should lead on one simple theme “power to the patients”, give the patients real buying power and if they want access to their records it will come, dont try and manage from the top any more…

      Reply: The law already gives employees an action against employers for unfair dismissal and discrimination. Do you think these need strengthening further?

      • no one
        Posted August 10, 2009 at 9:09 am | Permalink

        the employees who need this protection most are those least able to afford it, and even if you can afford it you are often risking your family home to fund a case, really some of the worst employers are obvious for all to see (or at least a lot of us) and the state should be clamping down on the worst employers

        most cases brought are funded by legal protection insurance, and again the insurance companies tend to fund only clear cut simple cases, more complex cases of bullying etc often go unchallenged, and of course many of the most needy are not insured for this

        ive worked in companies that are racist, bullying to severe degrees, flooding the country with staff (from overseas-ed)on internal staff transfer visas blantantly breaching the terms of the visas, etc

        there should be protection from blatant evil bullying from day one of employment, not after 12 months!

        and the state should be prosecuting the worst examples many of which are little more than sweat shops

        while at the same time i agree with you that many aspects of the system are bad for employers and business, i think the system is also bad at stamping out the worst cases that have no place in a decent society

        and i really fail to see why we continue to dish out visas like confetti to a whole industry (outsourcing) that has widespread abuses as anyone close to it knows, its not like this country is short of skilled staff especially at the moment, this is not managed migration

        so yes i think some behaviour from employers should be simple criminal offences which the police etc take on, and apply from day one, i am only talking about fair decent treatment that we should all expect but where currently employees are being widely abused

  15. Mike Stallard
    Posted August 8, 2009 at 7:00 pm | Permalink

    Obama won his election with the slogan: “Yes We Can!” I do hope the Conservatives are going to be as brash.
    “No we can’t….” or “Currently it is not part of our planning strategy…..”, or “I am afraid the person you want is on leave at the moment….” (see the last excellent post) are all too commonly accepted as excuses to do nothing.
    It is down to us individuals to make change happen: the government, miles away, or the regional office, miles away, or NICE, in the far North, are not going to help.
    So?
    1. Stop whinging and get on with what we can do. I am good at Grammar and I am on the point of starting a course in English Grammar for teachers and government agents where verbs and nouns are not interchangeable, where sentences begin with a capital and end with a full stop, where intransitive verbs do not have objects, and where the main aim is to understand and be understood. I might also teach gobbledegook for a laugh.
    2. Whenever anyone of us goes to a meeting and does not understand, let them say so in no uncertain terms. “What does “ratiocination” mean, please?”, “Who gave you the authority to say that?” etc.
    3. We won’t be thanked. We won’t become rich. But we will be right.
    At the moment we are playing into the hands of the eejits in Brussels and London who despise us.

  16. Adrian Peirson
    Posted August 8, 2009 at 8:01 pm | Permalink

    You missed out the bit where you and the Banks talked about Local Currencies……..you did discuss that didn’t you ?

    http://tinyurl.com/lwowvh

  17. john Henry
    Posted August 8, 2009 at 9:17 pm | Permalink

    Banks and other service providers (such as airlines) seem to treat customers as an inconvenience these days, they forget that customers pay their wages. I dropped my parents at the airport today. To get a ticket, you have to go online, you should preferably check in the baggage online, preferably book a seat online, pay for a suitcase online, and pay for golf club baggage online. You then pay 200 pounds for the privilege of all of the above online and then when you turn up at the airport you have to wait in a queue for over an hour because there are only three check in desks open for 6 or 7 flights. In other words, the airline expects you to do all their work for them, pay through the nose for aspects of the journey which were “free” in days gone by and put up with any inconvenience caused by them. Banks seem to have the same attitude towards their clients. I really am fed up with this kind of “service”.

    • alan jutson
      Posted August 8, 2009 at 9:43 pm | Permalink

      Oh how true.

    • Mike Stallard
      Posted August 9, 2009 at 8:30 am | Permalink

      I wonder who has been flying Ryanair then?

  18. john redwood
    Posted August 9, 2009 at 9:38 am | Permalink

    I received this contribution by email from someone who works with banks and does not want their name divulged. I have put it on the site and on this occasion respect their wish to be anonymous as I think it makes a useful contribution to the issue. . The following was written by a contributor:

    “Your conversation with your local bank manager was depressing due firstly to their lack of understanding of what is going on outside the bank door, but also their lack of understanding of what a bank has traditionally done. The problem is, you could have had the same conversation with any bank manager anywhere in the country and you would have had the same response.

    The problem, as I see it, is a lack business experience and our old friend common sense.

    Over the last 6 years I have seen some excellent projects fail to get funding and some terrible projects receiving it and the one common factor in the decision is what the bank refer to as “Security”, but what they actually mean is property on which the bank can take a charge over.

    The banks have set up criteria that appear to operate as follows:

    1. You want to borrow £100,000.
    2. You have a property worth £200,000 on which you have no borrow 3. Allow a loan to value calculation of 75%, giving the property a security value of £150,000 4. Loan approved with a charge taken over the property

    If you do not meet this calculation then you do not get the loan, if you do meet this criteria you do get the loan. The ability to generate cash to service the loan does not even appear to enter the equation.

    Over the last number of years this has driven lending to property developers, pushing up property prices, which in turn has driven up the amount the banks could lend to these property developers, driving the bubble in property prices.

    The credit crunch and subsequent fall in property prices has destroyed this LTV calculation. The banks have now been left with loans they deem to be “unsecured”. Take the example above, the loan was granted for £100,000, but if the underlying property “value” (and this is the banks perceived value of the property) has fallen to an estimated value of £120,000, using an LTV of 75% the bank are only secured to £90,000. Leaving an unsecured element of £10,000.

    The bank now have a couple of very difficult questions:

    1. Do they provide for £10,000 against this loan, an act that will reduce the banks reserves and reduce the amount it can lend.
    2. On the basis that property prices are still falling or at best flat, how do they access the collectability of the rest of the loan

    As the property boom raged the banks lost sight of the real criteria for making a loan, what is the business ability to pay that loan, i.e. What is the businesses cash flow and does it generate enough to pay its expenses, taxes, interest, capital on the loan and make a profit.

    Until the banks get to grips with this simple concept lending will remain tight as many properties are in negative equity so there is no “Security” to lend against. I believe the government are aggravating this problem by making the banks hold more “security” in the form of government loans. A strategy that is soaking up lending and fixing security, rather than cash flow, as the key to good quality lending.

    I look forward to more blog’s”

    • alan jutson
      Posted August 9, 2009 at 8:37 pm | Permalink

      John

      Think this confirms one of the points made in my earlier Blog on this subject.

      We want a charge on your house, no matter what your proposal, no matter what your financial input to the deal, or its merits.

      Fail to let tham have a charge on your house, and in many cases you fail to get the finance on your business.

      Recent government so called guarantee loans are treated the same way, your house first !!!!!

      At least that is my experience, hence my very small Company works without borrowings.

  19. Adrian Peirson
    Posted August 10, 2009 at 3:14 am | Permalink

    Banking is a very simple operation, it should operate on very simple principles, here we are in the 21st Century and we are still having to work out how banks should operate.
    They are there to store your money for safekeeping, they are not allowed to lend out your money.

    When you deposit money in your bank, did you give them permission to lend out your money, because that is exactly what they did.
    What they did was for every £1000 you deposited, they lent out £10,000 IE they lend out money that was not their to lend out and which they never even had in the first place.

    Explain this to any high school student and they will instantly recognise this are fundamentally wrong and the cause of the ‘credit ( IE thin air ) bubble.

    We have a financial crisis because Banks and Govt Knowingly embezzled and commited fraud with our money.

    We are in the 21st century, the principle of banking ought to have been settled a thousand yrs ago, but no, Bankers wanted to be able to lend out money that was not theirs and which didnt even exist, AT INTEREST.

    And when it all comes crashing down which was inevitable, we and our children get to pay the Bill.

    Probing the inner workings of atomic structure, finding cures for disease, planning explorations to other planets ought to be what taxes our intellect, not what is the role of a Bank.

    A bank is there to hold peoples savings, that’s it, if someone wants to borrow money, it is between the people who actually own the money in the bank, not the bank.
    It should be they that are owed the interest on any borrowing.

    Reply: A bank cannot function unless it can lend out money deposited with it.

    • Waramess
      Posted August 10, 2009 at 3:58 pm | Permalink

      I’m afraid this as a reply oversimplifies the problem. A bank should be able to borrow a multiple of its capital depending on the strength of its asset base.

      There is absolutely no reason why they must lend out depositors money and absolutely no reason why they should not simply act as a custodian for depositors money unless they have permission to lend it out.

      There are many books on banking and as Adrian Pierson says we ought to have learnt what banking is all about by now.

      We had learnt the lessons many years ago but then the current breed of bankers changed the rules.

      Until 50 years ago most of the UK banks lent on overdraft and because their liabilities were all short they had to keep their assets short. Banks did not make mortgages available, except to staff, so the tenor of assets and liabilities were pretty well balanced.

      Then the Americans came and brought with them term loans for business customers, which paid the banks a premium over the overdraft loans, and of course Margaret Thatchers deregulation permitted banks to enter the mortgage market. Both of these factors in my opinion materially destabilised the banks porfolios.

      There is no reason why the banks should be allowed to continue as before and this is not how they have always operated. The Bank of England should start doing its job properly and bring us back to a solvent and sustainable banking model.

      Reply: In the 1980s we regulated the cash and cap[ital banks so they did not get into trouble. The regulators relaxed in the last decade, bringing about the crisis. If a bank cannot lend the deposit money it collects, it cannot earn an income on it, so it could not afford to pay interest on the deposit.

      • Adrian Peirson
        Posted August 14, 2009 at 1:32 am | Permalink

        It’s my belief, and that of many others that this relaxation of the rules was delibeterate.

        This is a coup, by the Banksters on the entire world, no one should have that amount of control.
        The reason they do is because we do not have sound money, they have absolute control over the supply of money, and since it is no longer backed by anything of value, this control is exerted, often in secret at the touch of a computer keyboard.

        http://www.youtube.com/watch?v=dECy9RCS2L8

      • Waramess
        Posted August 14, 2009 at 9:04 am | Permalink

        You tried to regulate cash and capital but it didn’t work; at least not in the long term. Capital allocation for AAA debt was set at a very low level and look at what the banks and the rating agencies did to that.

        Banks do not have to lend out depositors money to make a profit, they can borrow money elsewhere against capital and there is no reason why banks have to pay depositors interest unless depositors agree to have their funds lent out.

        We need an entirely different model if banks are to continue with the status quo and it needs to accommodate the banks balancing the tenor of their lending with their liabilities.

        More regulation is not the answer; more market discipline probably is

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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