# Will the banks survive the current changed economic climate?



## RichInSpirit (12 Jun 2020)

It dawned on me recently that the banks might not survive the current changed economic challenge. At least in their present form. 
The extra unemployment and deferred payment of mortgages and other loans and outlook for a national budget deficit. 
Are we looking at another banking crisis at the moment?


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## Brendan Burgess (12 Jun 2020)

Hi Richie 

Unlikely that mortgages will be a big problem for the Irish banks.

The Central Bank rules meant that the reckless lending and borrowing of 15 years ago have stopped. 

So although people might be facing difficulty with their mortgage repayments, they are likely to be still in positive equity. People in positive equity are much more motivated to meet their repayments. 

Although we have the highest mortgage rates in the eurozone, the rates are still lower than they were a few years ago.  And half of borrowers still have trackers. 

When the bank defers payment, they are not deferring interest.  So they keep charging the interest. 

I share your concern about the state of the national finances.  A bankrupt exchequer would cause huge economic problems which would affect the banks.

Brendan


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## NoRegretsCoyote (12 Jun 2020)

I think they are more at risk from the likes of Revolut.

Bank of Ireland has 262 branches.

This is a massive overhead: staff, building maintenance, security, etc, especially in a time of low interest rates.


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## Gordon Gekko (12 Jun 2020)

They face many risks alright. The risk of smaller and more nimble competitors stealing their lunch. The risk of losing employees to companies that can pay bonuses, although they seem to be able to circumvent that. The risk that mortgage lending and lending generally will fall away if the economy fails to reboot.


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## Brendan Burgess (12 Jun 2020)

Folks
I have deleted posts referring to the outlook for the banks' share prices. 

The original question about whether the banks will survive or not is valid as it's a concern to depositors, but please avoid commenting on their share prices.

Brendan


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## WolfeTone (12 Jun 2020)

I can't see a long-term future for the commercial banks. Their present existence is highly questionable even now. They are all licensed by the Irish Central Bank, a member of the ECB that lends money to governments for next to zero. 
The commercial banks seem to be all too intertwined together that when one goes down the whole cabal starts to wobble. 
Im sure there was a time when risk would induce commercial and competitive strategies, but ever since 'whatever it takes' Draghi, there is really no risk or point to their existence anymore. 

Its time to cut out the middleman now. I don't get why I need to re-pay a higher interest rate to a commercial bank when the ECB is lending at rates a lot lower. The only reasoning is by virtue of the commercial bank being in the privileged position of having a license. 
Its all sounding very archaic to me.

Best to do away with them, pull down the signage and stick 'ECB Agency' on the door. Then let joe public borrow at the same prevailing interest rate offered to governments. 
Better still, this can be done directly on-line. I dont need 'choice' when choice just charges me more.


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## PMU (12 Jun 2020)

Irish banks, or at least those on the list of supervised entities, are supervised by the ECB, not the CBI. https://www.bankingsupervision.europa.eu/banking/list/who/html/index.en.html.


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## Leo (12 Jun 2020)

WolfeTone said:


> Its time to cut out the middleman now. I don't get why I need to re-pay a higher interest rate to a commercial bank when the ECB is lending at rates a lot lower.



If the ECB were to start taking on millions of customers, hiring tens of thousands of staff to support them and opening thousands of branches, do you thing their rates might need to rise to cover those costs?


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## WolfeTone (12 Jun 2020)

Leo said:


> If the ECB were to start taking on millions of customers, hiring tens of thousands of staff to support them and opening thousands of branches, do you thing their rates might need to rise to cover those costs?



Im not sure, but a transfer of ownership would be more efficient. The branches and staff are already in place, just change the legal entity from Bank of Whatever to ECB and hey presto! no more 'commercial' banks charging interest rates over and above the prevailing rates of ECB. Everyone and every business can compete on a level playing field insofar as banking transactions go.


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## Allpartied (12 Jun 2020)

There is an increasing risk that Irish banks could go under.  Certainly a bigger risk than the state going under. 
So, if people do have concerns, they would be better off putting their deposits in state savings schemes.   
The Irish banks, BOI in particular, are heavily involved in the UK mortgage, car finance and insurance business. 
People would need to consider the extent to which the Bank is exposed.  They have warned investors themselves, to be cautious, before the Coronoavirus crisis and, I can only assume, the current crisis has made that risk even bigger.  

And Brexit, of course, as the man said, it hasn't gone away, you know. 









						Bank of Ireland warns on Brexit hazard to institution
					

Consumer confidence and credit risks could arise as a result of UK’s EU exit, says bank




					www.irishtimes.com


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## Leo (12 Jun 2020)

WolfeTone said:


> Everyone and every business can compete on a level playing field insofar as banking transactions go.



So you nationalise it to EU and remove competition. We all know the EU is a lean mean efficient machine...


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## WolfeTone (12 Jun 2020)

Leo said:


> So you nationalise it to EU and remove competition. We all know the EU is a lean mean efficient machine...



??? If the ECB sets interest rates at say 2%, why do hanker for other entities competing against each other but ultimately charging you more than 2%? 
Surely if 2% is the best rate, then you would choose 2% over a 3% rate offered by a commercial bank?


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## losttheplot (12 Jun 2020)

WolfeTone said:


> ??? If the ECB sets interest rates at say 2%, why do hanker for other entities competing against each other but ultimately charging you more than 2%?
> Surely if 2% is the best rate, then you would choose 2% over a 3% rate offered by a commercial bank?


So if the ECB reject your loan application you  can't go anywhere else.


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## Leo (12 Jun 2020)

WolfeTone said:


> why do hanker for other entities competing against each other but ultimately charging you more than 2%?



The other entities absorb the considerable overhead of operating branch networks with all associated staff and a large degree of the risk. The beauty of the multiples entities competing is that it drives efficiency and ultimately better value to the consumer. 

If the ECB were the only game in town, who's to say we wouldn't be paying 10%?


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## Protocol (12 Jun 2020)

WolfeTone said:


> I can't see a long-term future for the commercial banks. Their present existence is highly questionable even now. They are all licensed by the Irish Central Bank, a member of the ECB that lends money to governments for next to zero.



The ECB does not lend to Govts.

It never has, it doesn't, and it legally can't.

The ECB lends to commercial banks.


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## Protocol (12 Jun 2020)

WolfeTone said:


> Its time to cut out the middleman now. I don't get why I need to re-pay a higher interest rate to a commercial bank when the ECB is lending at rates a lot lower. The only reasoning is by virtue of the commercial bank being in the privileged position of having a license.
> Its all sounding very archaic to me.



You are calling for retailers to be abolished, and for the main wholesaler to sell direct to customers.

Note that Zurich will sell you a policy directly, and sell through brokers.

Buying direct from Zurich is not cheaper.


If you want lower retail bank interest rates, then we need to have more competition, not less.

We need reform of the bank capital rules and the repossession regime.


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## WolfeTone (12 Jun 2020)

_Wohah! _

Did I hit a nerve or something? 



losttheplot said:


> So if the ECB reject your loan application you can't go anywhere else.



Thats a fair point. If the ECB wont lend you €50k at 2% then yes, of course, there should be space for another entity to borrow the €50k at 2% from ECB and then lend it to you at say, 10% or whatever risk level they appropriate to your loan. 

Ideally, if the ECB is lending to banks at 2% im merely suggesting that 2% be available to joe public also and not just the private banking sector.



Leo said:


> The other entities absorb the considerable overhead of operating branch networks with all associated staff and a large degree of the risk. The beauty of the multiples entities competing is that it drives efficiency and ultimately better value to the consumer.
> 
> If the ECB were the only game in town, who's to say we wouldn't be paying 10%?




The ECB sets the interest rate for Eurozone in consideration of the prevailing economic conditions and other known indicators (including any costs associated with newly acquired branch maintenance ) .
That rate now becomes available to everyone, through its channels of newly acquired branches (if needed, alternatively an online system would suffice) and not just private commercial lenders.
Im simply advocating for access for joe public to the same rate that is available to private commercial banks - in essence, eliminating the need for these more expensive money lenders.



Protocol said:


> The ECB does not lend to Govts.
> 
> It never has, it doesn't, and it legally can't.
> 
> The ECB lends to commercial banks.



You are absolutely correct, how could we change this? Oh yeah, change the law! 
Has anything like this been done before? Well, the issue of ECB bond buying program seemed to rankle a few people and ended up in the German courts with regard to its (il)legality. 

German courts call on ECB to justify bond-buying program



Protocol said:


> You are calling for retailers to be abolished, and for the main wholesaler to sell direct to customers.



No, im calling for the abolishment of merry-go-round banking sector purporting to act as some sort of sophisticated financial system. 
When you boil it all down its just one entity buying and selling money to another entity in the hope of making a profit off the other entity. Each new financial 'innovation' is just another artificial construct and any time the system cocks up the rules get changed to try keep the merry go round in place. 
Im simply in favour of cutting through the carp and having a level playing field for everybody and everyone.


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## PMU (13 Jun 2020)

Allpartied said:


> There is an increasing risk that Irish banks could go under. Certainly a bigger risk than the state going under.


The Irish banks have lower credit ratings than the Irish state. Ireland's credit rating is currently high with a stable or positive outlook https://tradingeconomics.com/ireland/rating. The Irish pillar banks have lower credit ratings.  Here's BoI as an example https://investorrelations.bankofireland.com/debt-investors/credit-ratings/. Basically, they are adequate with stable outlook.  



Allpartied said:


> So, if people do have concerns, they would be better off putting their deposits in state savings schemes.


While the ratings may be lower they still indicate the banks have the ability to meet their financial obligations, and they are now independently supervised by the ECB and not by a 'light touch' CBI. So if  you are saving an amount (per covered institution) lower than the 100,000 EUR level guaranteed by the DGS, and you can get a better post-tax return doing so with the banks than with state savings, why would not not choose the bank(s)?


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## Jim2007 (13 Jun 2020)

Allpartied said:


> There is an increasing risk that Irish banks could go under.



Absolutely not true.  Irish banks T1 ratios and Basle III compliance is among the best in Europe and there is no sign of an significant change in that situation.


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## Jim2007 (13 Jun 2020)

WolfeTone said:


> Im not sure, but a transfer of ownership would be more efficient. The branches and staff are already in place, just change the legal entity from Bank of Whatever to ECB and hey presto! no more 'commercial' banks charging interest rates over and above the prevailing rates of ECB. Everyone and every business can compete on a level playing field insofar as banking transactions go.



Would be an idea to spend sometime learn the history of banking... there are very go reasons for establishing institutions like the ECB, ensuring the are independent of individual governments and prevented from interacting with the public.  There are plenty of books on the subject.


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## Jim2007 (13 Jun 2020)

Protocol said:


> If you want lower retail bank interest rates, then we need to have more competition, not less.



The reality is the banking has become a commodity industry and an unconsolidated one at that.  Banks can't continue to give away their services for free, whether online or bricks and mortar.  The next phase is a pan European consolidation down to about 7 or 8 big European banks, plus may be 20 or so second tier.  This pandemic may kick if off or we may have to wait for something else but it is the only make banks profitable again. Given it 20 - 30 years and the banks in most of the smaller member EU states will be trade names, nothing more.


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## WolfeTone (13 Jun 2020)

Jim2007 said:


> Would be an idea to spend sometime learn the history of banking...



Yes I get all that. Just to be clear, I was merely adding an observation in addition to the views expressed in the opening post.
I rarely enter a bank branch now, and when I do most of the services are automated.
I rarely use my credit card now either, certainly paying off any balance within the month when I do.
I simply don't get why they still get away with extortionate interest rates on credit cards. How they apply charges to accounts for any arbitrary reason.
I don't really need my wages paid into a bank account anymore, I could have it sent to my Paypal account, Google pay, Apple pay or a private wallet on my phone. I could set up direct debit charges from these accounts, pay online or use my phone.
And I don't see why ordinary joe public cannot have access to funds at rates equal to what are available to private commercial retail banks.
Commercial retail banks are heading for near extinction in my opinion. At best, they will only be a remnant of their former themselves.


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## Allpartied (14 Jun 2020)

Jim2007 said:


> Absolutely not true.  Irish banks T1 ratios and Basle III compliance is among the best in Europe and there is no sign of an significant change in that situation.



They wouldn't be alone, of course, if there was another banking crisis.  But they are exposed, due to their size.  Too small to be considered systemic to the European banking system, but too big to be allowed to fail by the Irish financial system. 
BoI, in particular, is exposed to the UK market.  More than 40% of it's business is in residential mortgages, commercial loans, car finance and other unsecured loans. 
If Brexit is a disaster, if there is a substanitial second wave of Covid, if sterling goes down the toilet.  They could be looking at substantial losses.  Maybe they have the capital to absorb such losses, but time will tell. 
Maybe it would be better for Irish banks to realise that they are little banks, and just look after the Irish economy, instead of launcing themselves around the world, in these unstable and highly unpredictable times.


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## Leo (15 Jun 2020)

WolfeTone said:


> The ECB sets the interest rate for Eurozone in consideration of the prevailing economic conditions and other known indicators (including any costs associated with newly acquired branch maintenance )



Not sure why you feel the need for a roll-eyes there. I don't get how you think zero competition is somehow better for the consumer.


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## NoRegretsCoyote (15 Jun 2020)

WolfeTone said:


> I don't really need my wages paid into a bank account anymore, I could have it sent to my Paypal account,



Your employer will pay you by PayPal?

Have you ever dealt with PayPal's customer service btw?


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## Leo (15 Jun 2020)

NoRegretsCoyote said:


> Your employer will pay you by PayPal?
> 
> Have you ever dealt with PayPal's customer service btw?



It's not like they don't charge fees either!


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## WolfeTone (15 Jun 2020)

NoRegretsCoyote said:


> Your employer will pay you by PayPal?



"could pay", not "will pay".

The critical point being is that I agree with views expressed in post #1 #3 & #4, do you?


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## WolfeTone (15 Jun 2020)

NoRegretsCoyote said:


> Have you ever dealt with PayPal's customer service btw?



Yes.


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## WolfeTone (2 Dec 2020)

AIB to cut 1,500 jobs and vacate three Dublin offices - RTE
AIB to cut 1,500 jobs, close some branches - Independent.ie

_"Customers are now interacting with the AIB banking app more than 1.54 million times a day, compared with 40,000 daily branch visits.

The bank said it has seen a 27pc increase in digital daily usage among customers aged over 65, and a 9pc increase in digital adoption among the over 40s."

"With 80pc of its staff working from home since the start of Covid-19, it is planning to vacate a further three of its six remaining Dublin head office locations as leases come up for renewal over the next few years. "

"Mr Hunt said Covid-19 has “dramatically changed the operating environment, presenting both challenges and opportunities and accelerating the trends of digitalisation, changing ways of working and sustainability."_


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## Purple (2 Dec 2020)

People hear automation and they think of robots making cars but that's old news; manufacturing has been automated for decades. Automation now is AI and machine learning and that will wipe out mot of the jobs in banking and insurance and financial services generally. 
What happens to solicitors when you can do your Conveyancing through Google maps and a pin number?
What happens to GP's when Apple or Samsung have medical diagnostics tools that we have in our homes backed up by doctors in India? If you facetime your GP she can be anywhere in the world. 
There's already an AI reading brain scans in seconds which is far more accurate at picking yo tumors than any doctor. 

Banking is ripe for change because it is flabby and inefficient but that'll just be the start of it.


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## WolfeTone (10 Dec 2020)

ECB ramps up stimulus

Let's face it, when all is said and done, there is only one bank that matters. The commercial banks are just decorative ornaments that have lost their sparkle.


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