Reply to: Santander PROBLEMS !!

[AtW]

Doesn't seem to have had any positive effects in the USA.

That's because they thought they were clever and they resold junk morgages and then took insurance or what not, so they assumed they were sorted in event of default, apart from when defaults become so numerous that the whole house of cards collapses.

Debt ratios should be put under strict regulation and also leverages should be strictly controlled meaning nobody should be able to use £10 to effectively operate £100.

[Moscow Mule]

That would be a good start in re-regulating the UK mortgage market. Make negative equity losses directly the lenders problem and not the borrowers. Might make them think twice about 125% liar loans at 10x income.

Doesn't seem to have had any positive effects in the USA.

[DimPrawn]

I was quite suprised by this but apparently banks such as the BBVA and Santander in Spain who have given mortgages to private individuals would be obliged to make up the difference in terms of negative equity during sale of a property which they have lent the mortgage money on.

That would be a good start in re-regulating the UK mortgage market. Make negative equity losses directly the lenders problem and not the borrowers. Might make them think twice about 125% liar loans at 10x income.

[eliquant]

The Spanish banks are liable for customer's NEGATIVE EQUITY !

I was quite suprised by this but apparently banks such as the BBVA and Santander in Spain who have given mortgages to private individuals would be obliged to make up the difference in terms of negative equity during sale of a property which they have lent the mortgage money on.

I dunno if this also applied to the Caja's which are like building societies which are obliged by law to invest locally into the community

[AtW]

Whe did he go?

[AtW]

Tier 1 capital is made up of the banks assets - [I]assets which are owned by the bank.

He is confusing liquidity with capital ratios.

[tay]

Why have you put problems in capital letters?

[Moscow Mule]

Atw... you stated this earlier !!! That CASH is made up of people's deposits and thus IS PART OF THE CAPITAL RATIO !!! .....

No it isn't.

Tier 1 capital is made up of the banks assets - assets which are owned by the bank.
Principally, this comes from the "list price" of the banks shares, wither £1 or £10 or whatever - not from the market value of the share. That said, banks often hold large numbers of their own shares - if their market share price goes down, their capital ration goes down.

Money deposited with a bank doesn't suddenly become owned by the bank - they are just looking after it.

[sasguru]

This message is hidden because AtW is on your ignore list.

This message is hidden because CyberMan is on your ignore list.



2 blithering cretins arguing about stuff neither understands.
Both completely delusional.

[AtW]

Atw... you stated this earlier !!! That CASH is made up of people's deposits and thus IS PART OF THE CAPITAL RATIO !!! .....

Have you read the definition of Tier-1 ratio that I posted above? It clearly says that it mainly takes into account shareholder funds, that's why they issue new shares you idiot! If Tier-1 depended on cash they could have taken on cash loan, but it's not - the whole point of it is to ensure owners of the bank put in enough money to risk enough for the debts they accrue, otherwise any scammer would be able to build up bank risk free with high "capital" ratios using deposits.

[Cyberman]

They had to raise money because they moved cash from elsewhere to avoid going with cap in hand to get bail out from Govt, like almost all big UK banks did.

So they declined bailout which implies they can handle on their own. If you are worried about bailout declines talk to Barclays.

Atw... you stated this earlier !!! That CASH is made up of people's deposits and thus IS PART OF THE CAPITAL RATIO !!! .....

[AtW]

Atw.... the whole point of upping capital ratios is to enable banks to cover themselves against a run. Extra liquidity enables this, and is thus a vital part of the capital ratio.

Read the article you posted (and provide next time URL):

"Instead, it moved £1bn from elsewhere in the group to its UK business, boosting the tier-one capital ratio for Abbey-A&L to about 9.25 per cent. Santander's group tier-one ratio stands at a much weaker 7.89 per cent and its core tier-one ratio is 6.31 per cent."

We are talking about Tier-1 ratio here, is that clear?

I've give definition of Tier-1 ratio above which is clearly about shareholder funds related, so as soon as they took on billions of new deposits in cash their Tier 1 ratio dropped because lots new debt was on bank (even if its cash - liquidity here is not relevant), so for UK branch they moved £1 bln of their own shareholder money to avoid having to use Govt bailout, wise move since they got the cash, however that resulted in drop of their Tier 1 ratio at home - not because they lost money but because they effectively took on lots of obligations in form of deposits, it's not liquidity issue it's capital issue.

Are we clear on this one now?

[AtW]

Nobody's impressed when you copy and paste from Wikipedia.

It's the definition of Tier 1 capital ratio, I highlighted the key element of it which is shareholder funds, this is relevant to current discussion since we are argueing over whether infusion of cash as in deposits could have helped them improve Tier 1 ratio, the answer to this is not and that's why they had to raise money.

[Cyberman]

Atw.... the whole point of upping capital ratios is to enable banks to cover themselves against a run. Extra liquidity enables this, and is thus a vital part of the capital ratio.

[DiscoStu]

Tier 1 (core) capital

Tier 1 capital, the more important of the two, consists largely of shareholders' equity. This is the amount paid up to originally purchase the stock (or shares) of the Bank (not the amount those shares are currently trading for on the stock exchange), retained profits and subtracting accumulated losses. In simple terms, if the original stockholders contributed $100 to buy their stock and the Bank has made $10 in profits each year since, paid out no dividends and made no losses, after 10 years the Bank's tier one capital would be $200.

Regulators have since allowed several other instruments, other than common stock, to count in tier one capital. These instruments are unique to each national regulator, but are always close in nature to common stock. These are commonly referred to as upper tier one capital.
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Taking on a shredload of deposits in cash won't improve your Tier 1 capital ratio, in fact it will make it worse as your existing shareholder funds will be dilluted by large amount of new debt you owe to other people even if its cash.

Nobody's impressed when you copy and paste from Wikipedia.