Will the banks survive the current changed economic climate?

[RichInSpirit]

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?

 

[Brendan Burgess]

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

 

[NoRegretsCoyote]

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.

 

[Gordon Gekko]

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.

 

[Brendan Burgess]

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

 

[WolfeTone]

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.

 

[PMU]

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.

 

[Leo]

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?

 

[WolfeTone]

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.

 

[Allpartied]

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

 

[Leo]

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...

 

[WolfeTone]

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?

 

[losttheplot]

??? 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.

 

[Leo]

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%?

 

[Protocol]

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.

 

[Protocol]

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.

 

[WolfeTone]

Wohah!

Did I hit a nerve or something?

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.

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.

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

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.

 

[PMU]

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.

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)?

 

[Jim2007]

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.

 

[Jim2007]

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.