大象传媒

Let me get this.
The rules haven't worked, so, lets have no rules ?
A bank is a private institution just the same as any Ltd Company, or PLC.
To exclude them from disclosure rules is preferential treatment. Why shouldn't the same apply to the likes of British Energy (the Nuclear generator). It had to take additional loans from the government back in 2004/05, yet had to be fully disclosed, irrespective of the damage to its' reputation or its' business profile.

This is a fudge, and the way I see it, it is because the government know there are more Northern Wrecks to come.

> The big banks fear that if they were
> to inject hundreds of millions of pounds
> each into the new insurance fund, they
> would have less capital available to lend
> to all of us鈥�

The money could be invested in (wait for it) a bank! And that bank would
loan the money to investors, reducing demand for capital by all the rest
of us. I think the Americans call this 鈥渨hat goes around comes around鈥�.

My real objection is this 鈥� why should we customers pay to insure
that our own money doesn鈥檛 get thrown down the drain by
our bank, due to an overly aggressive business model, or plain
gambling (which amount to the same thing, in the end).

A far better idea is to compel banks to place bonus payments into
a 鈥渂onus bank鈥�. Operatives would build up bonus in good years,
but have it stripped away in bad ones. That would add a little risk
aversion to their attitude 鈥� right now they keep their previous gains
even as they destroy our wealth.

Darling's plan amounts to supression of information,possibly to the benefit of the shareholders and to the detriment of the depositers and will further erode the credibility of the banks.

How would covert help work when you obviously have a source within the BoE or FSA and you believe it to be news to report on such events that had not been publically announced? As you say in your article this won't change anything about what happened to the Rock. In effect, customers couldn't care where NRs liquidity came from ECB, BoE, Money Markets...but what they got on the 12th September was 'Northern Rock' 'Emergency' 'Funding Crisis' and 'Bankrupt' mentioned repeatedly. It was this reason there was a run. The fact that it perpetuated was logical as a bad situation was getting worse. The fact that it started was the fault of the 大象传媒.

This stinks.
There's Gordon Brown and the other European leaders calling for more 'transparency' in the running of the financial institutions, and now the Bank of England can 'prop up' ailing banks in secret.
Surely this invites the very recklessness which the Northern Rock board demonstrated in their management of the building society - sorry, bank - secure in the knowledge that the BoE will bail them out..?

Yesterday, the operative word at the Euro leaders' press conference was transparency - that the banks should come clean about their losses.

Today, the operative word is secrecy - so that the BOE can rescue ailing banks covertly.

Actions speak louder than words so senior bankers can follow the actions of the Treasury and ignore calls for transparency by continuing to slowly drip out the bad news on losses.

So the government will help banks to conceal their problems from depositors ?

Won't this make it harder for me to find a safe place for my cash ?

Hiding the symptoms does nothing to cure the problem, which is a something for nothing mentality in the UK financial psyche.

Its about time we stopped feeling sorry for our banks who have over the last 7 years earned nearly 拢200 billion between them.
Their problem is they believe they now have a given right to screw each and every customer in perpetuity.
Until they realise from on high in their respective ivory towers that the world has moved on and what is required is a massive basis change in their primary thinking, most notably show some humility and competition this madness will continue unabated.
Their arguement that putting money into a scheme will handicap ,their ability to lend is total claptrap. a few hundred million in comparison to the billions of singualrly unjustified bonuses paid is chicken feed, and with more banks opening in the UK not to mention the opportunities for building soceities to develop their strategies, our present clearing banks are on the road to no where.
It's time the public and the business community secured an equal balance with the banks, who in this country have abused the goodwill extended to them for way too long.
Their cosy club need sorting out and we can only hope politicians notably the Opposition MP's will see the light and realise this is an election issue.
The incumbent Government and its MP's appear to act like rabbits frozen in the headlights of the bully boy attitudes of the banks and the present FSA management appears totally unable, to get its act together.
The party for the banks is over and we will all benefit.

Is the Government just looking for a sizeable pot of secret money to use on the QT?

Banks make profits for themselves, and losses on behalf of society (as a wise man once said).

Let's have a free market. No support from the Government. Investors will therefore place their money with a bank they can trust. They'll trust a bank based on information available about financial viability and a track record of being sensible. Sure, every now and again, there'll be some idiots who play the short game, but that just reminds everyone to look out for themselves.

You never know, some enterprising individual may even start writing insurance policies to protect depositors from losses when banks default...

So the FSA has identified three characteristics of poor quality loans. Get the banks to disclose their own performance ona regular basis - include it in quarterly management statements...

What a magical about turn buy Brown. One day he is calling for banks to be more open, the very next he is setting the legislative machine in motion to facilitate more secrecy.

It's almost as good as this classic :

"It's all the more remarkable that inflation generally is low, when you have, as everybody acknowledges, rising food prices round the world and rising oil and commodity prices."

It's not at all remarkable when you measure inflation deliberately in a way to show it as low.

We truly live in a time of double-speak.

So it's a case of what the public don't know won't hurt them.

'The Treasury feels that an emergency loan from the Bank of England should only be kept secret where that loan is temporary and limited in nature.'

Sounds like a classic fudge.
Well, I guess the banking system has to be protected, but journalists have a responsibility to ensure these powers are not abused.

Robert I am not sure now 'new' these rules are.

My understanding was historically when a large financial institute found itself in a mess the BOE acted as a middle man and brokered a deal to prevent a run on the institute.

The only thing that stopped the run was coprorate secrecy.

If the old rules had applied (before our PM changed the relationship rules between the BOE, FSA and Treasury) Lloyds would have bought the Rock and two years from now we would have heard about the rock difficulties. No run, no scandal. I hear on the financial grapevine the rock was not the only one with issues in the last 15 years the difference was the rock was caught under the new rules and guidelines.
Due to a lack of corporate secrecy that created the run surely?

I am not a fan of secrecy in PLC's but in some circumstances it can be justified.

Oh yeah, good one darling. Wasn't it hidden toxic debt that got us into this debacle in the first place?

Today in the Telegraph

"The data appear to confirm suspicions that the EU authorities have carried out a covert rescue of the Spanish mortgage banking system.

It may equal the taxpayer rescue of Northern Rock in Britain, and possibly exceed it in proportion to the overall size of Spain's economy.

The key difference is that the ECB rescue operation in Spain has been disguised. A veiled method is necessary since the eurozone lacks a clear-cut lender of last resort. The IMF has warned that this gap in the architecture of of the single currency could prove serious in a crisis."

What the Spanish banks have done in the last quarter is bundle up 拢39BN in mortgage securities and deliver them to the ECB with a AAA rating, thus staving off the looming disaster in the Spanish property market which will take many Spanish banks down the financial pan.

No fuss, little publicity, no political fallout, no queues at the tellers window.

How come Northern Rock could not have done the equivalent here, except for the inability of our financial masters to get their act in gear!!

I wonder just how much property around Europe the ECB now owns in reality?

Fully agree about the rainy-day pot for the banks. The customers deposits should be guaranteed.

However the laws about not disclosing information is a huge mistake. The problem with Northern Rock does not lie into the disclosure that it had to ask from funds from Bank of England.

The problem was due to the model Northen Bank had and the reactions of FSA/Bank Of England and the goverment.

And the best outcome of the Northern wreck was that the public and media had the ability to trace the problem and query the responsible organisations on their actions.

If now information on such issues is hidden from the public then it raises a question on why is the goverment/BOA/FSA so keen to hide their actions through situations like Northern Rock.

It smells bad...

This is fantastic, so what the treasury is suggesting is that if I do the proper analysis of a bank and decide to invest in a bank and then it turns out that all the analysis I was doing was just a waste of time because the bank was being secretly funded by the Bank of England and is on the verge of collapse then if the Bank of England has to withdraw this suppport because it decides the bank is in a position to support itself and either it collapses on it's own or becomes much lesss profitable in it's new form my money invested is copmpletely unprotected and I have no ability to protect myself legally against the Bank of England manipulating the Share Price. Fantastic this is a great advert for capitalism and the free market.

Someone has to foot the bill initially. And they will pass it on to other people/entities.....

So whatever happens, everyone will end up paying a bit to be insured.

That there are one or two NR's still to come is highly likely and before the summer>wink

How much are Barclays shares right now?

"... the panic at the Rock that was caused by the disclosure that it had gone cap in hand to the Bank of England."

so are you admitting some liability?

"And they believe that the Rock would have required so much taxpayer support for so long that it would have been inappropriate, naive and impractical to endeavour to keep it on a life-support machine in a wholly clandestine way."

Really?! Some other commentators have suggested that without a retail and then wholesale run on the bank, the support in the autumn may only have amounted to perhaps 拢5bn... an amount that hardly requires a long term to turn around or re-finance.

Is it only me, or are we going backward on central bank regulations? And if the bank of England has such ability to bail British bank wouldn't that be violating EU restrictions on subsidies???
This reactive approach by the Treasury is causing more panic in the City than any real threat. Lets admit it, we have a tight year ahead, so stop trying to fix the unfixable and through the whole financial system into chaos

So the banks are howling? They're worried that they'll have to find hundreds of millions to protect their depositors?

If they're that worried why are they still handing billions out to themselves in bonuses?

Do they complain about the FDIC that sits on some 拢25 billion.

They're just worried they won't be able to trouser as much next year.

It's high time this government stood up to the banks.

"... the panic at the Rock that was caused by the disclosure that it had gone cap in hand to the Bank of England."

so are you admitting some liability?

"And they believe that the Rock would have required so much taxpayer support for so long that it would have been inappropriate, naive and impractical to endeavour to keep it on a life-support machine in a wholly clandestine way."

Really?! Some other commentators have suggested that without a retail and then wholesale run on the bank, the support in the autumn may only have amounted to perhaps 拢5bn... an amount that hardly requires a long term to turn around or re-finance.

Today in the Telegraph

"The data appear to confirm suspicions that the EU authorities have carried out a covert rescue of the Spanish mortgage banking system.

It may equal the taxpayer rescue of Northern Rock in Britain, and possibly exceed it in proportion to the overall size of Spain's economy.

The key difference is that the ECB rescue operation in Spain has been disguised. A veiled method is necessary since the eurozone lacks a clear-cut lender of last resort. The IMF has warned that this gap in the architecture of of the single currency could prove serious in a crisis."

What the Spanish banks have done in the last quarter is bundle up 拢39BN in mortgage securities and deliver them to the ECB with a AAA rating, thus staving off the looming disaster in the Spanish property market which will take many Spanish banks down the financial pan.

No fuss, little publicity, no political fallout, no queues at the tellers window.

How come Northern Rock could not have done the equivalent here, except for the inability of our financial masters to get their act in gear!!

I wonder just how much property around Europe the ECB now owns in reality?

So the banks are howling? They're worried that they'll have to find hundreds of millions to protect their depositors?

If they're that worried why are they still handing billions out to themselves in bonuses?

Do they complain about the FDIC that sits on some 拢25 billion.

They're just worried they won't be able to trouser as much next year.

It's high time this government stood up to the banks.

I heard on 5 live today that the view of the Cass Business School is that the BoE is quite rightly the 'lender of Last Resort'but any such action should be discreet.
I agree with this and in hindsight it was the sensationalist reporting by Robert Peston on the day that the BoE was requested to cover support to the Northern Rock short term liquidity problem that caused a major run on the bank culminating what we have now.

Deposit insurance is a sensible longer-term suggestion but the political backdrop to it is hilarious. On the one hand, Gordon Brown is calling to make things "more transparent". On the other hand, he wants to hide bad news under the carpet whenever it suits!

I guess we shouldn鈥檛 expect more from a morally and intellectually bankrupt government, who seem only to excel in telling people that 鈥渂lack is white鈥�.

This is fantastic, so what the treasury is suggesting is that if I do the proper analysis of a bank and decide to invest in a bank and then it turns out that all the analysis I was doing was just a waste of time because the bank was being secretly funded by the Bank of England and is on the verge of collapse then if the Bank of England has to withdraw this suppport because it decides the bank is in a position to support itself and either it collapses on it's own or becomes much lesss profitable in it's new form my money invested is copmpletely unprotected and I have no ability to protect myself legally against the Bank of England manipulating the Share Price. Fantastic this is a great advert for capitalism and the free market.

I agree with the first two comments. And how do you keep a secret anyway? What this means is that some investors and depositors will be in the know, the majority won't, thus giving an unfair advantage to those closest to the problem.

Offering this type of protection can only exacerbate the situation. If banks cannot regulate themselves then surely the last thing we need is the ability for them to hide from the public eye.

Say one thing (Brown - transparency) - do another (Darling - covert rescue).

Can you really believe we allow ourselves to be governed like this?

The banks' consumption of their own cake would have Edward Heath turning in his grave.

Come the good times, banks' high-flyers pocket vast sums, but when it's adverse, the shareholders and taxpayers are expected to dig deep!

Given the parlous state of physics research in this country, emasculated for want of 拢80m only, I sit open-mouthed at the instant willingness of the govt. to stump up 拢25bn for a badly run commercial concern.

So the government will help banks to hide their bad finances from depositors ?

This is tackling the symptom rather than the problem.

Its going to be grim.

'Under the new proposals, the banks that fund the compensation scheme may also have to make pre-payments into it instead of contributing when a bank fails. However, this could prove problematic for banks given the current financial climate.
"The volatile conditions in financial markets that have created anxiety about the robustness of banks are what make the reform proposal difficult for banks: right now they are chronically strapped for cash," '

Well this is all a bit worrying for the people with savings in any of the banks and building societies.

If they are so strapped for cash what chance is there they will come up with the money to recompense investors when a bank does fail?

I also notice that you have failed to report that if the Bank of England comes to the rescue of a bank and it fails, it will have first dibs on any assets of the bank.

It would seem savers should be extremely worried by all this information.

If the banks can get secret support from the BoE, then this will worsen the climate of fear. As it stands today, we know that only one UK bank is so sick it's on life support. This gives people the confidence to deal with the OTHER banks. Once the law is in effect, you'll have no way of knowing who deserves trust. It'll hurt the good banks at the expense of the bad.

The point of this legislation isn't to allow the Treasury to prop up banks in secret, it is to prevent the kind of hysteria we saw in the wake of the Northern Rock crisis. Support would only be kept secret temporarliy, such that any future crisis could be largely dealt with before the media got on to it, and before the kind of debilitating panic we saw last year set in.

The banking industry is different to other industries - confidence is crucial. It is also enormously important to the economy as a whole. If our banks start to fail, so does our whole economy.

Presumably the government knows that another of our banks is in need of help and the covert rescue will save the gov'ts face.

HMG haven't yet figured out what to do with Northern Rock, but it seems they have already managed to figure out hwo to fix the regulatory regime (of their design) which they claim caused the mess in the first place (although it is very far from clear that the current situation is the result of a regulatory failure and not the result of poor crisis management by the government).

This smacks a little of hubris from a government whose reputation for competence in economic matters is collapsing before our very eyes.

However the point that secrecy is necessarily a bad thing is wrong. When two companies are planning on merging, the information is kept secret, and in fact disclosing such information can constitute a criminal offence under some circumstances.

For Peston to claim some sort of right to shout from the rooftops that the Bank of England is organising a rescue of a failing institution, when such a revelation could be highly prejudicial to the likelihood of success of the rescue, is not exactly edifying.

Unbelievable. It now seems that banks have (a) preferential access to money via the BoE that other companies do not have and (b) they can get access to it in secret.

If I run a business I need to ensure I run it prudently and do not have funding issues. Banks continually deal in short term money market arrangements, and these often do not do what is expected. It's called risk, and is how (simplistically) the Banks make money. Why should a Bank get preferential treatment to state aid, even short term, when another company needs to play by a different set of rules. If a company is being run shoddily it is imperative for trust in the whole system to be maintained that it is known openly and allowed to descend into rumour

Do you think that banks will really just set aside their cash in to this pot?
No - they'll reclaim it from the customers that this scheme is meant to protect!
You only have to look at the current overdraft fee cases and the tardiness of some banks in lowering its mortgage rates following the base rate cut to understand that banks are profit making institutions and they have the power to squeeze the market wherever they choose.

Would the rainy day pot be filled residually if bonuses were paid, accruably, at 1/25th over 25 years?

Do they still have 'D notices' Robert?

To all those people complaining about the plans for the BoE to secretly prop up ailing banks, let me put this scenario to you.

Northern Rock (NR) messed up its business model, just as it did last year, except this time the BoE decided not to offer NR emergency funding. Think what would have happened to the bank, the shareholders, the depositers, house prices and the economy as a whole. I guarantee that everyone in this forum would be complaining that the BoE should have offered emergency funding!

So let's think about this practically for once, instead of complaining about how banks are money-grabbing. The point of emergency funding isn't to save the bank and its directors, it is to save the economy from failing. The advantage of making the funding secret is to stop the average person on the street from worrying about a problem they don't even understand, and to ensure that a bank such as NR which was fundenmentally sound (in terms of profit) doesn't get run into ground, therefore potentially forcing the government to nationalise it. Remember the problem with NR was liquidity, which is a problem that is much easier to fix, than the problems caused when the average Joe on the street starts to panic.

The FSA needs to improve the clarity of the first 35,000 covered. At the moment, if bank A buys bank B they sometimes stick with their independent "policies" so I get 35,000 back from both of them, and at other times they drop one of the policies so my 70,000 is only covered to 35,000.

Given the descriptions used of the institutions don't match the high street name, e.g. they have extra words, and that there's often variant institutions with similar names so you're not sure what one your money's with, it's a puzzle for the saver to know what cover they have.

The FSA's web interface for searching needs a big overhaul with the primary high street institutions being lumped together where they share a policy.

Does anyone know if there is such a thing as monoline reinsurance, and are we about the see the unravelling of the monoline reinsurance spiral, LMX style?

Why not change the law so that if a bank collapsed due to reckless management/lending whatever, those responsible would be jailed.

I'm no lawyer and cannot comment if this is possible, but perhaps the fear of serious incarceration might just get directors of banks - and other companies - to behave in a responsible manner rather than trying to fill their pockets.

Mr Peston
Do you fully understand the motives of the person who leaked to you on the evening of the 13th September?

I hope that for your sake, in the future, historians looking at the Great Depression of the late 2000's won't blame the impotence of the financial authorities at the time on their inability to maintain confidence in the system because the Westminster beltway was paralyzed by endemic leaking.

Maintenance of confidence in the banking system is an issue of national security during times of financial stress: secrets are essential not "cover ups" to rip off the public as is being stated in comments above.

The fact that we have an incompetent government and Westminster elite that does not understand this does not free you on a personal level and the 大象传媒 at a corporate level to shout "fire" in a crowded theatre.

Power corrupts unaccountable power corrupts unaccountably.

Just increase the Credit Reserve Ratio (CRR).

The amount that the banks have to keep and not invest.
This will help in case of higher withdrawls and also reduce circular flow of income hence inflation .

And most importantly reckless lending.

#24 is spot on, let's not lose sight of what is being attempted here.

It is too easy to be critical with the benefit of hindsight every time, Peston-style. What would respondents prefer? Further inaction?

Too many critics, not enough innovators.

Any more alternatives ala #2?

Nationalise the Financial Services industry? Awesome idea.

Chances of Brown taking Darling to the vets soon, anyone?

It is scandalous that without debate in Parliament, this incompetent government is yet again playing fast and loose IN SECRET with my money. It confirms that British Official Secrecy is intended to stop the British people from finding out what their rulers are up to.
The people are the government's paymasters yet we have no say in how it operates in this elective dictatorship. The system stinks but is one that the apathetic British deserve.

All this to disguise the plain fact that the changes made to the arrangements with the Bank of Endland by Gordon Brown in 1997 were and are seriously flawed.

This was compounded by the lack of understanding shown by Gordon Brown and the new chancellor in August last year when they took the view that "Northern Rock was sound and viable" after other institutions had refused to provide further loans and the depositors were queing to get their money back.

Why should anyone think that these proposals are any better than the failures of policy and action so far.

Who controls this fund? Does it go into the governments coffers ie another tax or is it ringfenced?

Mr Peston
Do you fully understand the motives of the person who leaked to you on the evening of the 13th September?

I hope that for your sake, in the future, historians looking at the Great Depression of the late 2000's won't blame the impotence of the financial authorities at the time on their inability to maintain confidence in the system because the Westminster beltway was paralyzed by endemic leaking.

Maintenance of confidence in the banking system is an issue of national security during times of financial stress: secrets are essential not "cover ups" to rip off the public as is being stated in comments above.

The fact that we have an incompetent government and Westminster elite that does not understand this does not free you on a personal level and the 大象传媒 at a corporate level to shout "fire" in a crowded theatre.

The 大象传媒:
Power corrupts unaccountable power corrupts unaccountably.

Thatcher promoted free enterprise and private home ownership. The situation developing in the US, UK and Europe, involves huge and ever-increasing amounts of public money allocated to support and guarentee property prices. Subsidised 'council housing' is returning by stealth with a vengeance.

Northern Rock demonstrated the incompetence of a bank when there was no 'safety net' of the nature proposed. How much more incompetence will we (the public and investers alike) NOT become aware of when secret deals go on behind closed doors?
The rewards and bonuses for such activities will continue to be practiced, but now with ignorance of how much more undeserving they are!!

Some financial institutions would seem to have denied people access to their investments for a period of time.
It is with some surprise I find there has not been a legal challenge against their ability to do this.

We are now being asked to finance banks without the knowledge being made public,... this surely is against the interests of the taxpayer.
Or maybe there is even more bad news to come!

Also my company which is also a Ltd Co similar to the banks is in financial trouble who do I contact for the money I may require?!!!!

Re no. 24. Pity many modern bankers have no idea about how to behave to build confidence. They can't even set a good example for the rest of society. Until they learn to be prudent and resist the temptation to pay themselves salaries and bonuses far beyond their worth, they will fail to generate the confidence the industry and society needs.

Secrets are never a good strategy. How long is a temporary secret necessary? Is it until insiders and those well connected can bail out or short the stock? And secrets are hard to conceal for long so the rumour mill goes into high gear. Chinese whispers have a habit getting it wrong, so one could have a run on a well run bank while the real problem bank is under the radar of the community.

Making banks pay for the sins of their competitors by forcing them to contribute to a bail out fund endorses risky behaviour while punishing those who are prudent. This was evident in the sub-prime loan business. Many banks rushed into it like lemmings. One that did not was the Toronto Dominion Bank yet it was asked to contribute to a rescue fund. It did not see why it should help prop up competitors that were taking on huge bets. It was not in the interest of the Bank or its shareholders.

The stench from this decision will permeate the banking system for years and years.

POST 46 - NEIL

Very well said, you have taken the words right out of my mouth.

People just don't understand what would happen to the economy if a bank was to fail. Yet if a bank did go bust and people lost jobs, shareholders lost money etc, they would soon cry out that the BOE should have offered emergency funds.

It just reminds me of a few old grannies in a bingo hall who have nothing better to do than talk about other people's misfortunes

Why doesn't the government just nationalise the banks and be done with the whole matter?

More rules!

What I can't understand is why they think more rules such as empowerment to take on a bank they feel is managed to quote in an 'unduly risky way' will work.

Hindsight is great, but I remember reading in March 2007 of Northern Rocks problems with inter bank lending rate being way off from the Financial Times. Their CEO was saying he's never seen anything like it, or words to that affect. If we all had this ability to see a problem before it happens, there was the catalyst right there, but still no-one did, and no-one will in future problems. The markets are always real good at presenting new different problems, that have a resemblance of history but are different so I can't see how these measure can protect another Northern Rock.

Shame really, since I took a mortgage with Northern Rock in Aug 2005 and they've been absolutely superb - their customer service has been excellent too. I wonder how good Mr Branson, or whoever, will steward the bank.

So - we are taking banks outside the LSE requirement for full disclosure of market changing events. And this will do WHAT precisely to banks share prices in the meantime?

Ladies & Gentlemen of the jury, I give you two true stories from today.

They are completely incompatable and eventually will go head-to-head and only one will survive.

Will it be the BoE? Or will it (more likely) be the EU/ECB?

1. The leaders of Europe's biggest economies have called on financial institutions to improve transparency in all their activities.

2. Chancellor Alistair Darling is to give new powers to the Bank of England to mount secret rescue operations for banks requiring emergency funds.

If money is taken from the banks to create this fund, is it a) one time only, or b) annually? Is it related to that years profitability?
Can banks reclaim some of their input in future years if their profits shrink?
In any case this sounds like another tax.
Who will own, or otherwise be responsible for this fund? Will any income generated from the fund be taxed?
If profits are removed from the banks, the amount of capital they own (which is augmented by retained profits) is reduced, which in turn will reduce the amount of liquidity in the money markets, and will not lower the cost of borrowing.
If the fund invest in the money market, its assets will be in the banks it is supposed to use to bail out problem banks. How's that going to work?
I don't know that this proposal has been thought through properly.

To those who think that it's always the right to do to bail out failing banks:

It's false to assume there is no Moral Hazard in the case of Northern Rock simply because management get the heave ho and the shareholders lose their money.

The Moral Hazard exists because people lent to Northern Rock without considering the riskiness of their business model. These lenders are getting their money back, and are not being punished for their mispricing of risk.

The more we bail everyone out, the more irrational, inefficient and fundamentally unreal our economy will become.

We're so determined to avoid a painful deflationary spiral that we'll either bankrupt the country or destroy our currency.

Maybe in 30 years time we'll wish that we'd ignored Northern Rock's wailings, and simply let it go to the wall, with all the economic repercussions that would have wrought.

It is fascinating that people are now beginning to see that transparancy and openness can create problems as well as solve them.

But the legislation proposed merely affects the ways the bank can shut the stable door after the horse has bolted. What is needed is more care to check the condition of the stable while the horse is still inside.

Surely the most important changes needed are (a) to insist the banks keep a more sensible fraction of their assets in liquid form than they have chosen to do lately, and (b) for the FSA to perform the kind of sanity check on banks' business models that the BOE used to do in the days when the governer's eyebrows were in control.

If the banks are to have special privileges denied to other types of firm, then they must also have special responsibilities too. Risk avoidance would seem an obvious one despite its current unfashionability, and care over unsecured lending would seem to be another.

It is curious that in all the discussions to date very little has been said about the potential problems facing credit-card issuers when they are faced with mass defaults as they surely must in the near future. As many credit cards are in fact issued by a small number of high-street UK banks, they could be in for some interesting times here too.

What is happening to full transparency and disclosure?. Shareholders and depositors must be the first to know if something is wrong. Keeping bad news a secret is surely something alien, criminal and not in the interest of western capitalist democracy. Hiding relevant and important news will undermine everything we stand for. Surely this is the old communist way of doing things, not an open society.If I am in danager of losing my life's savings, I want to know sooner rather at the discretion of a politician, when its too late.

Surely the simplest way to stop another bank failure is return to the "old-fashioned" banking model and insist that banks do not lend more than they have on deposit, i.e no inter-bank loans, all lending being sourced from depositors. Of course this would wreck our consumer led economy as people would rather save their money that spend it - but which business model is sustainable and which is not?

It is fascinating that people are now beginning to see that transparancy and openness can create problems as well as solve them.

But the legislation proposed merely affects the ways the bank can shut the stable door after the horse has bolted. What is needed is more care to check the condition of the stable while the horse is still inside.

Surely the most important changes needed are (a) to insist the banks keep a more sensible fraction of their assets in liquid form than they have chosen to do lately, and (b) for the FSA to perform the kind of sanity check on banks' business models that the BOE used to do in the days when the governer's eyebrows were in control.

If the banks are to have special privileges denied to other types of firm, then they must also have special responsibilities too. Risk avoidance would seem an obvious one despite its current unfashionability, and care over unsecured lending would seem to be another.

It is curious that in all the discussions to date very little has been said about the potential problems facing credit-card issuers when they are faced with mass defaults as they surely must in the near future. As many credit cards are in fact issued by a small number of high-street UK banks, they could be in for some interesting times here too.

'The big banks fear that if they were to inject hundreds of millions of pounds each into the new insurance fund, they would have less capital available to lend to all of us 鈥� and that would exacerbate an economic slowdown that鈥檚 already underway.

The Treasury is promising to consult on this idea.'

They don't want to lend money so much as store it up in case of unexpected margin calls. The fact that the Treasury is 'consulting' means that the banks will get their way. The banks are sitting on massively inflated assets due to crumble away as the crisis of overproduction works itself out. They won't lend, no matter what, until they know what there assets are worth.

Doesn't this non-disclosure lark hammer the final nail into the coffin marked 'moral hazard'?

Can't we just have a state owned bank with branches on every high street, actually competing with these greedy sharks? (Ah, but didn't we used to have this sort of thing, before 'de-regulation'?)I know where I would put my money given the option.

Will Neelie Kroes be in on the secret funding?

State funding is anti competitive and flies in the face of the raison d'etre of the EU.

At long last the lawyers will get their turn at the trough..

502! #7

This scheme might just about work for smaller banks but I can't see it being relevant for the big banks.

I mean, if Barclays or Lloyds were to go bust the whole banking system would just about fold up and the pot would never be big enough.

You can't treat this in the same way as insuring travel companies. This is more like insuring yourself for armageddon - if it comes around the money would not be any use for you anyway.

I get the feeling that the whole banking system, through their own greed, have got themsleves and us in one helluva mess. No amount of tinkering with the rules is going to get us out of this.

To #51:

I too look forward to the day when our corporate overlords can hide information as they wish, and invoke "national security" to prevent anyone who reports on it.

Or presumably, anyone who would like to withdraw their cash from a failing commercial institution.

Europe ECB will remind Brown that he has to follow their rules if he wants to remain as a poodle. Then they (ECB) can blindly ignore the rules and carry on as before.

We of course will follow them to the letter.

No 73 - Simon Richards

Your comment is possibly the most amusing thing I have read today, and you would be a perfect example of the type of person I refer to as the average Joe.

If a bank could not lend more than it has on deposit, then you wouldn't get any bank lending you money for your mortgage. I hate to have to spell this out for you, but you obviously do not understand. When you take your money to the bank, you have the right to withdraw it whenever you wish. When a bank lends you money for 20 years for your mortgage, they can not just ask for it back whenever they feel like it. Therefore if half the customers decided to take their money out of the bank, you are saying the bank should become bankrupt. Smart thinking there. As you can see it is impossible for a bank to only lend as much as it has got from deposits.

Clearly Northern Rock was living in a fantasy world, where they believed nothing could go wrong in the economy, and therefore they stretched their business model to believe liquidity would always be in the market. This is the kind of problem that should be fixed. The FSA should ensure firms maintain enough liquidity for potential scenarios such as the one we are facing at the moment.

But read No.47 comment. I have actually addressed the topic in question, rather than one person's lack of knowledge.

No 73 - Simon Richards

Your comment is possibly the most amusing thing I have read today, and you would be a perfect example of the type of person I refer to as the average Joe.

If a bank could not lend more than it has on deposit, then you wouldn't get any bank lending you money for your mortgage. I hate to have to spell this out for you, but you obviously do not understand. When you take your money to the bank, you have the right to withdraw it whenever you wish. When a bank lends you money for 20 years for your mortgage, they can not just ask for it back whenever they feel like it. Therefore if half the customers decided to take their money out of the bank, you are saying the bank should become bankrupt. Smart thinking there. As you can see it is impossible for a bank to only lend as much as it has got from deposits.

Clearly Northern Rock was living in a fantasy world, where they believed nothing could go wrong in the economy, and therefore they stretched their business model to believe liquidity would always be in the market. This is the kind of problem that should be fixed. The FSA should ensure firms maintain enough liquidity for potential scenarios such as the one we are facing at the moment.

But read No.47 comment. I have actually addressed the topic in question, rather than one person's lack of knowledge.

Simpleton that I am..don't the proposals increase 'Moral hazard'

ie Banks say great We can take big old risks now..if we get into trouble no one will find out for months...

Go onto Youtube and type in Zeitgeist.
Then watch the movies on the Federal Reserve.
You will then truly understand what the central banks (eg BOE) are all about.

Neil @ #47 - you have to be a banker, right?

"The advantage of making the funding secret is to stop the average person on the street from worrying about a problem they don't even understand"

You condescending twit. The reason these loans are to remain secret is precisely because the 'average person on the street' has finally become educated in the nuances of our fiat monetary system, and the liberties that the banks have taken with it.

Banking is a total MONOPOLY and we have NO CHOICE but to use this utterly corrupt and now thankfully failing system.

Roll on the revolution, I say.

No. 80-Neil

'When a bank lends you money for 20 years for your mortgage, they can not just ask for it back whenever they feel like it. '

Yep, they can.......

What a shambles. The fact that the bank is in trouble will be hidden from depositors, yet the indemnified limit remains at 拢35K? So by the time the probblems are publicly aired, depsitors will be exposed to losses. What a great propsal - NOT.

Neil, you're referring to the wonderful fractional reserve system. A system which relies on everyone being in debt. Which is where money comes from.

Actually I can guarantee that if NR had not been given emergency funding, I and a number of other people would not be complaining. In a free market poorly run businesses should be allowed to go under (I believe about 拢30k of depositor money is covered, which would be paid out). These would simply be replaced by more sensible businesses. Now though, we have moral hazard, and a government that clearly only has the interests of the banks in mind.

I actually don't think you understand. If the fractional reserve system wasn't allowed in it's current form then supply and demand would dictate. Simply the value of assets would change to the level people could pay.

The idea that banks are required in order for us to buy anything in itself is a highly amusing comment.

I suggest you look at:

I also recommend you watch a video on you tube under the name "where money comes from"

I'm also pretty tired of hearing the comments of "talking ourselves into a crash". The problems exist before the media reports on it. We're not talking up oil inflation, food inflation, import inflation etc so will people please get a grip and stop looking for something other than the obvious cause to blame (that is, bad business!!). Nobody complained when we talked ourselves into an unsustainable boom...

I'll leave you with some Jefferson:

"If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Mr Peston
Do you fully understand the motives of the person who leaked to you on the evening of the 13th September?

I hope that for your sake, in the future, historians looking at the Great Depression of the late 2000's won't blame the impotence of the financial authorities at the time on their inability to maintain confidence in the system because the Westminster beltway was paralyzed by endemic leaking.

Maintenance of confidence in the banking system is an issue of national security during times of financial stress: secrets are essential not "cover ups" to rip off the public as is being stated in comments above.

The fact that we have an incompetent government and Westminster elite that does not understand this does not free you on a personal level and the 大象传媒 at a corporate level to shout "fire" in a crowded theatre.

The 大象传媒:
Power corrupts unaccountable power corrupts unaccountably.

This govenrment is just extraordinary. Utterly incapable of taking a decision to save its life. Utterly incompetent and dithering.

Now it proposes a sinking fund for the banks... brilliant idea; your regulatory system failed so ask someone else to pay the price.

surely the bigger problem is the precedent set by the UK governments bailing out of NR. what happens if a real bank like gets into difficulties? will the treasury guarantee all the deposits as it has done with NR deposits? Can it even afford to?

Dear Robert

A simple solution to avoid a retail bank run in the future would be to add:

(a) a one-liner into the Insolvency Act which ranks deposits up to 拢100,000 of any retail investor ahead of all of the bank鈥檚 other creditors (secured or not); and

(b) a further one-liner which allows the Bank of England to step in at any time to pay out such preferred depositors in return for it receiving the depositor's priority claim against the retail bank鈥檚 assets.

This would ensure: the taxpayer need never be out of pocket bailing out Joe Public; the retail depositor could always recover all of its deposit (up to the 拢100,000) swiftly even if the bank were insolvent; other commercial creditors with more nous would be better incentivised to ensure the solvency of the bank; management would be required to adopt a more conservative stance; and banks would not be obliged to insure the vagaries of other banks.

No rocket science (or secrecy) required!

No. 86

I don't actually own a house myself as I have only just started working, therefore I can not argue with you. However as far as I understood you enter into a contract with a bank when you take out a mortgage, and unless they are insolvent, then they can not repossess your house so long as you continue to pay your mortgage. Please correct me if I am wrong and explain in what instances they can repossess your house at will.

No. 87

I am a believer in free market and that the bad businesses should be allowed to fail, but NR was not a bad business, it was still profit making and as such financially sound. In my opinion the managers and directors are the ones that should take the hit, not the 6000 employees and the shareholders, and those smart people that save and had more than 拢30k in the bank.

Plus if a bank did fail, then this could potentially lead to the fall of other banks, which I know for many of you would be a happy day, but think about it practically. As much as you all hate banks, you rely on them for everything. You wouldn't be able to do your Christmas shopping, be able to get a mortgage so cheap etc. You could blame the banks for making credit so easy, but the people you should really blame are the idiots that overstretch themselves. The problem with the British and American culture is they don't understand the concept of saving. All they want to do is spend spend spend and get nice houses they can't afford and when you match this with banks who are looking to profit we end up in the situation we are in today. The real people to blame are the consumers not the banks. NR was nothing to do with the Subprime debt, it got caught up in the problems that arose with the tightening of credit.

I will look at that link and watch the video as I am keen to continue learning.

No. 85

A banker I am. Therefore I am going to stick with my comment, the average person on the street really doesn't understand. I guarantee that the average person believes NR messed up cause it took on Subprime debt. I also bet that many believe they can continue spending on credit cards, overstretch themselves, end up not being able to pay back the bank and them blame the banks for having unfairly high interest rates!

And in response to your comment that banking is a monopoly, you possibly have trumped the previous funniest comment of the day. Saying banking is a monopoly is like saying the electronics industry is a monopoly...hmmmm yes that makes sense. I think you will find there are more than 20 or even 30 decent banks in the UK. If you believe there is a better way of running the banking system, why don't you start a new bank today, make the system fairer, after all you aren't out for profit are you, cause that's not fair? Oh and the system is not failing, a blip I would say.

No. 86

I don't actually own a house myself as I have only just started working, therefore I can not argue with you. However as far as I understood you enter into a contract with a bank when you take out a mortgage, and unless they are insolvent, then they can not repossess your house so long as you continue to pay your mortgage. Please correct me if I am wrong and explain in what instances they can repossess your house at will.

No. 87

I am a believer in free market and that the bad businesses should be allowed to fail, but NR was not a bad business, it was still profit making and as such financially sound. In my opinion the managers and directors are the ones that should take the hit, not the 6000 employees and the shareholders, and those smart people that save and had more than 拢30k in the bank.

Plus if a bank did fail, then this could potentially lead to the fall of other banks, which I know for many of you would be a happy day, but think about it practically. As much as you all hate banks, you rely on them for everything. You wouldn't be able to do your Christmas shopping, be able to get a mortgage so cheap etc. You could blame the banks for making credit so easy, but the people you should really blame are the idiots that overstretch themselves. The problem with the British and American culture is they don't understand the concept of saving. All they want to do is spend spend spend and get nice houses they can't afford and when you match this with banks who are looking to profit we end up in the situation we are in today. The real people to blame are the consumers not the banks. NR was nothing to do with the Subprime debt, it got caught up in the problems that arose with the tightening of credit.

I will look at that link and watch the video as I am keen to continue learning.

No. 85

A banker I am. Therefore I am going to stick with my comment, the average person on the street really doesn't understand. I guarantee that the average person believes NR messed up cause it took on Subprime debt. I also bet that many believe they can continue spending on credit cards, overstretch themselves, end up not being able to pay back the bank and them blame the banks for having unfairly high interest rates!

And in response to your comment that banking is a monopoly, you possibly have trumped the previous funniest comment of the day. Saying banking is a monopoly is like saying the electronics industry is a monopoly...hmmmm yes that makes sense. I think you will find there are more than 20 or even 30 decent banks in the UK. If you believe there is a better way of running the banking system, why don't you start a new bank today, make the system fairer, after all you aren't out for profit are you, cause that's not fair? Oh and the system is not failing, a blip I would say.

And the shareholders, are they ALL left in the dark too? Or will the larger stake holders be privy to what's going on whilst the smaller investor is left peering through the keyhole with the rest of the world?

It seems to me this policy will just further lower the trust people have for the Banking institution and Government in general.

It's intriguing that the key phrase is always the need to maintain "confidence in the banking system" - not "the integrity of the banking system". The implication is that it would be perfectly OK for the banking system to become unstable, at risk of collapse, or corrupt - as long as "confidence" in it is maintained.

The weasel argument that lack of confidence in the banks can cause a loss of integrity (e.g. a run) only has any weight because there is no-one in any position of power with the gravitas and public trust to tell things as they are. In other words, it's impossible to stop a run, simply because we don't believe anyone who attempts to assure us that there's no cause for alarm. Whose fault is that?

Maintaining confidence at the possible expense of integrity is what the Treasury is proposing. Let the adults sort out a bank's liquidity problems, in private - you children (all 60 million of you, including investors and traders in the markets) just pipe down and go to bed.

Errr... but doesn't the efficiency of markets rely absolutely on accurate, widespread market information? Doesn't the concept "rational agent" imply "informed rational agent"?

So let me get this straight. The financial industry continually resists effective regulation, as a restriction on their free-market efficiency - but is only too happy to distort, even deceive the market, when they get in trouble.

Follow the bouncing ball and sing along:

Privatise the Profits, Socialise the Risks...