From Banking Beginnings to FCA Gaming

The Story of Banking….

Historically in trade there was only swapping and then came a new and disruptive technology called Gold.

Superior to swapping, people could exchange goods for Gold rather than having to swap their goods for whatever the other person had to offer.

Gold was (and is) an excellent unit of value, the only trouble was that it was too rare, too valuable and even small coins held too much value for everyday use.

The smiths who made jewellery and worked in Gold always owned a secure building with a protected vault to store the Gold they used for their craft.

The wealthy began utilising these vaults to store their gold safely and the smiths began issuing paper tickets for the deposits of Gold that they stored.

Once the trust was built in the honesty and authenticity of these tickets, people began swapping the tickets rather than bothering to cash in and swap the gold deposits. A new and disruptive technology called money was born.

Money was easier to handle than gold and tickets could be printed for even small amounts of gold value.

Of course, these tickets are the very same paper money we carry around in our wallets and purses to this day.

Now a bright goldsmith realised one day that they could print more tickets than the amount of physical gold they held in their vaults and the technology of modern day banking was born together with its huge advantages in terms of efficient capital distribution.

Of course in the olden days if a smith wasn’t efficient at capital distribution (made too many bad loans or trades) he soon faced liquidity problems (bankruptcy) and disappeared shamefully as the creditors emptied his gold vaults.

The banker’s conundrum therefore was (and is) too have enough cash to cover business operations whilst wanting to leverage each pound held for the highest and more risky returns.

Present day……

These days unskilled bankers don’t get shamed or stoned, they just get bought by the UK government. This is a shame as the law of competition would drive a far superior UK economic performance than a state backed cartel.

Either way, western governments are charged with regulating the bankers conundrum of risk versus liquidity through grading bank assets on their ability to be liquidised.

The trouble is that having money gives connections and lobbying power to banks, lobbies which governments must kick in to touch.

The UK government is allowing banks to add layers and layers of complexities, enabling lies and misdirection which in turn is clouding the regulation of capital ratios and asset risks.

RBS has just announced its back into a massive loss after claiming it was turning a profit for 7 quarters running (this is now 5 years after the crisis and the bail out by involuntary shareholders like you and I).

Clearly RBS was never trading profitably; it was sat on huge losses and was just covering them up.

Lloyds is regulation gaming as well, its claiming its assets are quality (capital ratio of 13.7%) but if you view its assets in the same way that HSBC or Standard Chartered view their assets then Lloyds only has a capital ratio of under 6% (that’s a £30 BILLION hole).

How do you find a bank you can trust?

I guess it’s the same way that I told my 16 year old daughter to judge men. I told her to completely ignore what men say and only ever judge them by what they do.

Ignore what the FCA or some fiddled accounts say, if a bank isn’t lending then rest assured, it is because it hasn’t got any money.