Why don't all governments guarantee 100% deposits

[doctorj]

Re: Why don't all goverments guarantee 100% deposits

There is no real downside to guaranteeing deposits for the governments (worldwide) in the current turbulent mess, which is why Germany did a backflip less than 24 hours after verbally caning Ireland

I disagree.

Picture two banks, Bank A has a conservative lending policy, is well hedged, doesn't speculate and therefore only pays a modest interest rate to depositors, has a fairly low ROE and pays a modest, but consistent dividend year after year.

Bank B is happy to have a riskier lending portfolio, regularly speculates on FX and other instruments and pays an interest rate nearly twice that of Bank A. It's a fast growing bank paying an ever increasing dividend.

Now imagine, the **** hits the fan. Bank A is safe, being that its risk management policies are strong. Bank B goes down so the government comes along and bails out all the depositors who then go and find another risky bank to put their money in.

Effectively the government is underwriting the downside for all banks by guaranteeing deposits - doing so will only drive risky lending and speculation and therefore drive more bank failures in the long term.

I agree that the govt should do something, but I think there are better alternatives.

 

[tech/a]

I was implying Swan and 747 don't care. I care like fark.

My apologies.

 

[2020hindsight]

forgot to post a link to post # 16
http://en.wikipedia.org/wiki/Banker

 

[numbercruncher]

I support Government guarantees on PERSONAL deposits up to a certain limit ...

The rest can go down with the ship ....


Thanks for understanding

 

[nioka]

Re: Why don't all goverments guarantee 100% deposits

I disagree.

Picture two banks, Bank A has a conservative lending policy, is well hedged, doesn't speculate and therefore only pays a modest interest rate to depositors, has a fairly low ROE and pays a modest, but consistent dividend year after year.

Bank B is happy to have a riskier lending portfolio, regularly speculates on FX and other instruments and pays an interest rate nearly twice that of Bank A. It's a fast growing bank paying an ever increasing dividend.

Now imagine, the **** hits the fan. Bank A is safe, being that its risk management policies are strong. Bank B goes down so the government comes along and bails out all the depositors who then go and find another risky bank to put their money in.

Effectively the government is underwriting the downside for all banks by guaranteeing deposits - doing so will only drive risky lending and speculation and therefore drive more bank failures in the long term.

I agree that the govt should do something, but I think there are better alternatives.

I agree with you on this matter. What the government needs to do is to make sure the banks are open with their position and that they must be made to maintain a position to be able to guarantee all deposits themselves in some way. If a bank expects to be bailed out they will make loans to anyone, anytime, anywhere.

 

[Trembling Hand]

I support Government guarantees on PERSONAL deposits up to a certain limit ...

The rest can go down with the ship ....


Thanks for understanding

I hope that was an off the cuff remark because its a bit silly if we do get to that point and start picking out the Mum & Pop accounts against say a biz account.

What happens to the small biz that employ a huge amount of people??

Most would just fall over straight away. You think its bad when a couple of banks on Wall Street and in the City don't trust people. wait till your fruitier doesn't trust your local cafe and your parts supplier doesn't trust each other.Small biz going bust is a very big problem. You lose your job!! You get no more money from now!!! You carn't get a new job because unemployment has just jumped to 25%. You lose your house. And on and on. Oh that's right I remember its called a depression.

 

[chops_a_must]

I hope that was an off the cuff remark because its a bit silly if we do get to that point and start picking out the Mum & Pop accounts against say a biz account.

What happens to the small biz that employ a huge amount of people??

Most would just fall over straight away. You think its bad when a couple of banks on Wall Street and in the City don't trust people. wait till your fruitier doesn't trust your local cafe and your parts supplier doesn't trust each other.Small biz going bust is a very big problem. You lose your job!! You get no more money from now!!! You carn't get a new job because unemployment has just jumped to 25%. You lose your house. And on and on. Oh that's right I remember its called a depression.

Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.

 

[nunthewiser]

Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.

WTF re paying in cash ???? when did this become illegal ?

sincere question

 

[wildkactus]

WTF re paying in cash ???? when did this become illegal ?

sincere question

I am with you here,
I pay some employee's, like this all the time, as far as I know as long as it's recorded correctly, you can pay the employee how they wish to receive it.
Most like straight to their account but we have a couple that like cash on pay day.

 

[chops_a_must]

I am with you here,
I pay some employee's, like this all the time, as far as I know as long as it's recorded correctly, you can pay the employee how they wish to receive it.
Most like straight to their account but we have a couple that like cash on pay day.

Is that correct is it?

I was told it wasn't possible...

 

[mayk]

German Government's Guarantee on Deposits `Political' (Update1)

By Brian Parkin

Oct. 6 (Bloomberg) -- Germany's guarantee of bank deposits held by private savers is a ``political'' step meant to boost confidence in the banking system, the government said, ruling out any parliamentary moves to back up the pledge in law.

What kind of guarantee is that if that is not covered by law, it will be a joke to say the least.

 

[wildkactus]

Is that correct is it?

I was told it wasn't possible...

Chops, I don't know if its correct but that's what I have been doing.

we have had audits and nothing has been said.

As long as it is all correctly reported ie. the right forms have been filled in, tax taken out etc, i don't think they can stop you.

the old under the counter payments are all but stopped, are these what you meant.

 

[Smurf1976]

Re: Why don't all goverments guarantee 100% deposits

Even if they had to make good the guarantee, they can just print the money.

There is no real downside to guaranteeing deposits...

If the money has to be printed to make good the guarantee then you've effectively lost your deposit anyway. Sure, you'll still have the nominal Dollars in the account, but they won't buy you much after all that money printing.

Lose either way.

 

[Prospector]

Is it too simplistic a thing to say that it is the 'financially challenged' people who have brought the US to its knees, along with the greedy jerks who signed up people who should never have had a mortgage, just so they get their commissions?

Who needs terrorists! I have always thought that the US would be brought down by the enemy within! Maybe I was right.

I had read that only personal accounts were covered; I am thinking of moving our company money into our personal accounts. Wont save the Super Fund account though.

Our banks are safe.

 

[CamKawa]

Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?

 

[Prospector]

Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?

He also said all credit unions and Building societies

 

[IFocus]

He also said all credit unions and Building societies

Hmmm I wonder how many times our GDP that is............still its all about instilling confidence hope it works.

 

[xyzedarteerf]

Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?

i kinda wish they had that worm they use in election going...he looked pretty spooked to me even the tone in his voice lacked confidence.
not good at all more financial shyt storm ahead definitely

 

[chops_a_must]

It would have made more sense to me to guarantee deposits for a certain amount of time, but mandate that banks be able to guarantee in their own mechanisms, and as a part of new regulation, that they are able to guarantee deposits up to a certain amount - say 20K.

 

[Ageo]

Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.

lol who told you that? you can pay them in cow dung if they accept it money is money no matter how you transfer it.