IBAS - Independent Banking Advisory Service
2007 Reckless Bank Lending Made History
Last modified: 19th October 2023
Today the UK faces recession as the 'fallout' of bank lending events from 2007 - 2008 remain with us. Those events compounded by Brexit, coronovirus and the Ukraine War plus many Government errors and inactions along the way have created instability. The UK now faces many more threats and reductions to essential services which endanger our security, our health and also our ability to provide for our families and their futures.
Many business owners are (even now) still being chased by banks which forced their business into receivership. Even after 16 years the biggest Banks are chasing business proprietors and company directors for payment from their personal assets and specifically their homes.
2015 Update and we still see the effects of 2007 - when banking recklessness/greed and impropriety created an economic disaster for the whole of the UK population.
Huge cuts have been forced on the UK population and in every facet of their life. Whether it is National Government or local government, Police or Health, public sector or private sector.
They all face cuts in spending, lack of jobs and opportunity, lack of prospects and proper employment for the young.
All of this was due to banks and bankers creating an economic disaster for the UK, which still continues year on year.
There appears to be no closure date and we must all never forget that banks and bankers started these problems!
2007 – The Year that Reckless Bank Lending Made History
2007 - This was the year that reckless bank lending made history and it is now almost certain that year will be seen as the start of a financial down turn throughout the world.
The blame for that is banker's greed and the use of invented reckless banking instruments to fuel that greed. Those reckless banking instruments were created without thought of their soundness or security value. It is possible that legal actions will follow as the full impact and recklessness of these bundled instruments becomes clear. IBAS has witnessed nothing in the last 21 years which comes even close to the magnitude of what is now happening.
IBAS had repeatedly issued warnings that UK banks were lending recklessly to those who could not afford to borrow. That was not only on mortgages but also on loans and credit cards. It appears the same was happening in the US on a much larger scale. The size of the losses already evidenced in the US and the effect of those losses are tremendous but nobody has a full picture of those losses which will flow from sub-prime lending in the US. From the figures so far disclosed it will be of gigantic proportions.
Because SIV’s are ‘off balance sheet’, the full exposure to these instruments may not become known unless or until FASB 157, the very new US accounting rules, forces disclosure when accountants have to sign off the Wall Street Bank’s annual accounts in January 2008. Perhaps, it will be mid to late January 2008 before we have a better understanding of the total US bank losses in this sector.
However, it is already evident that World currencies and economics are affected as the exposure to US sub prime debt was multiplied and spread like a virus by ‘off-balance sheet’ instruments like ‘structured investment vehicles’ (SIVs) - see note below.
Major fears are that the bond markets, which funds literally everything including government debt, through company borrowing, credit cards and car loans, will effectively ‘dry up’ because of investor concerns from the existing scale and undisclosed losses within the banking sector.
It appears inevitable that The Bank of England will now be forced to lower interest rates to try to keep the downturn in the UK from becoming a severe crash, but the UK Government has no control whatsoever over what is now happening, it can only seek to lessen the impact on the UK economy.
Unfortunately, most financial institutions have not yet even started to reveal the full scale of their potential losses and that in itself is creating greater uncertainty.
The Fall out from the effects of the US sub prime market is inevitably already affecting UK banking and will have a detrimental financial impact on UK businesses and consumers leading to more possessions and increased personal and business bankruptcy. It is already evidenced by fewer mortgage applications, mortgage price increases, less available finance and more stringent financial checks on those applying for any type of finance.
Higher numbers of repossessions are already in progress and a ‘shake-out’ in the Buy To Let market has started with multiple properties being released for auction and sale at reduced market prices, driving further repossession in certain areas. From 'feedback' we are receiving The Buy To Let market in the UK is becoming increasingly difficult for those who entered this marketplace in the last 4 years.
‘Fall out’ from world banking problems inevitably impacts first on those least able to manage, whether it's personal bank account or business banking customers. It will affect mortgages, loans and overdrafts, credit cards and also how much cash is left in your pocket.
We believe the effects will be considerable, widespread and long lasting and will affect every household in the UK.
The Article above was written by: Eddy Weatherill,
Chief executive Independent Banking Advisory Service on 14th November 2007
Note: The Bank of England base rate was cut on 6.12.07 - This was the first rate cut since August 2005.
Note: Structured Investment Vehicles or SIV's are financial funds, which buy up mortgages, using short-term borrowed money from the commercial paper markets, which are then ‘bundled’ and re-sold to the bond markets. The bank’s two fees, one either side of the transaction were of obvious appeal to them. But, if the funds ‘go bad’ the banks will either have to continue to fund them or repurchase the underlying mortgages.
Background to the ‘Credit Crunch’
April 2007 - New Century Financial, which specialised in sub-prime mortgages, Chapter 11 bankruptcy protection and cuts half of its workforce selling many of its debts onto other banks. The collapse in the sub-prime market began to have an impact on banks around the world.
July 2007 - Investment bank Bear Stearns tells investors they will get little, if any, of the money invested in two of its hedge funds when other banks refuse to help in bailing them out.
9th August 2007 - Global credit concerns were first alerted by French bank BNP Paribas's decision to suspend three of its investment funds with exposure to the troubled US sub-prime market.
13th September 2007 - Northern Rock requested emergency financial support from the Bank of England and that started a ‘run’ on the Northern Rock Bank.
5th November 2007 - Citigroup revealed it was facing losses of between $8bn and $11bn from previously undisclosed losses due to decrease in the value of its $55bn portfolio of sub-prime loans.
9th November 2007 - Wachovia Bank said its write-downs on bad mortgage debt would total $1.1bn (£525m) just for October alone. That is a huge amount for just one month of mortgage write-downs at one bank.
13th November 2007 - Bank of America reveals it will write off $3bn (£1.4bn) of bad debts and has warned that its losses could grow.
(Source: BBC News and Company reports)
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