Tuesday 17 March 2009

Bad Banks!


So let’s talk about the banking crisis. I believe that the Banks have created their own problems as a result of their policy of irresponsible lending to both business and private customers. Their view that a loan could be made without little recourse to ‘fact finding’ or collateral support, was a recipe for disaster. This resulted in banks building a large portfolio of ‘bad’, or as some have called them, ‘toxic debts’.


Government, mindful of the repercussions of a bank collapse, have floated the idea for creation of a ‘toxic bank’, into which all these bad debts would be ploughed. I believe that the various European Governments had no option to also allocate funds to the banks to try and stimulate interbank lending, as well as lending to the wider community.


It is my opinion however, that this is in reality a very short term solution and the banks must extricate themselves from the current difficulties. I am also somewhat bemused by the UK Government’s statement that funds given to the Banks are to stimulate lending, when lending in the past created the current situation.

My view, for what it is worth, is that these measures still don’t seem to have kick started the housing market or stopped the rise in business bankruptcies. However, the bank managers are still drawing large salaries and taking large redundancy pay outs. How is this possible with the current crisis? It seems to me the banks and their managers are all out for themselves.
I also wonder if these loans have been solely used by banks to put their balance sheets into the black.

Perhaps I am a cynic!


With all this in mind, it is my belief that creation of a ‘toxic bank’ would not be a good idea.
However, if none of this works is there is plan ‘B’?






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