Banks with capital reserves? How about a nice glass of wine instead?

Posted on 18 April 2008 by Katie Tucker

No Comments

RBS this morning has asked its shareholders to stump up more cash for its capital slush fund. This is no worry to existing RBS customers; this is a reference to the reserve of capital that all lenders have stashed away (normally with the Bank of England) for buy-outs, or large purchases, or to pay of that bank's debts if something grotty happens.  RBS taking the initiative to strengthen their position is a good thing for its customers.  Some of the larger UK banks this week have even applied to the BoE to up their deposit limit from £20bn to £23bn, and can also therefore be assumed to be building up their savings.  However RBS bought ABN Amro earlier this year, and are, according to the analysts at UBS, about £9bn down in their piggy bank.

You have to wonder if lenders had this instability coming though. The same as we consumers can't live off credit, and need to keep out liabilities lower than our assets, so do banks; except the banks have let their wealth go over the last few years, swapping it for fast cash from the securitisation market, and a floor in a foreign call centre.  Was no one concerned by the bigger picture when even the tangible assets, those valuable buildings that the banks owned, got sold off for trendy wine bars?

• Save to del.icio.us
• Digg this story