Bankers

[Gonzo]

The real annoying part is that they pay savings rate of now 0% but still lend at 5-7% on low risk type of debt, a lot more on higher risk, and instead of rebuilding balance sheets they just use those profits to pay themselves usual bonuses.

The banks don't work like this any more Alexei. They are not lending out savers' money and keeping the difference between the two rates like they did in the olden days. They are borrowing the money so the rate that they can lend at depends on the rate they have to pay, which is not the BofE rate.

It is not low risk either. If people are not defaulting on their payments it is all well and good. Even if they are and the property is worth more than the amount owed then it is still OK for the bank.

But when the property is worth less than the amount owed, then the bank is in the tulip. With the excesses of the 100% mortgages and falling property values, the banks are in the tulip.

Where I am now they think they have avoided the worst of the bank issues seen in other parts of the world because they were more conservative, 20% deposits were still the standard. Property prices have fallen by less than 10% from their peak a couple of years ago and everyone thinks that it will all be OK.

I am beginning to think that they are deluding themselves.

I am at a retail bank at the moment and this week I saw some mortgagee sales come in and in all the cases the amount the properties sold for was only about 60% of the lending that is still outstanding. I will have to do a bit more digging to find out if this is normal or noteworthy though.

I have seen plenty of evidence that what people did as their properties rose in value was to borrow more and more against them. I was looking at imaging documents a few weeks ago and the examples of loan agreements that I saw showed that people were taking out new loan agreement after new loan agreement every 12 months or so supported by the value of their house going up.

I know of one pair of pensioners who have gone through bankruptcy and someone thought it would be good business to make unsecured loans totalling the average annual salary here to people whose only income was their state pension.

I am not convinced that they have been conservative after all. It will end in tears.

[AtW]

They are borrowing the money so the rate that they can lend at depends on the rate they have to pay, which is not the BofE rate.

Yes, interbank rate is much higher than BoE rate, however if the system was working properly that would mean that banks would be interested to attract people's savings at rate below that interbank rate, what we see here however banks refuse to do that and pay 0% now (unless you commit to 3-5 years but that's just silly proposition).