Have our banks got better or instead have they got worse?

One of the fundamental issues of the credit crunch era is what to do about our banks? The Too Big To Fail or TBTF strategy has left us in a situation where the banking sector is one with a moral hazard at its core. Everybody now knows that there will be privatisation of profits and socialisation of any losses giving directors of banks something of a one-way bet. Heads they win and tails we lose (with them usually still winning). As this was implicit in the past rather than explicit as it is now we find that we may in fact be worse off contrary to all the official denials. After all we know what to do with official denials.

This privatisation of profits and socialisation of losses was most marked in the UK at Royal Bank of Scotland with its purchase of ABN-Amro as highlighted recently by Andrew Bailey of the Bank of England.

The low risk weights assigned to trading assets suggested that only £2.3 billion of core tier 1 capital was held to cover potential trading losses which might result from assets carried at around £470 billion on the firm’s balance sheet.

We know of course what happened next.

In fact, in 2008 losses of £12.2 billion arose in the credit trading area

This meant that for the rest of us a measure of the UK National Debt soared into the stratosphere. At the end of 2006/07 the UK’s National Debt to GDP ratio was an apparently fiscally conservative 36%. By the time we fully accounted for the various bailouts it was this in December 2010.

net debt excluding the temporary effects of financial interventions was £889.1 billion, equivalent to 59.3 per cent of gross domestic product (£2322.7 billion, equivalent to 154.9% including interventions).

First of all we have the impact on the headline figure and then boom! Apologies for those of a nervous disposition as our debt shot higher. I was one of the very few who covered these numbers and have written before of their many flaws but they give a ballpark idea of our potential exposure.

A Name Change

One of the most ominous developments in a situation is a name change as the Public Relations industry tries to solve the problem of a toxic brand by rubbing it out and introducing a shiny new one. On this road the leak prone nuclear reprocessing plant Windscale became the initially leak-free Sellafield. Well TBTF has made a similar journey as it is now called SIFI or Systemically Important Financial Institution.Do we feel better already?


These are of course fines but I think that the banks treat them as a bill just like the Destinys Child lyric or a cost of doing business. Yesterday saw Barclays and RBS  hit with these and we fined Barclays ourselves.

The Financial Conduct Authority (FCA) has imposed a financial penalty of £284,432,000 on Barclays Bank Plc (Barclays) for failing to control business practices in its foreign exchange (FX) business in London.

Whilst on the face of it seems like action there are various problems here. Current Barclays shareholders are paying for a problem which they really had no control over and of course may not even have been shareholders then. What about punishing those who did this? After all some were openly admitting to fraud.

“If you aint cheating, you aint trying”

Yet again there seems to be something of a shortage of criminal prosecutions as we wonder if any sort of banking financial crime would get a jail sentence. We do seem to treat other types of fraud such as benefits fraud much more harshly. From Poole Council’s website.

A Poole man was given a 12 month custodial sentence for stealing over £88,000 from the public purse.

Meanwhile there is the issue of whether the shareholders were in fact punished. From Adam Parsons of the BBC.

Shares then go up up 3.37% Means Barclays now worth £1.5bn more than it was before the £1.5bn fine.

Next if we look at the international issue is a wealth transfer from the UK to the United States as the fines from it to UK banks go on and on.

Barclays, which was involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, has agreed to pay a fine of $650 million;RBS, which was involved from at least as early as December 2007 until at least April 2010, has agreed to pay a fine of $395 million.

The US Federal Reserve fined them too for US $342 million (Barclays) and US $274 million (RBS). This is particularly awkward in the case of RBS which has of course the UK taxpayer as a majority shareholder. Exactly what guilt does the average UK taxpayer have?

Market Manipulation

Often forgotten in the melee is the impact on financial markets. We have seen that foreign exchange and interest-rate markets (LIBOR) have been rigged to the banks benefit which begs the question of what other markets have been? For example was it a coincidence that the oil price and indeed the price of several other basic commodities fell after many banks closed their commodity trading desks. By the time that central banks have manipulated so many markets too what is left.

Of course central bank market manipulation is treated as welcome rather than illegal but even Andrew Bailey of the Bank of England admitted that there seem to be “side-effects”.

On 15 October, 10 year US Treasury yields moved intra-day by around 8 standard deviations of preceding daily changes. On 15 January, the Swiss Franc moved by more than 30 standard deviations. For rough scale, an 8 standard deviation move should happen once every three billion years or so for normally distributed data.

Of course we had the flash crash in Euro area bond markets only recently.So what is proclaimed as making us safer is at best making markets more skittish.

What did governments do for revenue before they fined banks?

As the fine revenues pile up let us not forget that there were other type of fine imposed on the banks in the UK which were the bank payroll tax and the banks levy. As of the end of the 2103/14 tax year we had received some £8.8 billion. This has its issues as of course we were in some cases fining banks we then owned!

What we used to do was tax banks via Corporation Tax but receipts have collapsed from £7.3 billion in 2006/07 to £1.6 billion in 2013/14. There is of course a much wider problem with corporate taxation as companies shuffle money around the globe to avoid it. I saw an odd BBC interview with Bono and the Edge from the band U2 who apparently approve of this,well for their own affairs anyway! But conventional revenues like this from the banks took a heavy knock. So we now fine them which is often a sort of fining ourselves. are we fining the profits they have made from the cheap funding given to them by the Bank of England in a form of “round-tripping”?

Of course we could follow the American model and mostly fine foreign banks….

What about the regulators?

One more time we face the famous latin phrase.

quis ipsos custodiet custodes (Juvenal)

Who watches the watchmen? This is a very relevant question as time and time again we see evidence of “regulatory capture”. This involves regulators later moving to banks for example. From Sky News.

Barclays has hired the former chief executive of the Financial Services Authority (FSA), Hector Sants, as its head of compliance.

We are continually told “this time is different” and yet more and more scandals emerge. Perhaps the “exhaustion and stress” from which the newly knighted Sir Hector suffered was from the emergence of all the scandals on his watch.

Frankly regulators seem to have more enthusiasm for suppressing scandals than investigating them.


The essential problem is how much has improved over that past eight years or so? We get regularly told this both openly and more subliminally.  Yet we remain in a situation where as I discussed yesterday where interest-rate rises seem impossible and the housing market has been pumped up one more time to improve the balance sheets of the banks. As so often before we find ourselves asking what happens if we go in a recession again? After all the numbers keep getting larger. From Andrew Bailey.

Financial market activity has grown rapidly. There are many statistics that could be quoted, so to choose one, over the last 15 years, global bond markets have grown from around $30 trillion in 2000 to nearly $90 trillion today.

I fear that we have gone backwards rather than forwards after all the cavalry of the Vickers Report will not arrive until 2019. That is of course assuming that the cavalry do not suffer from regulatory capture on their amazingly slow journey.


25 thoughts on “Have our banks got better or instead have they got worse?

  1. The large global banks are now essentially too big to manage. It is impossible to know what they are doing. Nobody could possibly understand and review every trading strategy undertaken, either official or unofficially. We need to split them up.

    I dread to think what would happen if a clearing house ever went bankrupt.

    • Hi Bootsy

      I agree that just like in their tax affairs banks will be moving risk all around the world and which regulator will be on top of that? You reminded me to check the London Clearing House and the fact that it is 58% owned by the London Stock Exchange. In a crisis how much could it divvy up?

  2. Hi Shaun

    I’m tempted to agree with your conclusion – that we have gone backwards – but I wonder.

    The bail out the banks received in 2008 was in response to a crisis and one could rationalise it to some extent. But what would the public reaction be if they came back a second time? There has, to my mind, to be a limit of tolerance to these shenanigans and although it may be a question of faute de mieux if a crunch came I don’t think this would be received at all well by the proles.

    Also there are now EU rules on bail ins which cover shareholders, bondholders and large cash depositors and if these were triggered then there would be mega squeals from those affected, especially depositors. I assume these would be automatically triggered.

    Furthermore, if we had a systemic crisis or even a single major bank failure I do wonder whether the deposit guarantee of €100,000 would hold and the government would be obliged to reduce the figure somewhat; if this did happen the squeals would become a cacophony!

    I agree we have gone backwards in some respects but whilst banks can create money ex nihilo at nil cost and lend it out at whatever they will push the boundaries and it is incumbent on us to pass laws to limit this and I agree we are not there yet but, as I suggest above, the law isn’t the only agent for change and limitation of egregious behavior.

    • What do you mean by “Come back a second time”?
      The first bailout continues apace.
      Haven’t you noticed that all economic policy is aimed at rebuilding banks’ balance sheets?

      • Indeed but this is more of a stealth matter which is under the radar for most. We haven’t had a “crisis” since 2008.

        I think you are right but might this be precisely because they know the great unwashed would not tolerate a second “crisis” bailout? In a sense this supports my argument,

    • If they were too big to fail in 2008 then they probably still are TBTF now. If they need a second bailout then they will get one. There isn’t diddley squat the people can do about it.
      Indeed you could argue that since 2008 the people have continued to choose their leaders from from the same bunch of ‘elites’ so presumably they are quite happy for it to happen all over again.
      Besides the mainstream media will continue to spread the propaganda that it’s ‘all in our best interests’. After all… We are all in this together you didn’t you know? People still buy the papers so they must be happy with this too.
      And as for prosecutions Shaun, the media portrayal is of the ‘banks’ being the criminal entity and they have been ‘punished’. Their are no people actually taking these criminal actions didn’t you know? No just the ‘big bad banks’ doing it all without any actual human input. Once again this is portrayed as being in the publics best interests so the people are happy.

      Best not to worry about it too much though because there isn’t a ‘we’ or an ‘us’ in the western world today. There is only ‘them’ and they control ‘you’ and ‘me’ and ensure that ‘we’ and ‘us’ never come to pass.

      • so why not sit back and eat some popcorn with me

        governance of the people by the Banks for the Banks

        the so called “free” market died in 2008 if wasnt already dead

        markets are made , they have always been made , from the Guilds of medieval Britain to today’s Golden Sacks ( Romans made markets , they forced Britains to the new towns to trade and join the monied economy – taxes are so much easier to collect that way )

        MSM is a media circus and has been controlled for quite a while now – they set up the stories ( ever noticed that? that news reports became “stories” ? )

        Most people don’t care , keep fed and entertained and so long as today is like yesterday and tomorrow will be more of the safe , same stuff …..

        its the side lines like me , you and Shaun that need o kept an eye on

        Who watches the watchers? well they watch us…..

        If you think change is on the way lookup water monopolies .

        We’ll be more like Dune soon or Harry Harisson’s Home World ( the beginning bit)



        • I think it’s glib to say privatisation of the profits. Profits get taxed and the more there is the more tax there is. Equally there is an argument to be made that lending generates growth, at what point does lending become bad? Currently the regulation is keeping lending lower than it would be. This by extension would mean less growth and again less tax.

        • Actually what comes to my mind is the first Terminator film: man vs the machines! After all I understand that in the US 25% of the working population is surveilling/monitoring/ securing the other 75% and when this is robotised – which is likely fairly soon by all accounts we’ll have Terminator world! What a glorious prospect!

  3. There is a quite obvious, almost compelling, motivation to BECOME TBTF.

    No prosecutions? Ask yourself why.

    • Hi therrawbuzzin

      True as our establishment moves to protect itself but the truth is that some of these things were in evidence years ago. Yes Prime Minister as ever was on the case.

      Sir Desmond Glazebrook: They’ve broken the rules.
      Sir Humphrey: What, you mean the insider trading regulations?
      Sir Desmond Glazebrook: No.
      Sir Humphrey: Oh. Well, that’s one relief.
      Sir Desmond Glazebrook: I mean of course they’ve broken those, but they’ve broken the basic, the basic rule of the City.
      Sir Humphrey: I didn’t know there were any.
      Sir Desmond Glazebrook: Just the one. If you’re incompetent you have to be honest, and if you’re crooked you have to be clever. See, if you’re honest, then when you make a pig’s breakfast of things the chaps rally round and help you out.
      Sir Humphrey: If you’re crooked?
      Sir Desmond Glazebrook: Well, if you’re making good profits for them, chaps don’t start asking questions; they’re not stupid. Well, not that stupid.
      Sir Humphrey: So the ideal is a firm which is honest and clever.
      Sir Desmond Glazebrook: Yes. Let me know if you ever come across one, won’t you.

  4. hello Shaun,

    follow the money I guess 😉

    anecdotal evidence

    “what do you think of the Banks these days ? ”

    ” well they seen to be going out of their way for customers like when you go into a branch”

    “yes , but what about the news and these big fines ?”

    ” oh they are all crooks , they have never changed and they keep getting bonuses even though they loose money and keep doing wrong, why aren’t the bosses or CEO getting fired ? It’s always the worker who’s caught but never them !

    I’d lock the lot up! ”

    Conversation between myself and wife , a TV soap addict and ITV news watcher with no interest at all in the internet .

    ( how I married her ? she had other skills , such as being a good cook , were as my own mother could burn cornflakes and cooked vegetables until all soft drained of goodness and made gravy you needs a sharp knife to get a slice of)

    so from this small opinion poll I think that the Plebs are aware that the Banks need a “good seeing too” ……….

    why not the pollies ? hmmm ( C and C Music factory )



    sit back and enjoy the show ….. pass the popcorn please !

    • Hi Forbin

      As people join the UK establishment they seem to forget that our banks need reform. As I have just replied to therrawbuzzin Yes Prime Minister was on the case in 1987. What changed? Well the numbers got a lot,lot bigger……

  5. Hi Shaun
    When I read the new acronym SIFI (Strangely Innovative
    Financial Idiocy) it reminded me of an old Norfolk saying “I haven’t
    laughed so much since granny caught her tits in the mangle”

    I concur with all that you have written today but if and when it all
    goes wrong I fear for everyones children and grandchildren.

    U2 Running to stand still

    You now I took the poison
    From the poison stream
    Then I floated out of here
    Singing…ha la la la le day
    Ha la la le day

    Did Bono and the Edge have the same views of the world
    when they wrote these lyrics?


    • Hi JRH

      I don’t know but were they talking about a tax lawyer when they wrote this?

      “But I still haven’t found
      What I’m looking for
      But I still haven’t found
      What I’m looking for”

      Shame as they have written some great songs.

      • When this scam starts hurting a significant number of taxpayers & voters then things will change. An old quote “The pen is mightier than the sword”

        Keep up the good work !

    • Hi Noo2

      It is interesting to speculate on how TBTS might play out in the UK. Because of the taxpayer involvement our establishment would try to bail out Lloyds and RBS whatever. But HSBC would be clearly TBTS for us I think.

  6. Shaun, thanks for highlighting the Hector Sants involvement or non-involvement. When I first noticed this Bank fine story I assumed it was that Libor stuff again. I had honestly missed that they’d been fixing forex too, that just goes to show how serial the Banks have been. I think we must assume that every market and trade that they could collude upon has been colluded. What is left out there that they havent been caught doing then?

    I agree that after 7 years of manipulation the bankocracy looks quite invested, I think all the black and grey swans have been quietly snared and boiled up except perhaps one ghost swan.

    We shall see.


    • Hi Paul

      By the time we add the central bank manipulation to the bank market fixing there is not much left as you say. Also certain individuals seem to be completely unaffected as the establishment closes ranks. You might think that being charge of the FSA when Libor and Forex fixing took place might exclude you from future jobs. Apparently not as City AM told us earlier this week.

      “The British Bankers’ Association (BBA) has asked Sir Hector Sants to look at whether tax and regulatory reforms in the wake of the financial crisis hurt Britain’s international reputation as a banking centre, Sky News first reported yesterday.

      The BBA confirmed the report last night, with chief executive Anthony Browne telling City A.M.: “We are delighted that Sir Hector Sants will be leading this review.”

      I am sure they are delighted….

  7. Very good Shaun,
    I guess the only real measure of any improvement is the Base Rate; as long as it’s anchored to the floor we can only assume the banks are still bust. And the fact that this has gone on so long, and affected the economy so badly, demonstrates the enormity of the bust. Will we ever know just how much this mess has really cost the country?
    It’s scary; but TPTB whistle a happy tune to show they are not afraid – just like Julie Andrews.

    and the official denials read more like Hans Christian Anderson’s “The Emperor’s New Clothes” every day.

    I notice your blog has well over half a million hits now – brilliant! well done! keep going.

  8. I know Hector Sants reasonably well. I can assure you that he is doing very nicely and simply has no concept that he is anything but an honest, contributing member of society. He is the epitome of the arrogant, smug, self-serving bankocracy that has wiped out so much of our economy. That he goes from one very highly paid job to another tells you all you need to know. The man should be hanging his head in shame in some gaol.

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