Analysis The thing you have to remember about banking is that it's a confidence trick. As with all such things, once the confidence is gone the trick no longer works. That's what should be worrying the executives at NatWest and RBS over the shambles in their computer systems this week.
As to what actually caused the problems, I'm reading El Reg to find out myself [watch this space - Ed]. The general view of Reg readers seems to identity the major issue as an upgrade to systems held together with sealing wax and spit by contractors without a deep and complete understanding of the interactions between those legacy systems. And since all those with such knowledge had been recently laid off on the grounds of improved profits to be made from outsourcing, the bank was out of luck. Naturally, you all followed such observations with a hearty “Har Har, serves you right”. Perhaps they tried to move something into the cloud?
My bit is to try and divine what this means for the future of the bank itself. And that's where the confidence trick comes in. The basic thing about banking is that if you borrow short and lend long you're a bank – if you don't, you're not. By short we mean for a short period of time, by long for a long period of time. To a bank, our deposits in the bank itself (the balance of our current accounts) are loans to the bank. These are the bank's liabilities (some of them at least), while its actual assets are the loans the bank has made out to other people. Yes, some of these are short-term – an overdraft say, or a credit card balance. But many of these are for longer terms: a three-year loan, perhaps, or even better: a 25-year mortgage.
Liquid courage
The actual job we want banks to do is this maturity transformation: we want them to take that short-term money that is lying around the economy and turn it into the sort of long-term loans out of which an ever more glorious civilisation can be built. This is, over and above their provision of a basic payments system, the economic purpose of having banks at all.
But it is precisely this maturity transformation that makes banks fragile, at risk of a loss of confidence. Because the money has been put out there in three-year loans while our deposits are recallable anytime we want our dosh. So if everyone turns up at the same time to demand their cash, then the bank goes bust; not because it is insolvent, but because it is illiquid. It is worth the money that it owes, it just cannot lay hands on it right now.
Yes, agreed, this is very simplistic but it is in essence entirely true: true of The City just as much as Aunt Dora's current account. The vast rivers of cash that run through the wholesale banking system tend to be short term on their way into banks and longer term than that on their way out of them. There is always thus the risk of a bank being illiquid. And all that stops it being so is the confidence that it won't be so. Lose that confidence and you get a bank run.
This is in fact what happened to Northern Rock. No, the queues of people outside the branches were near irrelevant. It was the people in those wholesale markets who led the run. Crock financed their mortgages by borrowing short term (largely overnight) from other banks. Sally and John get their mortgage, buy the house, Crock pays the seller. Crock gets the money by borrowing it wholesale then adds, over time, thousands of such mortgages together until it has enough to make a bond issue. The bond issue is for 10 or 20 years say, about the average life of the pool of mortgages. At which point Crock's book is maturity-balanced: they're safe. They've borrowed money for about the same length of time as they've lent it and they cannot thus have a run.
Except, of course, what happens if the ability to borrow short term dries up while you're building that pool of mortgages to sell as a bond issue? Which is indeed what happened to Crock. At which point they're illiquid, the confidence fairy has disappeared and people are clamouring for their short-term deposits back – which they cannot have because they're now in those 25-year mortgages. Result: Northern Rock goes resoundingly bust.
This can happen to absolutely any bank, anywhere, at any time: once confidence goes, so does the bank. And that is what should be getting the NatWest peeps worried. Not that they've had a computer blowup but that they've right royally pissed off their customers and some fraction of them, as soon as it is actually possible to remove money from the bank, are going to remove all of their money from the bank. A bank run of some size in short.
A bank run, but without the bankruptcy bit...
No, this isn't going to lead to the bankruptcy of RBS (again). The first reason being that it's already pretty much government-owned and the solution to a bank run is government ownership to restore confidence. The second is that it's the wholesale markets which are the real worry. Back in 2007 most of this wholesale money went through the interbank market: it was Lloyds lending today's excess to NatWest and vice versa the next day. These flows are large (some £20 trillion a year back then) and very short term – overnight out to seven days for the majority of them. Crock went over so fast because that money could be – and was – yanked out very fast.
Today, to an acceptable level of accuracy, the inter-bank market no longer exists. Lloyds sticks its excess into the Bank of England, NatWest borrows to cover any shortfall from the Bank of England. So we've already got the government (erm, you and me actually, our taxes) guaranteeing this wholesale money. As long as the BoE keeps allowing NatWest to access the cash then they can allow any number of people to get their cash back out of the bank and the run, if it happens, won't collapse the bank. The BoE can (and certainly will) provide unlimited liquidity, meaning that RBS will not become illiquid and thus go bust as a result of people hollerin' for their money back.
Which is good really.
It also provides me with a certain perverse amusement. The reason that such a confidence-destroying fuck-up in the computing systems isn't going to cause a Great Financial Crash is that we've just had a GFC.
Taxpayers lose out
However, that's not quite the end of the story. While RBS can and will survive any set of withdrawals it's pretty obvious that it will do so as a much smaller bank (or series of banks if you prefer). The company as a whole has some 7 million account holders. Some small to large number of them will be so pissed off at this past week's events that they will finally go through the grunt work of moving their account to another bank.
It's a strange but true fact that while moving an account is quite easy (it's easier than moving house – yet people move house more often than banks), very few people actually do. The stickiness of personal banking is observable but not really explainable by standard economic theory. It just is: and that is what makes it all very profitable for the UK banks. They get that float in our current accounts for no interest and then lend it out at interest. Sure, your or my account might have £5 in it: but on average over all of the bank accounts in the country one estimate has it that this float earns the banks £20 billion a year.
Lose some number of those accounts and you're shrinking the bank and losing those profits. Which is what will be worrying the executives: how many of those customers are sufficiently pissed off to move? It should also rather worry us as taxpayers for we pretty much own the company and a smaller bank is worth less. And there's really not very much that anyone can do about this now. Near a week without being able to use a bank account properly: yes, that is going to make some people move. This is going to shrink RBS and given that those personal deposits are the cheapest and most stable form of borrowing that a bank can do in normal times the loss of some part of them is going to hurt.
Well, there is one evil thing that could be done: engineer a similar crisis at another bank this week. Then consumers will conclude that all are as bad as each other and thus won't move their accounts. But I have a feeling that managing such a feat deliberately would be rather difficult: as opposed to the ease with which incompetence seems to have achieved it.
The end effect of this is not going to be another bank collapse. Just a larger loss on the taxpayers' shareholding in RBS. Reassuring but not exactly anything to cheer about. ®
Bootnote
No, please, I don't want to hear anything about 100 per cent reserve banking, or the way that banks create money out of thin air. Whether all of this is true or not (it isn't, the banking system as a whole creates credit, not an individual bank's money) is irrelevant. Whether or not we achieve maturity transformation by banks, their purpose, the confidence fairy problem nevertheless continues to exist and RBS faces exactly the problems outlined above.
'Psycho Stapleton' accused of laughing as he walked up to Indian student and shot him through head in Boxing Day killing - Daily Mail
- Kiaran Stapleton, 21, shot Anuj Bidve on street after asking him the time
- Stapleton, who admits manslaughter but not murder, 'ran off smirking'
- Armed police join heavy security outside Manchester Crown Court court
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'Smirking killer': Kiaran Stapleton is accused of laughing as he killed Anuj Bidve
A gunman ‘smirked or laughed’ after he walked up to a stranger and shot him through the head, a court heard today.
Kiaran Stapleton, 21, approached Indian student Anuj Bidve, 23, and his friends in the street in Salford and asked them at least once what the time was.
One of the group answered and without warning the defendant produced a gun, put it to the head of Mr Bidve and fired a shot, which killed him.
Mr Bidve was studying for a micro-electronics postgraduate qualification at Lancaster University after arriving in the UK last September and was spending last Christmas with friends in Manchester.
He was on his way from his hotel - walking through Ordsall, Salford - to the Boxing Day sales in Manchester city centre with a group of other Indian students when he was killed.
Opening the case, prosecutor Brian Cummings QC told Manchester Crown Court: ‘Anuj Bidve immediately fell to the ground, fatally injured.
‘The gunman smirked or laughed and ran off.’
He told the jury that the defendant in an earlier hearing had pleaded guilty to his manslaughter three weeks ago but continues to deny murder.
The defence are likely to call expert psychological and psychiatric evidence in the trial, scheduled to last up to four weeks.
Mr Cummings added: ‘I will ask you to keep in mind as we go through evidence in this trial is that Kiaran Stapleton’s eventual admission that he is the killer came at an advanced stage of proceedings, and only after a significant body of evidence had already been gathered against him.’
In the dock: Stapleton facing a murder charge at Manchester Crown Court today
Emotional: Anuj's father Subhash Bidve and mother Yogini Bidve arrive at court today
The jury was told Stapleton, who admits manslaughter but has pleaded not guilty to murder on the grounds of diminished responsibility, made no admissions when first interviewed as a suspect.
But after being charged with murder and as time progressed he admitted he was the person who shot and killed Mr Bidve, the prosecutor said.
Mr Bidve was staying at a hotel in Salford with seven fellow Indian students and one Pakistani student.
They arrived on Christmas Eve and at about 11.30pm the next day the girls in the group decided they wanted to go shopping in the Boxing Day sales, Mr Cummings said.
They set off some time after midnight to get a place in the queues but did not know the area and used a GPS phone to guide them.
Protection: Armed Police stand guard outside the court as they prepare for the arrival of Kieran Stapleton
High security: Armed police and a convoy of police cars outside the court Stapleton arrives
Their route took them along Ordsall Lane in the direction of Regent Road.
Walking in groups of two and three, they became aware of two males who were walking in the opposite direction.
‘As the two males got nearer to them, one of them crossed the road diagonally in their direction, leaving the other male alone on the far side,’ said the prosecutor.
The court heard that after one of the group told him it was 1.30am, Mr Bidve was shot.
The student was taken to hospital and later certified dead.
Mr Bidve’s friends gave descriptions of the gunman and the second male, Ryan Holden, who was with Stapleton, and officers trawled CCTV footage from the area.
Holden was arrested on December 28 and Stapleton the day after.
Victim: Anuj Bidve who was shot dead in Salford on Boxing Day
Holden told officers he was afraid for his own safety and that of his family, but after being given reassurances began to answer questions, Mr Cummings told the jury, and his status changed from suspect to prosecution witness.
Holden told police his cousin, Chelsea Holden, had been in a long-term relationship with Stapleton and they had a child together but had split up.
In the hours before the shooting, Stapleton and Holden spent Christmas night with friends ‘chilling’ and having a drink.
But at one point someone mentioned Ms Holden had slept with another man while she and Stapleton were living together and the defendant was angry. He said something like ‘If I see him, I’ll kill him’, the court heard.
Around midnight the pair left the house and went to get some food from a local McDonald’s or Kentucky Fried Chicken shop at the top of Ordsall Lane just as Mr Bidve and his party walked up the same stretch of road.
‘Their path was about to cross that of Kiaran Stapleton and Ryan Holden,’ Mr Cummings said.
The pair ran through the Ordsall Estate using back alleys and short cuts to get to Stapleton’s house at 15 Regent Square.
They went straight to the gunman’s room at the top of the house.
Holden was ‘panicking’ but Stapleton told him to ‘chill the f*** out’ or ‘shut the f*** up’, followed by ‘don’t fold on me’, the jury heard.
Stapleton took a shower and told Holden to do the same, after which Holden’s own clothes had vanished and a new set provided for him.
Tragedy: Flowers are left at the spot where Indian student Anuj Bidve was shot dead in the early hours of Boxing Day
Holden’s bag that he had with him on the night also disappeared, the court heard.
The case continues.
Shopping site and new pub to create 100 jobs in Gainsborough - Lincolnshire Echo
TWO major developments which will create nearly 100 new jobs in Gainsborough this year have been launched in the town.
Work on the new £2m neighbourhood shopping scheme off Corringham Road has started – and coincides with rapid progress being made by contractors on the highly visible Lincolnshire Otter site.
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UNDER CONSTRUCTION: The new Lincolnshire Otter is taking shape off Thorndike Way in Gainsborough.
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IMPRESSIVE: An artist's impression of the finished scheme.
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UNDER CONSTRUCTION: The new Lincolnshire Otter is taking shape off Thorndike Way in Gainsborough.
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DIG IN!: Tillbridge Directors John Barker, left, and Giles Walter, right, with Gelder Group managing director Steve Gelder at the soil-cutting ceremony.
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AUTUMN OPENING: Artist's impressions of the new Lincolnshire Otter which will bring 50 new jobs to Gainsborough.
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AUTUMN OPENING: Artist's impressions of the new Lincolnshire Otter which will bring 50 new jobs to Gainsborough.
The Corringham Road retail scheme includes a 4,000 square foot Spar shop, with five smaller units and parking for 34 cars.
On completion in time for Christmas, it will mean more than 40 full and part-time posts in the Spar store and the other units on the site backing on to the Trent Valley Academy campus.
Meanwhile, Marston's Inns and Taverns confirmed this week that the autumn opening of its new Gainsborough family pub off the busy A631 Thorndike Way junction with the Somerby Park industrial estate will mean 50 new jobs.
The Corringham Road scheme is being delivered by West Lindsey-based company Tillbridge Developments – with building work being carried out by the Gelder Group who are based locally at Sturton-by-Stow.
The scheme will be completed in December and once fully opened will provide a much-needed facility to the uphill area of the town.
"This is the first of several joint ventures the Gelder Group is delivering for Tillbridge Developments," said managing director Steve Gelder, who also lives locally.
"The next will be a new Sainsbury's local in Lincoln and a Tesco's in Nottingham.
"This means that this partnership is not only creating 40 new jobs within Gainsborough, it is also securing many more – because many of our 370 staff are located in the Gainsborough area."
Marston's are confident that Gainsborough is the ideal location for the latest in its ongoing building programme.
The company is the UK's largest builder of new public houses and is now part-way through a three-year plan to build 60 new food pubs.
"The building work for Lincolnshire's new family pub and restaurant is under way – with construction around six weeks in," a spokesman for the company said.
"The Lincolnshire Otter will be a Two-for-One pub restaurant and will create around 50 jobs.
"It is set to open this autumn."
Kate Middleton's £35,000 wardrobe paid for by Prince Charles - Marie Claire
By Eleanor Young on Monday 25 June 2012
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Kate Middleton may be a fan of fan of recycling her style and shopping in high street stores, but we've often wondered who foots the bill for her dazzling designer dresses. Now it's been revealed Prince Charles has paid for Kate's working wardrobe, which has cost an estimated £35,000 already this year.
According to the Mailonline, Prince Charles has agreed to pay for the Duchess of Cambridge's 'work-related' wardrobe, and anything she wears to official engagements or while out and about with the Royal Family.
It's thought Kate's father-in-law has offered to take the cost of the Duchess's designer dresses out of his official Household budget.
Which is quite generous, since it's estimated Kate's shopping bill totals up to more than £35,000 this year alone.
According to insiders, Kate has gone to great lengths to keep her clothing budget down, recycling dresses where she can, and shopping on the high street.
But as she returns all free samples sent for her to wear, and insists on paying full price for all her clothes, Kate's still totted up a substantial shopping bill.
In an effort to keep costs down, Kate's reportedly refused all offers of a stylist or dresser, and still chooses all her clothes herself.
‘Catherine has an innate sense of style and, almost as importantly, knows what is appropriate for the occasion,' one insider told the paper.
‘She might not choose the most cutting edge designers, but she know what looks good on her and that’s what counts.
‘Plus she is acutely conscious that she is not yet a full-time working royal and feels it is pretty pointless, as well as extravagant, to have her own dresser.’
Earlier this year, Kate Middleton surprised workers in a French Connection store, when she arrived unannounced for a spot of sales shopping.
According to staff, Kate was 'very polite' and even asked their opinion on her potential purchases.
After browsing the rails, Kate headed to the changing room, where there were no diva demands there, either. 'She didn’t ask anyone to fetch it for her, she just seemed to want to be low key,' the worker said at the time, adding: 'she was very cheery, very smiley.'
What do you think of Kate Middleton's £35,000 wardrobe bill? Should she shop on the high street, or is she right to wear designer? Let us know in the comments box below…
KATE MIDDLETON'S STYLE RE-RUNS
KATE VS. PIPPA: WHO WORE IT BEST
KATE MIDDLETON'S SHOPPING SPREE IN FRENCH CONNECTION
Monday 25 June 2012
Google Shopping -- Making Sense (and Cents!); Mercent Hosts Live Webinar With Google Thursday June 28th, 2012 - msnbc.com
SEATTLE, WA — Mercent™, a leading technology company that enables retailers to profitably reach and convert more shoppers online, announced today the latest event in its 2012 Mercent Retail™ Webinar Series titled "Making Sense (and Cents!) of New Google Shopping."
Featuring a panel of Google Shopping experts, including Google's Senior Manager of Shopping BD Jon Venverloh and Mercent CEO & Chairman Eric Best, this 30 minute session will educate large, brand name retailers on the latest changes to Google Shopping and how merchants can prepare for those changes and capitalize on the rapidly approaching 2012 holiday selling season. Featured panelists will also provide detailed insight and expert guidance on competitive sales and merchandising strategies, use cases and immediate 'actionable' best practices that are already enabling Mercent clients to boost profitability on Google Shopping.
This webinar is open to professional eRetail marketers and other industry professionals. Registration details are as follows:
Date: Thursday, June 28th, 2012
Time: 1:00 pm PT / 4:00 pm ET
Format: 30-Minute Presentation + Q&A
RSVP: Space is LIMITED
Questions: Hello@mercent.com or 206.832.3971
We look forward to your attendance! Space is limited and advance registration is required. For additional event and registration information or to access previous Mercent Retail™ Webinars contact Mercent Sales directly at Hello@mercent.com or 206-832-3971.
About Mercent
Through its award-winning Mercent Retail™ technology Mercent helps large brand name retailers, including 1-800-Flowers, the Home Shopping Network, GUESS?, L'Occitane USA and others, reach and convert online shoppers. Supported purchasing destinations include Amazon.com, Google, eBay, Bing, product ads, comparison shopping engines (CSEs), affiliate networks, social shopping sites and paid search and display advertising campaigns. The company was founded by Amazon.com veterans, is venture funded, and based in Seattle, WA. For more information, visit www.mercent.com.
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