Banks Should Be Broken Up - Mervyn King

Mervyn King, the Governer of the Bank of England, has advanced the argument that banks should be broken up. The message came in a speech made in New York. In a section of his speech that specifically referred to the relationship between investment banking and retail banking King said that the only way to guaranee the assets of depositors was to separate them from more risky assets.

Over recent years traditional high street banks have increasingly involved themselves in investment. Whilst short-term profits may be earned from speculative deals, the activity also exposes banks to risking their whole deposit base. Halifax Bank of Scotalnd and Royal Bank of Scotland were both on the verge of collapse due to their exposure to investment banking. Only the UK government's need to protect retail depositors saved the two major banks from collapse.

Payday loans for quick money – but pay back promptly!

Research by watchdog Consumer Focus says that 1.2 million people are taking payday loans every year collectively borrowing more that £1million. That is almost four times the number of people from four years ago. As the number of people struggling to make ends meet on a monthly basis is growing, payday loans are increasingly a short term solution for people finding it hard to secure finance. And surprisingly, this kind of borrowing may be a better solution than paying your bank or a credit card company for expensive unauthorised overdrafts. As long as you comply with one rule – pay back promptly at the next payday!

Loans on offer are typically from £50 - £1,000 depending on provider. They are available online, quick to apply for and you could have the money in your account within an hour. Charges for these types of loans range on average from £13 to £18 interest for every £100 borrowed. However, if the loans are rolled over, the debts will increase sharply as interest charges rise.

The most unscrupulous companies are charging interest rates of more than 2,500% a year. As a result, the watchdog is urging the industry to bring in more protection for vulnerable borrowers. Outlawing payday loans could leave some borrowers vulnerable to illegal loan sharks. Instead sensible safeguards would stop borrowers becoming dependent on this kind of high cost credit and prevent even more stringent controls being needed in the future.

Sarah Brooks, head of financial services at Consumer Focus, commented: “Payday loans are a valid form of credit and it’s much better for people to take one out rather than go to a loan shark. But we do think there needs to be a limit on the number of loans people take out and how many loans they are able to roll over,” she explained. Maybe banks could also develop a valuable service and benefits all around by providing an alternative short-term credit to suit the needs of cash-strapped consumers?

Click the post title to listen to a BBC radio interview of Sarah Brooks on the subject of payday loans.

Has Osborne Cut Enough from Public Spending?

I have just read Jeff Randall's contribution to tomorrow's Daily Telegraph. After reading the article, that points out that Osborne's cuts in spending will only get public expenditure back to 2006-7 levels. And that is not until 2014.

What is shocking about the whole issue is the belief by much of the population - especially those outside of the south and midlands of England - that they are somehow entitled to take money whether they deserve it or not. On last night's TV I watched a woman from Swansea moan about the fact she had lost the child benefit of a daughter who had left school. Why she posited should she not carry on getting this benefit. Her rationale, and that of the TV narrator, appeared to be that she lived in Wales. And that because of the local economy, they were somehow entitled to money, whether earned it or not.

Even Jeremy Paxman joined in. Constantly complaining to Treasury Secretary Danny Alexander about the poorest 10% of the population, almost all of whom live entirely on benefit and have therefore enjoyed inflation-linked rises in tax free income over the past three years, whilst almost everyone in employment has seen their real incomes diminish in value.

Yes it's time to cut. But I do not believe Osborne has gone far enough in cutting the waste that is central to much of the public sector.

Bank of England Warns on Mortgage Tightening

The Bank of England has issued a warning regarding the tightening of mortgage lending by banks and building societies. Banks, it seems, are getter tougher on mortgage lending because they fear the consequences of higher unemployment. The Bank fears that this tightening of leanding will inevitably lead to a fall in house prices, with all the attendant problems this creates in the current recessionary environment.

Banks are apparently asking for higher deposits at the same time as lending at lower earnings multiples. They have also targeted people who borrow on an interest only basis. These people, more often than not, do not have an effective repayment vehicle in place. Therefore the balance outstanding remains constant.

House price data from The Nationwide Index, produced by Britain's largest building society indicates that house price rises are indeed slowing down. In the year to September the increase has fallen to 3.1%, giving an average UK house price of £166,757.