The Anonymous Widower

King says “Bank Reforms Must Not Fail”

The headline of this post is taken from an article on the BBC web-site.

Meryn King makes a lot of good points, but on the other hand why shouldn’t banks fail?  And when they do why should those behind that failure be rewarded with large bonuses?

When Northern Rock failed, we were able to rescue what was left and it is now back in the land of the living. But the managers were really criminally responsible for what they did.  Did they know that the government would bail Northern Rock out, so they just didn’t care?  It doesn’t matter but those irresponsible managers weren’t prosecuted.  And where are they now?  I bet they live comfortably in large houses somewhere, when a lot of their unfortunate employers are struggling badly in damp flats.

I should add here, that years ago I part-owned a finance company.  I was worried about what would happen if something catastrophic happened to one of the principles.  As its lending was basically sound, all we would have needed to do, was just run the company into the ground collecting the debts and cutting expenses to the bone to get all of our money back. I think this is what was done with Northern Rock, so when a bank goes bust, everything is not lost.

If we look at HBOS and RBS, then they should have been treated the same way as Northern Rock. But the failure of two banks in NuLabor heartlands couldn’t be allowed to happen.  In the end however, Lloyds was brought into the mess to save NuLabor’s face and a good sound bank was ruined. The only things that are important in my way of thinking about banks, is that the money of innocent customers is safe and companies and individuals that need to borrow have access to funds.

In part, since the banking crisis, things have got better, as customer money is now safe, but obtaining funds for a reputable purpose has got difficult.  Unless of course you have no credit rating, so you can go down the pay-day loan route and bankrupt yourself.

I suspect too, that people are now less likely to bank in countries like Iceland.  Why incidentally, does the UK government have to bail out the Icelandic banks, so those greedy individuals who put their money offshore get their money back?  I prefer to bank with a building society and speculate using Zopa. And with Zopa, I’m getting five or six percent by following a conservative strategy.

So King’s statement that reforms must not fail is correct, but those reforms must not ruin the banks, as NuLabor ruined Lloyds.

And those reforms must not bring companies like Zopa into the grasp of the FSA. But I suspect there will be pressure for this, as the Zopa model is low-cost for borrowers and lenders, and I can see it growing to be very large. Will the major clearing banks allow this?  I doubt it and they will have the King’s ear.

March 5, 2011 - Posted by AnonW | Finance, News | Banks, Wonga, Zopa