Bank of England

This blog asked yesterday morning whether Gordon Brown really meant what he said when he demanded that banks should quantify all of their toxic loans.

A research note put out on Friday by analysts – at RBS, ironically – points out that “the domestic UK banks are technically insolvent on a full marked-to-market basis” (although it adds that this is not unusual at this stage in the economic cycle). Is the prime minister sure that he wants them all to come clean? Read more

This morning’s papers were full of info about the new insurance package which will help out any British bank which accepts the government’s offer. Here is the story on

The real news to emerge since then is the fact that banks will be able to pay for this insurance using either cash or equity. In other words, we may see taxpayers taking an even bigger stake in RBS or Lloyds/HBOS. In theory the state may even take stakes in other banks – such as HSBC or Barclays - although this seems unlikely for now.

A scheme to ring-fence toxic assets on individual banks’ balance sheets and insure them against default looks set to be the centrepiece of the latest bank bailout – which could be announced as early as tomorrow*. Read more about it here.

This has the advantage that bad loans would not have to be marked to market. That would not have been the case under the more generic “bad bank” idea, which would have meant all banks tipping their toxic debt into a single which the government would then have to value.

But wouldn’t this undermine Gordon Brown’s claim – in an interview with the FT on Friday – that banks must admit how many “toxic assets” they have on their balance sheets? Read more

We pointed out in October last year that there were jitters within Whitehall about the amount of debt which the government needs to raise through gilts issuance – and whether there would be enough buyers.

So far this hasn’t been much of a problem. In fact there has been a bubble in the gilt market – as investors flee towards safety – pushing yields to new lows, as John Redwood points out here.

That could be about to change. Read more

It’s taken months and years for anyone in Labour to admit that the government’s housing policy has been based on false assumptions. Time after time, ministers claimed that there was a desperate under-supply of housing in the UK; ignoring the role of speculation and cheap debt in the housing boom.*

But Ed Balls came close on this morning’s Today programme.

Here is what the education secretary said:

“There was a pretty strong view that we had a growing demand for housing in this country and a rising population, but we had much lower levels of house building than we’ve seen in previous generations in the private and the public sector.

“Therefore, there was a pretty strong view, which may still in part be true, that the real level of house prices had gone up, because there was more demand and less supply.”

In politician speak this is code for: we are distancing ourselves from the old line. Maybe 2009 will be year when the government drops its target of 3m new homes by 2020. Read more

The Council of Mortgage Lenders firmly denied reports from the BBC a fortnight ago that its 2009 forecast for repossessions would be 75,000. The CML’s spokeswoman said on the record that this was the wrong figure and the real number was likely to be significantly lower. This is what we said at the time.

Today, lo and behold, the CML has put out its forecast. It is of course 75k. Maybe we shouldn’t expect anything different from the group – which spectacularly failed to spot the crash coming. Read more

I am starting to wish I’d spent yesterday afternoon in the Lords rather than following the navel-gazing Commons debate over the structure of the committee looking into the Damian Green affair. (Why do MPs always turn up en masse when talking about themselves?)

Some real gems in the Lords’ Hansard. Read more

We spotted the rapidly rising cost of insuring UK gilts against default in this blog on November 24.

Today the Tories pointed out that the relevant figure (credit default swaps) is now twice the cost of insuring the debt of McDonald’s, the fast food chain. Read more

The Council of Mortgage Lenders has just distanced itself from the 75k figure which has rapidly taken hold in the media. It is a totemic number, as it is almost exactly the peak of the last recession: in 1991.

It’s not an official estimate though, contrary to numerous reports. The CML is predicting 45,000 repossessions this year. As for next year, it tells me: “It is not our forecast, it is very unlikely to be our forecast, we are putting out the new figure next week.” Read more

James Crosby’s report on Monday recommended state guarantees for £100bn of new mortgage-backed securities to help get banks lending to home-buyers once again. I pointed out here that Crosby himself had reservations about this idea when he wrote his interim report in the summer.

Treasury officials tell me that the situation has become more desperate since then. But surely the fundamental pros and cons remain the same.

Mervyn King seemed unimpressed with the idea when he spoke on Tuesday, describing securitised mortgages as a ”form of lending that for rather good reason has fallen out of favour”.

The final Crosby report says the government guarantee would only be used for new mortgages, not for re-financing existing ones. It would be available to banks and building societies. Only “prime” mortgages would be eligible: excluded are high loan-to-value loans, second charge loans or those to people with impaired credit histories.

How else would taxpayers be protected? The answer seems to be the ratings agencies. Read more

The long-awaited report on finance in mortgage markets – by Sir James Crosby – was published today alongside the PBR. This is a big deal. Ministers have been talking for months about how Crosby could hold the key to reviving becalmed mortgage markets.  

According to Alistair Darling’s speech, Crosby (pictured) is recommending government guarantees for new mortgage-backed securities. For a temporary period. Read more


This Bloomberg chart tells a striking tale. Credit default swaps are a form of insurance on gilts. People buying UK government debt acquire CDS’s to protect themselves against the risk of the country becoming bankrupt. Read more

The Bank of England’s MPC – which sets interest rates – agreed two weeks ago to slash rates by 150 basis points to 3 per cent: their lowest level for half a century.

The minutes of that meeting, out today, suggest that members believe more cuts are needed. Interesting to note however they agreed ”it would make sense…to reassess the required scale of monetary easing after the Chancellor’s pre-Budget report”. Read more

An extension of the stamp duty cut will probably be in the pre-budget report. After all it would be cheap: figures today showed that the policy has made no difference.

The stamp duty one-year holiday was announced by government ministers with great fanfare two months ago. Ministers raised the minimum threshold at which payment is due to properties selling for more than £175,000, up from the previous threshold of £125,000.

It’s changed nothing – judging by data released today by the Council of Mortgage Lenders. Read more

John McFall, chairman of the influential Treasury select committee, has called for an urgent fiscal stimulus package to help kickstart the ailing economy.

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Gordon Brown’s spokesman often spends his afternoon press briefings – in an eyrie in the roof of the Commons – batting away questions with bland non-answers.

But the hacks are sometimes offered glimpses of policy change. Read more

Here are George Osborne’s views — stated less than two weeks ago — on irresponsible politicians (i.e. Vince Cable) who call on the Bank of England to slash interest rates:

I do not think that it is particular sensible either for politicians speaking from the frontbench to call on the Bank to cut or increase interest rates. Indeed, I make it a practice not to comment on them.

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