Mr Badger is not a happy man today. He works in the banking software sector and one of his biggest clients is Bear Stearns...
But the banking sector has every reason to be worried after this weekend's events across the Pond.
Did you know that banks in this country are only required to hold 5% of customer deposits in liquid cash reserves? That means if more than 5% of their customers decide to withdraw their cash and put it under the mattress certain banks might just possibly run out of money. (I discovered this when my FD at Red Lettter Days was arguing against Barclays' rationale to bond 100% of our credit card takings - a £3million pot of money we couldn't touch, which eventually brought the business down due to lack of cash. All it took was a loss of confidence via a few negative media reports, suppliers subsequently withdrawing credit and within days the whole company had collapsed.)
Of course the banks could always pull in monies they have lent out - but with the property market destabilised and so many people in huge credit card debt, just how much of it could they collect without putting scores of people through bankruptcy?
And if the banks run out of cash what happens to all the people who need to get their hands on it?
Sorry to be all doom and gloom, but it would seem to me things are in a very precarious state.
Time to start stocking up on food and planting a vegetable patch...
About Rachel
- Rachel Elnaugh
- Bakewell, Derbyshire, United Kingdom
- ...is one of Britain’s highest profile female entrepreneurs. Having started her working life as an office junior, at the age of 24 she created the market leading experiences brand Red Letter Days on a shoestring budget from the front room of her home. Red Letter Days went on to generate over £100million in turnover in the 16 years that she ran it, and in doing so pioneered the UK's £250 million experiences sector. This earned her an Ernst & Young Entrepreneur of the Year award in 2002, as well as being short listed for the 2001 Veuve Clicquot Businesswoman of the Year award. In early 2005, Rachel shot to fame as one of the original Dragons in BBCTV's BAFTA nominated cult business show Dragons’ Den. After the well-publicised crash of Red Letter Days in 2005, Rachel became heavily involved in the Small Business Sector and recently won the IAB 'UK Champion of Entrepreneurship' award for 2008. Her unique Entrepreneurial Profiling Test was launched in 2007 and you can take the test free by visiting www.rachelelnaugh.com. Rachel's first book 'Business Nightmares' was published by Crimson in May 2008.
5 comments:
Rachel,
I believe you're wrong with regards the 5% so I had a look and according to the Bank of England's website the requirement is:
"At present, quantitative requirements
for banks are applied through two different UK regulatory
regimes. The Sterling Stock Liquidity Regime requires major
retail banks to hold a stock of highly liquid instruments –
essentially those eligible in the Bank of England’s operations –
equivalent to five days of net wholesale outflows, plus an estimate
of retail outflows under stressed conditions. All other banks are
subject to a mismatch regime, which places limits on imbalances
between inflows and outflows of liquidity in specified time
buckets"
From what you write it sounds like you could have done with a better FD...
Regards, John
Things were more complicated than what BOE or the FD said or did John. In any case, those terms are always subject to change.
John this all happened at a meeting with Barclays back in 2003 who didn't seem to argue with my FD; I agree things may have changed since then.
Rachel
Rachel,
I don't believe it has changed, but the point is you are presenting it as a fact *now*, when it isn't. As you've critised others for spreading incorrect information I thought you might like to correct it.
Stephen, I'm sure it was more complicated.
Mr Badger (who knows a thing or three about these matters) advises that if a bank were to run out of money (as in the case of Northern Rock or Bear Stearns) the Bank of England or Federal Reserve can step in, guarantee the debt and if necessary print more paper. It is a short term fix which has the result of devaluing the currency longer term, which is one reason why the dollar is crumbling.
All complaints about this Comment on a postcard to Mr Badger c/o Bakewell Sorting Office please...
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