Tuesday, November 15, 2011

Banking Trends Worlds

BANK WORLDS INTERNATIONAL The World Bank has not undergone major changes over the last three years, and demonstrate the results of these events in 2011 will continue. shows responses to the economic and financial crisis, consumers have less tolerance for risk, tolerance for less government secrecy, more businesses and consumers move their money toward the shore. But these changes in 2011 in strengthening competition in the low-tax jurisdictions and more money flows between continents.

Here are some trends for 2011 clock:

    * Competition: Hong Kong, Singapore see competition as areas with low tax rates.

Emerging markets are the fastest growing high net worth individuals (those with assets of $ 1,000,000) in the world, a new stream of income for consumers, protection of wealth. This will help ensure continued growth in the offshore banking sector in low-tax jurisdictions, particularly since the Asian airports.

According to a KPMG report on corporate tax rates in Hong Kong "world average evolution of competition in the last ten years that many countries now have corporate tax rates similar or lower levels." low-tax areas are struggling to remain competitive in 2011 or tax rates are not enough to be competitive in the long term.

Hong Kong estimated last month that the economy as globalized world in 2010, is facing an intense challenge to maintain its status as number one in the context of globalization, "said Agnes Chan, Regional Managing Partner Ernst & Young , Hong Kong and Macao. "Despite its success should not be in the further development of the most globalized economy in the world, Hong Kong will rest on its laurels," said Chan.

    * Right: More transparency for individuals and financial institutions are required, followed by intensified efforts of criminal sanction.

A series of sanctions imposed foreign bank in 2011, probably during its offshore facilities in the home of many organizations. Requirements include reports of assets stricter and more comprehensive protection of privacy loss, and more control throughout. The United States makes bank accounts for non-residents increased transparency. If the American member of the European Savings Directive (DUST), holders of non-US accounts information will be shared, reducing the attractiveness of investing in America. The directive will give the U.S. greater access to information about its inhabitants offshore bank accounts.

criminal enforcement efforts are also a priority for governments. The U.S. is also strengthening the enforcement and prosecution of tax evasion through offshore banks. But it could also mean more than a witch hunt, both for individuals and professionals who supported them, and most cases could set precedents and examples to do. Stricter regulation under the Bank Secrecy Act is seeing an increase in filing of returns (FBAR filings), strengthened programs against money laundering and reporting suspicious activities and transactions border. The IRS has announced plans for a new Offshore Voluntary Disclosure Program, but introduces introduce more stringent measures and the impact of a similar program two years ago.

    * Asset Protection: Investors head East.

With an atmosphere of increasingly unfavorable in offshore facilities in the West and the OECD countries, more investors away from Europe and the United States can led investments for individuals and institutions, their holdings by moving into emerging economies that offer growth prospects for the recovery phases to protect the global recession, and greater intimacy, as in Asia and the Middle East. This is potentially very damaging to these countries have called for greater penalties, such as the legal use of offshore financial centers is a major part of financial revenue for the British banking system and the U.S. - technically the largest offshore jurisdiction worldwide.

    * Technology: Trends, the easier it is to run the country.

A year ago, amid intense pressure from the IRS and the OECD, UBS Swiss bankers were convinced that the concessions of confidentiality would have minimal impact on the Swiss offshore financial sector. However, a recent case in which identities were sent WikiLeaks site, the ubiquity of the Internet, privacy is becoming a non-option for offshore banking services provider. The future of the industry is weak in the statutory tax hubs.

Growth in the cloud leads to more business in practice. Prepare yourself to handle more transactions on the Internet and to see more international business. The trends observed in 2011, including security threats for banks, the challenges and opportunities in atomization, Cloud Computing and key management.

    Consumer Behavior *

Much of what happens will be driven this year by consumer behavior. The recession and pauses property and stock markets, investors are scared away from risk.

In a recent interview with the magazine's financial assets, ABN AMRO Private Banking Asia CEO Hans Diederen, said the rich in the post-crisis environment, customers have seen their demand for more:
• Products: simple, most liquid investment products that offer more privacy.
• Diversification: the growing diversification in asset classes not stock (and bond funds, for example).
• Proximity: The closer to home investment and the region.
• Information: For more product information
But one thing has not changed, Diederen noted, "the appetite of customers' investment is still driven by market sentiment." With these consumer trends, offshore banking in Singapore and offshore banking in Hong Kong the best places for investment must be mitigated risks.

International Banking Online Transfer Worlds

INTERNATIONAL BANK WORLDS: The money will be transferred across continents everyday. People who send money abroad to relatives who live in their homeland. Foreign companies to work with people around the world in the employee's income to send by wire transfer procedures. Thus, the transfer of money something that happens on a large scale and on a daily basis. There are many ways to transfer money worldwide. Money can, the account holder's account and the account holders to withdraw money when he needs it to be transferred. But the transfer of the safest and most popular is the system of transfer or bank transfer. This is a money transfer by a person or institution to another. It is also possible to transfer money from one bank account to another account. Bank transfer is also possible in various offices of the designated cash. Transfer to transfer money for individual rather than a bulky amount, the contractor is not paid by bank wire group. The money is wired to an account holder of another person or institution.

Transfers are considered the safest and most reliable currency transfer. It is also one of the fastest ways to transfer money from one person to another. The person who wants to send money goes to a bank or exchange office that occupies the position of the transfer. The details of the transfer, including the recipient's name, bank account, amount, the city and country codes must be completed and submitted to transfer the amount. A bank or an office that sends money in the transfer of the sender's expense fee. This fee depends on the amount sent and have the receiver is charged. The bank then sends in contact with the receiving bank and provide the transfer details and details of the recipient. The transfer may take several hours, and in some cases one or two days. If the currency must be converted, then the exchange rate and the Commission has set before sending the receiver cut a bank account. The fees of the receiver to pay the amount he or she receives an amount slightly less than the actual amount. In this way, international bank accounts and profits generated funds.

Another form of transfer is the use of debit cards and credit cards. The electronic code on the back of the card with the bank account connected Inter and stolen each time by an e-store code is a transfer between the card account and bank account fund holders will be saved. Thus, the payment, an aspect often in everyday life and one of the best ways to use currency in international perspective transmission.

Worlds Bank Reconciliation

BANK WORLDS RECONCILIATION : Bank reconciliation is a comparison of the general account at a bank on behalf of the Company by a statement from the bankers of the society at large end of the month sent occupied. It could, by the end of the month, each time after the date the accounting firm of the closure. The bank reconciliation prepared, elements that are missing or not properly treated in the two account found.

The common differences and their treatment are:

Each month the bank charges bank usually charges for the operation of the bank account. These fees are generally not up to the final end of the month published. By agreement, the bank can enforce a subscription to the loan interest, so that the repayment of the loan amount can not forget to register in the general ledger.

To correct this omission [. Debit bank charges, interest, etc., and credit the bank account in the ledger]

Deposits in transit: It is a time delay is due to the fact that the deposits were not near the end of the month written by the bank when the deposit arrived after the end of the month. No entry in the ledger is essential for this position.

These checks are outstanding checks that were issued in a given month, but not yet redeemed by the recipient at the end of the month or the end. No entry in the ledger is essential for this position.

Checks issued and then canceled These are controls which are lost by the receiver declared. The accountant called the bank and stopped payment but not the entry in the ledger.

Accounting entry: If the bank account to which the check was credited at the time of payment and debit the appropriate expense account, thus reversing the charge.

The loan will be issued by the bank can get a loan from the bank to be approved can be exciting. After the excitement of everyone forgets to save the entry in the ledger. To correct this omission, bank debits the account ledger to represent to the amount of credit, credit the loan account relevant determining liability.

The above list of reconciling items is not exhaustive but provides some of the items that require adjustments at the end.

The construction of reconciliation:

With the above elements, conciliation is prepared as follows:

Balance per bank statement to ...... 2011 ... say, $ 220,000

Deposits in transit, say 30 000

Cheques issued but not yet paid (35,000)

Reconciled bank statement balance of $ 215,000

General ledger bank account balance 111 200

Add: Bank loans received 100 000

Check issued in 4000 and then canceled

Less: Bank charges (200)

General Ledger Bank $ 215,000

The above statement shows that the account balance at the end of the period $ 215,000 correct, the residual amount after adjusting journal entries to bank loans, to check record cancellation fee and the bank were displayed in the correct reporting period. The bank statement shows currently $ 220,000 $ 30,000 deposit is due is not paid by the bank and $ 35,000 checks were not paid to the beneficiaries.

Online Banking Tips

BANK WORLDS ONLINE TIPS : As technology has improved over the past ten years, cleverer and smarter criminals proportionately. This is particularly true in the online world - the universe, in which crooks hide behind e-mails, Web sites and wrong characters. Unfortunately, these same criminals would find their way into your bank account. However, there are some simple tips to follow to secure an online banking experience.

Protect your password: Your password is the key, the door to your online bank account is opened. As such crooks as to this vital information would know. To avoid this, make sure your password is not too personal. Avoid using your birth date, phone number, social security number or password. Craft a password that combines letters and numbers is impersonal. The more the better. It is also recommended to change your password every few months or more.

ATTENTION suspicious e-mails: If you want to steal personal information online often use the so-called "phishing." In this exercise, criminals may send e-mails for information about your credit card PIN (Personal Identification Numbers) or passwords. Crooks in online banking e-mails are often to be the legitimate financial institutions seem. These emails may seem convincing, because they contain the logo of a real online bank. However, these emails often contain a link that takes you to a fake site designed to entice you to provide personal information compromise.

These suspicious e-mails can be easily recognized because they usually do not directly address, they contain numerous grammatical errors, and they have links to suspicious or unknown areas. If an e-mail is questionable, it is always safer to check with your financial institution. legitimate e-mails from your online bank generally follow the same standards every time. They usually address that you ask your own name and will never enter your password, PIN or credit card information. A legitimate online banking in general, you find out about their safety on the official website. If all else fails, call customer service to get clarity on the security policies of your bank.

Use anti-virus and firewall: When it comes to online banking, can be an anti-virus and firewall invaluable. Ensure the best protection your money can buy to get. High prices not always guarantee the best quality. Compare prices and consult experts in computer or PC magazines to find products with high ratings. Anti-virus and firewall protects your computer from viruses, the space on the hard drive of your computer to steal or steal, your personal information.

Contact your financial institution: Do not hesitate to ask for help with your financial institution if you think you may have submitted your personal information to a fraudulent website. quickly in fact, the contact, if this ever happens. Also, make sure that your bank has your mailing address and telephone number (s). If you wish to communicate sensitive information, they will tend to make a call and / or send you something in the mail on this topic.

International Bank Worlds Online

BANK WORLDS : cotton paper with a weight of about 80 to 90 grams per square meter is mainly used in the preparation of World Bank bonds. The final decision is made on the directives of the Central Bank of each country is based. Here it is decided that the design must be money.

Cotton that goes into the production of silver is mixed at times with different elements such as abaca and flax. Sometimes, even a couple of other textile fibers. Although the paper used to make money is not the same as that of plain paper in the sense that they are the very properties of wear resistant. On average, there is a bill has a duration of about 2 years.

With the exception of non-traffic, high quality precious commemorative coins or metal used for lower value of monetary units, while paper money is used for higher values.

United States during the 10th March 1982, issued paper money. Seven days later he was declared by Congress as a legal tender. Since 1844, the pound sterling as the most common form of currency in the United Kingdom has been accepted. 1. January 1999, the birth of the euro.

Before the conceptualization of paper money, silver and currency which was used as a precious metal. The preciousness of a metal was determined on its rarity. The Gold Nugget from Australia of $ 10,000 would be the perfect example. Struck In Australia, there may be one of the largest gold coin in the world. Translated, he is proud of one kg of 99.9% pure gold.

But change all the time and tide slowly but surely. And this was the case with precious metals. The use of them lost over a period of time and money to paper gradually be accepted to the universal standard.

The physical process of making paper money includes several complex steps. The modern age has invented the invention of many machines called super-tech for the sole purpose of carrying out this task, given top secret.

Why paper money has even become a very popular hobby and growing fast. People from around the world are now collecting all kinds of bank notes as a hobby. That's because people find tickets for different countries tell a clear story about the original people, art, culture, history and essence of the life of this country. Almost all collectors of currency, the more determined to at least one of several notes from the World Bank, to collect all the countries within their collection.

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Thursday, October 13, 2011


After a sojourn to reflect and refocus on developments, what are the questions that dominate the political ether? The question I hear most often socially: "is the government (US or UK) doing the right thing?" My answer is a confident YES. Then I say "but both US and UK governments are failing to paint a clear picture of what they are doing and precisely why!"
see also: http://lloydsbankgroup.blogspot.com/)
Republicans in the USA and Conservatives in the UK are successfully twisting the issues to make recession and banking crisis appear domestic political failures. This is most telling for the UK's Labour government with a general election due in less than a year from now. But it has to be clear to intelligent observers that the UK's position is only to be expected and remains prudentially sensible as a proportionate set of responses to the crisis. PM Gordon Brown has maintained a stance that in effect says "trust me (us) to do the right thing to get us out of this crisis." The general public, at least the political chattering class, wants detailed explanations, not abstract assurances. The Conservative Opposition, echoed by the Liberals, have in the media created the axiomatic assumption that "public finances are in a mess." There is tremendous anger about banks and bankers, but the effect of ya-boo politics has been to divert anxious blame onto the government. Reading UK media the impression is gained that the UK's public finances and national debt must be the world's worst, if even no-one is quite sure what precisely defines concepts like 'finances in a mess'. Note the example of the following table. This reviews the financial debt of countries relative to GDP. There is a misnomer in the 3rd column (private sector debt) which is really household debt only as may be surmised in any case from column 7 of total bank assets (total loan gross exposures, not domestic only) given that public sector element is typically about half ratio to GDP with a few exceptions. There is a concerted forgetting that UK private sector gross debt over the past decade grew from 3 times public sector debt to 6 times public sector debt (3 times GDP) while, until the crisis broke, public sector debt held steady and fell slightly. Now the general public are being daily made anxious about the government fiscal deficit and medium term prospect of tax rate rises, most recently by the NIESR report on the economy, which fails to take account of the feedback effects of saving the financial sector. see the following: http://www.niesr.ac.uk/pdf/210709_225037.pdf
The NIESR has adapted the average recovery for previous recessions to state that incomes will not recover to the pre-crisis level (in real terms before unemployment rose and GDP experienced negative quarterly growth) until after 6 years. This is merely the average peak-to-peak period but has been exaggerated in the media as if a damning indictment of someone or something, similarly that GDP rates forecast are worse than the last published government figures (March Budget)? Yet, in fact there is nothing shocking or surprising about this. What is surprising is the NIESR's assumption that with a lower pound growth recovery will be export-led i.e. a total reversal of the credit boom growth previously! This assumption is conditional on whether government efforts to persuade or force banks to maintain or even increase lending will be effective, especially via the public sector owned banks. A very similar view would apply in the USA. What seems remarkably gauche about this outlook is that both UK and USA remain magnets for other countries foreign exchange surpluses. There is an improvement in growth expected for both insofar as the external account trade deficits will narrow as export-surpluses countries trade surpluses shrink, but this is not a recipe for halting unemployment rises. That depends on fiscal boosts and the banks cushioning the shrinkage of credit (deleveraging by banks to thereby most easily restore their capital ratios and by borrowers, especially households, cutting back their spending). Only restoring some credit boom effect and regaining confidence will slow and halt the domino, knock-on, rippling, or however anyone wants to describe it, negative vortex of beggar-my-neighbour impacts through the economy and all economies.
The banks have not woken up and smelled the coffee of their collective responsibility for economic recovery alongside government; they continue to live with pre-crisis mindsets, witness their inability and extreme unwillingness anyway, to tackle the bonus-culture. Government (UK and USA) have also not spelled out clearly enough what the banks are obliged by government to do to help both themselves and the economy. Lloyds Banking Group, for example, has improved its capital ratio to over 14% but mainly by reducing its risk weighted assets (loans) by nearly 40%, of which half was gained by an asset for BoE cheque swap with the Bank of England! The remaining half of the deleveraging is largely by retiring loans and not rolling them over. The effect of this alone in the case of but one bank has a 1% negative ratio to GDP and a GDP impact of possible minus 0.5%. Compounded by deleveraging by other major banks and we have a negative pro-cyclicality effect, precisely what banking regulation Basel II is most concerned to identify and avoid! Is the government forecasting or that of NIESR or any other model supposed to have predicted this? Governments created something of a cleft stick here, on the one hand wanting to see their financial interventions repaid soonest and on the other seeking assurances that the banks would maintain substantially more than minimum regulatory capital reserves and also maintain lending at pre-crisis levels. These objectives if not sensibly timed become mutually exclusive!
It is not hard therefore to conclude that what is less important right now is what caused the crisis and more important is what are the banks doing today? They are making the recession deeper. Bankers have an ready culprit they can blame for causing pro-cyclicality, the Basel II capital adequacy regulations, which ironically were designed with the objjective of addressing precisely this problem!
The banks still look at the underlying economy as exogenous to their business performance, not as something intrinsic that they can directly effect. They have as yet not embraced and understood Basel II Pillar II stress testing and economic scenario analysis and the central banks, government, and economic institutes like NIESR are not offering guidance and tools for how to analyse better the role of banks in the economy!
The banks are currently in a period of retrenchment, recoiling like scalded cats in the face of public sarcasm, and therefore unable to take responsibility alongside government in concerted efforts to redeem the economy. The public debate continues to confuse symptoms and underlying disease. The banking crisis may have had viral-like causes that transmitted throughout the whole financial system, but the public, led by politicians, media and pundits, continue to primarily blame all major banks as if they are individually guilty or heinous excessive risk-taking, even though the collective guilt is also obvious. Some pundits say we should have let individual banks fail absolutely as if diseased parts of the body-financial could be cut out to let the healthy parts prosper. This is myopic at best and ego-mania at worst, every cloud has silver linings for some whether short-sellers or doom-monger talking-heads.
Of course, what is it I'm saying here other than we need more comprehensive clarity delivered to the general public. How easy is that? Not easy at all. Opinions like politics are a market-place. After 2 years of the most intensive news coverage given to any crisis including war coverage, is the general public more attuned to detailed technicalities of what is happening and why, and what is being done, and what should be done, than before? Where can the public plant its feet and say this is real?
Timothy Geithner recently visited Alistair Darling but they failed to use the meeting adequately. They, both of their governments administration, need each other to validate each other's fiscal responses to the recession and financial interventions to salve the banking crisis. But, it is clear they don't quite get that. No one trusts bankers and only reluctantly trust economists. Politicians are generally mistrusted. Therefore this only leaves the inter-governmental sphere where mutual validation and confidence may be gained. My perception is that there is considerable confidence at this level, but it is not being communicated. In part this is because it lacks the tools for the job to analyse policy interventions sufficiently to know the timing of when to expect the positive benefits of policy measures to become apparent, by which I mean both finance sector interventions and budget fiscal deficits. The US and the UK are in recessions that are 6 and 4 quarters ahead of others, and consequently their fiscal deficits are higher and broadly in agreement. Politicians are sensibly wary of creating hostages to fortune, however, in making economic projections of qhen their actions should have positive results. This was a similar problem for central banks when trying to issue warnings ahead of the credit crunch, too wishy-washy elegantly shredded into lumpy bit kind of advice, with on the one hand and on the other etc. If there is one experience to be warned about I gained working in banks and as an economist is that too many people in key risk management positions are more risk adverse about their own careers than capable of setting this aside to state clearly what they believe. That said, it is doubtful that any major bank's board had it received cogent and accurate advice in say 2006 or early 2007 mapping out precisely what was about to hit them, would not have had 'shot' the bringer of bad tidings, at best had him or her dragged off to the funny farm. Economics is for various reasons, including bonus culture ones, something that most top bankers resist like the plague, whether qualified in banking or as is equally commonplace not educated about the totality of banking at all. Economics is sobering and not what inebriates can tolerate if given the choice? Perhaps polticians and central banks should take a leaf out of how wartime leaders such as Roosevelt and Churchill dealt with matters of public information and military command when they recognised that confidence mattered most combined with well-judged honesty in appealing to all to do their utmost in these difficult challenging times, etc? The recession and financial crisis is not a place for simply saying "I am your leader so trust me!" Time for more political courage, to step up and say that to the best of our judgment this is what we believe and deliver confidence-boosting expectations and take the political risk. The opposition political parties similarly need to be seen to stop playing party politics on the issue of getting out of recession and the credit crunch crisis. There are plenty of other matters they can be sarcastic about. Obama attempted in the US to gain a bi-partisan approach on the crises. he only half succeeded. In Europe, it seems to me that bi-partisanship has not even been proposed as a necessary or useful way forward! In the UK, Labour is pinning its hopes on being seen to have steered the economy through the recession. That has no precedents as a political strategy that I can recall. Better would be to simply go for honest statesmanship in the interests of what works best to restore public confidence in what it is that politicians are supposed to do best and most responsibly?
Geithner stated on 13th July that there is a good chance that the U.S. and other leading economies will start growing again over the next two quarters, but there are still significant risks to the outlook. This chimes with UK views (Government and NIESR) that there will be positive GDP growth in 4th quarter 2009. Essentially, this is based on narrowing of the external account and past recessions given that UK and US have both now reached the end of previous average recession periods, with one overlooked aspect that is that UK recovery tends to occur 2 quarters after the US, hence do not expect UK positive GDP before next year! Furthermore, both the official assurances of UK and US governments have been made without analysis of the cycle impacts of what the banks are doing. Their respective national economic models lack that depth; they cannot model for the details of the financial sector statistics within their GDP forecasting models!
Geithner said, "In my view there are still significant risks and challenges ahead," Geithner said when asked if he was concerned about the possibility of a double-dip recession. The issue is less double-dip in my view than simply 'double' given that the financial crisis is doubling the depth of what would have been a more normal to-be-expected recession. He said the world's major economies were largely in agreement on the steps that needed to be taken to boost economic activity. Yes indeed, but hard to guess that from statements by politicians except when speaking under the G8 and G20 umbrella. "I think we have remarkably strong consensus in place on core elements," Geithner said. This is not strictly true on the face of data, but is as good as it gets. He was speaking after talks with UK's Alistair Darling as part of a trip that will take in the Middle East and Paris. Geithner and Darling said leaders of industrialised nations would discuss the measures they are taking when the G20 meets in Pittsburgh in September. This is a critical month for the USA when its annual government budget ends and a new one has to be announced and voted through Congress. The number of state interventions in the banking crisis has slowed compared to last year. Everyone is treading water waiting to see what happens to banks balances by the end of the second quarter to then gauge what the US especially will decide it needs as a fiscal boost after September and in off-budget fiat (money market) interventions and command economy edicts to the banks. By then we should also have the measure of Quantitative Easing plus government bond auctions and we will probably be in the maelstrom of another nervous stcok market fall. Geithner will seek to reassure Gulf Arab states this week that U.S. dollar assets they hold in large quantities remain a strong investment. This is bolstered by scare stories about the Euro trillions of toxic debt in the Eurozone. On the one hand a strengthened dollar and weaker Euro should add to containment on oil prices on top of fall in demand, on the other hand there is a strong motive by foreign investors to anticipate another dip in US equity and asset values. A recent decline in Saudi foreign assets shows the purchase of U.S. Treasuries by Washington's Gulf allies, five having currencies pegged to the dollar, at levels seen in the past decades should no longer be taken for granted. This reflects narrowing of the US external account, hoiwever, and is not worrisome since the US, like the UK, now want their government bond new issues to be bought by domestic buyers, principally by the banks. The banks may foolishly insist on quid pro quo: "we'll buy your debt if you lessen the pressure on us to maintain lending levels and let us deleverage further!" Negative growth pro-cyclicality by banks has some way yet to run. If we take our best bets on this from past recessions, expect the banks to continue shrinking their household and corporate loan books at least up to the 3rd quarter of 2010!

Wednesday, April 20, 2011

Property lending and rules to save banks from themselves

Millions are frustrated because banks wll not lend them money to buy or develop property. Banks ascribe their lending restrictions to the new "Basel III" capital requirements (effective in 2012). This is not strictly a valid reason. Borrowers and others are given such simple reasons because the total picture is fraught with difficulties in striking the right balance between opposing demands, dogs and fire hydrants, rock and hard place etc. What is going on, or not?
Banks are shrinking their balance sheets and that inevitably means property lending (70% of UK and USA banks' customer loans - after exclusing loans to rest of finance sector which are also shrinking) and also hoping desperately to sell on bundles of property loans and foreclosed properties, if only they can find long term deep pockets to sell to without too steep a discount.
The retreat by banks from property is one reason why insurers and other institutional investors are getting into property lending, seeing an opportunity to do so without competition from banks and expecting higher returns than the banks can achieve.
The bankerspeak financial technicalities.
Basel III changes to higher capital reserves and more core capital of banks (higher amounts and higher loss-absorbing quality) are not genuine reasons for reducing the general loan exposure - it is really about narrowing the funding gap (between deposits & loans) that is filled by selling Medium Term Notes into the "wholesale interbank funding market" and banks are each fearful of when they next have to go to market to replace their MTNs on maturity (big amounts periodically every 3,6, 12, 18 months etc.).
"Internally generated capital" is recovery of monies loaned plus net interest income and other realised profits, and the banks are torn between using those gains to reduce their funding gaps or to increase their capital and liquidity reserves (as regulators under the name of "Basel III" require). They are also torn about how much they can allocate to bonuses rather than dividends. Hence, the banks blame Basel III for lower lending and want everyone to know that as part of their pressure on regulators and governments to soften or postpone Basel III and even on shareholders re. dividends and government and other pref bond holders to expect lower % coupons for longer - when actually it is really about narrowing their exposure to wholesale lenders i.e. to severely reduce their funding gaps, which UK banks have already halved from £1 trillion to £500bn, and falling, and that is a lot of balance sheet liquidated and internal capital generated.
The banks know the wholesale funders well and what is looked for an expected because they are also such funders in terms of their large loan exposures to other financial sector borrowers and have been liquidating cross-border interbank loans dramatically.
When (how soon) a bank has to next replace/refresh its "funding gap" finance will dictate its current openness to agreeing new loans; they are keen to say to their funders here is £5bn matured MTN repaid to you and we only want you to roll-over and buy £2.5bn of new MTNs back from us, which is supposed to sound good to the lenders and there should therefore be minimum fuss or embarassment (narrower spreads) that could leak out to market and damage the share price.
Property (development especially) is seen as riskier, and in addition UK banks are being warned by regulators to reduce the concentration of risk they hold in this one sector (property), especially while they are holding large amounts of receovered property collateral and seeking to sell on about 20% of their property loans (i.e. £260bn), probably with 15% haircuts = £40bn, some % of which could appear as paper loss relative to the outstanding loans, interest & charges that relate to the collateral recovered, perhaps £5-10bn (a wild guess).
The banks are in a bind partly of their own making insofar as the property market (asset prices) cannot recover until new property lending grows and yet until there is recovery they cannot sell their property exposures without risk of substantial loss, and without clearing out of a lot of property they cannot resume property lending.Therefore, if institutional investors (who are the major shareholders in bank other than governments) step in to make up the shortage in new property lending this, if on a large enough scale, could be important to breaking the logjam, and should be profitable to institutions in two ways (for themselves directly and via improved balance sheets of the banks), and given that property conditions are a major aspect of economic growth recovery.
But, when property lending is resumed by banks more assiduously the first port of call may be to refinance troubled loans rather than agree new loans to new borrowers, that is long term loans especially, while short term lending only looks relatively attractive to many banks. Medium to long term lending appears to have too many uncertainties i.e. the risks are very hard for them to compute.
The wider context includes policy that is torn between being seen to put in place measures that can be claimed to make sure the credit crunch recession never re-occurs, while also needing bank lending to stop shrinking and then to grow to generate more certainty of substantially higher economic growth. This facing in contradictory directions is why there is much fudging about the impoact of Basel III regulation including the Vickers Commmission recommendations that many outside UK as well as in UK hoped would provide a clear new line to follow and refresh the impetus of the G20 agenda of about 100 adjustments, policies and new institutions to protect the financial system from itself.
So-called "Basel III" rulings aim to increase banks’ tier 1 capital base from 2% to 4.5% (ratio to gross loans, or twice this to risk adjusted loans) to improve the resilience of banks. These discourage securitisation transactions, and there are four ways banks can increase their capital base to meet new ratios: raise more long term capital themselves (internally generated by cutting costs, bonuses, dividends and coupons), raise more in deposits, shrink loan balance sheets, commit less own capital to investment banking (market trading & derivatives), and reduce exposure (in economies where property dominates) to property and property loans.
There is the hope that interbank lending and funding gap finance and securitisation of loanbooks will sooner than later return as a reliable and substantial option, but only once the banks look safer bets i.e. the banks are strong enough to again dictate the loan spreads to those they borrow from. That is unlikely so long as the sovereign debt crisis reflects badly on banks and so long as Basel III looks hard for banks to comply with, even if these are very much parts of the banks own PR to shift the blame (playing up the sovereign debt crisis) and to soften new capital rules (foot-dragging on Basel III).
From the point of view of individual borrowers going to the banks with wonderful schemes of great quality all this bigger picture about future impacts reasons given for refusing loans is an immense frustration. It is actually the excat inverse of the pre-credit crunch past when banks ignored the bigger macro-economic and regulatory picture and approved any loans that passed merely microeconomic tests based on past high growth experience and not on forecasting future downturns. Yet, while the medium term future should be one of renewed growth and recovery, Basel III is ensuring future risks are assessed in terms of possible repeat of economic down turn (double-dip or another recession)!
In the case of seeking loans from banks that are underwritten or otherwise backed by government should ensure that banks can lend comfortably because the risk is low. But, low risk also means low net interest income when banks are anxious to raise their % net interest income, and given uncertainties about even government finance (subject to unexpected renewed cost-cutting at budget time) state-support may not of itself be sufficient to get the banks to lend. Institutional investors seeking to fill the gap also may not be attracted sufficiently by the low margins despite state guarantees. They are attracted by commercial property, not residential, and are not stepping into property lending because they are attracted by low margins of bank lending. Insurers are attracted by the higher interest income generated by commercial property loans compared with government bonds.
Over half a £/€trillion in commercial property loans are maturing in C.Europe over next 3 years and possibly a third of that additionally in the UK. Institutional investors will step in where banks fail to roll over what is of good quality and cannot be all repaid, and are already now financing about one quarter of comemrcial property lending.