Interesting Links for 26-01-2017

[andrewducker]

The Death Star and the Final Trench Run (A detail most people get wrong) (tags: StarWars ) Living in Switzerland ruined me for America and its lousy work culture (tags: work usa ) Split brain does not lead to split consciousness (tags: brain consciousness psychology ) Would Donald Trump fail the Turing Test? (tags: turing ai ) The Dutch raise

Comments

[danieldwilliam]

Depends if RBS is in the category of structurally important banks and if the whole banking system is under stress at the time RBS becomes illiquid or insolvent and whether the problem is fundamental insolvency or just a liquidity problem.

If RBS isn't structurally important or the whole of the banking system is not under stress and the problem is fundamental insolvency then I think the shareholders take the hit for the whole value of their assets. That would include the UK Treasury losing the value of our 75% stake but no more than that.

If RBS is structurally important and there is a banking crisis at the time then the UK government probably has to step in to provide liquidity support and we'll end up owning more an asset that is not worth much. We may have to pay more than the value of the assets and we may not get that back ever.

If the problem is liquidity i.e. a timing gap between ready cash due to be paid by and due to be paid to RBS the UK government could provide cheap liquidity and buy out the shareholders of the other 25% for next to nothing.

If you have the stomach for it reading up on Overend Gurney might be of interest.

[octopoid_horror]

1 in every 4 payments in the UK goes through RBS in some way, I believe. And they're trustee for around half the investment funds in the UK (not counting hedge funds or other more "exciting" types of fund). So were the bank to suddenly collapse, there would be a pretty immediate impact even just in those two fields.

That said, you could certainly look at it and say that some of it is important while other parts should be split off, but then you'd have to do some very creative balancing to make the structurally important parts viable, and not liable for the since of the past so that they continued to be viable.

[a_pawson]

This is why they really need to separate conventional and investment banking into separate legal entities.

[octopoid_horror]

Although pensions rather rely on investment banking, so I am slightly concerned what would happen next, in all honesty.

[a_pawson]

You have a point, especially given that pension funds are (to some extent) guaranteed by the government. Yup there is no easy way the givernment can permit banks to go bust.

[gonzo21]

Ah, if only all these billions had been pumped into national infrastructure projects instead of being poured into the endless black holes the bankers dug.

[a_pawson]

Unfortunately the banks held deposits from millions of everyday people. The government would have had to pay out far more in deposit compensation than it cost to bail out the banks.

[gonzo21]

Surely though the value of customer held deposits wasn't larger than the amount of taxpayer cash that got pumped into propping up the bank? Would it not have been cheaper for government to just guarantee the deposits?

[a_pawson]

Yup it was. The government guatanteed £75k per person per bank. That totalled far more than the cost of the bailouts.

Especially as the cost of the bailout is not yet known. The bailout was in return for shares which the government will sell at some point. The real losers were the financial institutions that held shares in the banks.