Was the credit crunch really that bad for the banks? Watch

cl_steele
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On the one hand yes we did see a few go under and their earnings were less then stellar for a couple of quarters but on the other hand several the largest banks were subsequently swallowed by the others take BoA, MS, Lloyds etc. absorbing their competitors not only making them more profitable in the long term with a l;arger client base but also eliminating a large swathe of the com[petition... they now also have the delightful knowledge that they can do near as damnit what ever they please without any adverse effects, after all they're tbtf now arent they?
Please discuss.
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hsv
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(Original post by cl_steele)
On the one hand yes we did see a few go under and their earnings were less then stellar for a couple of quarters but on the other hand several the largest banks were subsequently swallowed by the others take BoA, MS, Lloyds etc. absorbing their competitors not only making them more profitable in the long term with a l;arger client base but also eliminating a large swathe of the com[petition... they now also have the delightful knowledge that they can do near as damnit what ever they please without any adverse effects, after all they're tbtf now arent they?
Please discuss.
The banks were bailed out by the government similar to the tarp program in the USA. The reason for this was because the banks said all the savers money would be lost without government intervention, thus the rerm too big to fail. Ironically though maybe its government who forces us to use them. It us too hard or impossible to tax cash in hand pay, thus via the PAYE system the government forces workers to have bank accounts. Some supporters of USA style Libertarianism (like Peter Schiff) would have let the banks fail, thus new banks would have emerged to take there place uf they ran the government.


The banks are ceding ground while they are retrenching in some areas to the shadow banking system (entities such as Private Equity firms and Hedge Funds) due to New regulation. For example if the Volcker rule is enacted in the US propriety trading (trading on your own account) will become illegal fir banks to carry out. As a Managing Director from Lazard once said last year in TV the money has to somewhere, in this case to Private Equity Firms, Hedge Funds and other alternative asset managers.


I understand the banks got more stronger due to more capital reserves being available to them via mergers but as outlined in a Financial Times series called the New Wall Street see here: http://www.ft.com/indepth/new-wall-street , firms other than banks are stepping on the banks toes, moving into their traditional areas. In the series Blackrock, the world's biggest asset manager by assets under management is cited as doing this. See here http://www.ft.com/cms/s/f7b84f3a-064...#axzz2IM81JH4O the title of the article called Banks lose staff to asset managers. (You can view up to eight articles for free per month after registering)


From a career perspective the investment banks are just a stepping stone to greater riches in the alternative asset space. After your two year stint as an analyst or trader at an investment bank you exit to a "megafund" private equity or hedge fund (if possible) where you earn masses more than you would have earned in an investment bank. Due to there primarily being less employees to share the profits out, less or no shareholder pressure over pay and perhaps getting access to the carried interest these firms generate. This us why Goldman Sachs has stopped their two year analyst program and now hire ad hoc, so that their recruits can't just exit to a hedge fund after two years training for example. See here: http://www.ft.com/cms/s/0/87c0fa34-f...44feabdc0.html and here: http://online.wsj.com/article/SB1000...558256586.html
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Jamesnorniron
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I guess an argument for this could be made either wa. However I personally think they have been quite badly affected. For a start several banks have went under completely, either never to be seen again or have been 'absorbed' by a competitor. Banks like RBS still have billions of pounds of debt to pay off and sadly to reduce this are having to close branches and laid off a lot of their staff. My dad works as a bank manager and is just one of many to suffer from pay cuts and the like. So I would say while the actual banks themselves appear uneffected, the staff and people who make up the banks are among the most affected by the credit crunch.
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Rakas21
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It's a difficult question.

On the one hand the fact that they required a bailout of £800bn clearly means that in the initial phase they were hit hard (higher borrowing costs but low demand for credit and large amounts of bad debt being written off) however on the other hand we see see that the state came to the rescue providing loans and forcing a merger along with taking a majority stake with no real obligations.

In conclusion i would have to say that it did hurt the banks (the reason they won't lend is because there **** scared that they won't be paid back - of course this is the kind of lending level they should have been at) however because the state intervened directly the banks now have free reign knowing that they are "too big to fail".

Several things should have happened and should happen in the future...

1) Move to a full reserve banking system rather than this state endorsed failure

2) RBS should have been prevented from going under but turned into an online bank and then sold (or be subsumed by the BOE or NS+I and be their public face)

3) All politicians calling for returns to 2007 lending levels should be fired, they don't have a clue

..............

The good news here is that as a result of the bailouts and lack of adequate measures taken by government it is pretty likely that the 2020's will see another speculatory period.
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