Comments on: Government Guarantee is Not a Low Deposit Rate Certainty For Banks http://www.marclehmann.net/2008/10/government-guarantee-is-not-a-low-deposit-rate-certainty-for-banks/ Marc Lehmann's Blog Fri, 12 Mar 2010 20:51:38 +0000 hourly 1 By: Marc http://www.marclehmann.net/2008/10/government-guarantee-is-not-a-low-deposit-rate-certainty-for-banks/comment-page-1/#comment-1246 Marc Tue, 21 Oct 2008 12:07:28 +0000 http://www.marclehmann.net/?p=208#comment-1246 I think the drawing of deposits is less about about the asset value of a bank and more about it's liquidity position. The government as "Lender of the last resort" would be a good strategy for dealing with a run on a bank. Nationalising any asset feels like an Government act just as panicked as the depositors taking money out of the bank. Just provide the liquidity or guarantee on a while needed basis under continual review until the panic passes or is dealt with through other actions. I think the drawing of deposits is less about about the asset value of a bank and more about it’s liquidity position. The government as “Lender of the last resort” would be a good strategy for dealing with a run on a bank. Nationalising any asset feels like an Government act just as panicked as the depositors taking money out of the bank. Just provide the liquidity or guarantee on a while needed basis under continual review until the panic passes or is dealt with through other actions.

]]> By: Charlie http://www.marclehmann.net/2008/10/government-guarantee-is-not-a-low-deposit-rate-certainty-for-banks/comment-page-1/#comment-1242 Charlie Tue, 21 Oct 2008 07:05:49 +0000 http://www.marclehmann.net/?p=208#comment-1242 "Why not step in at the ninth hour and save the odd bank that looks like collapsing but only if all other avenues have been explored" The run on the Northern Rock in the UK convinced the UK government that the ninth hour is way too late to step in. If the government waits for the run to happen and then steps in they find themselves having to nationalise a virtually worthless business. Personally I really don't like the idea of governments propping up failing private businesses like this but in the circumstances I don't see any alternative. There need to be some really serious enquiries into this mess. People like Gordon Brown and Henry Paulson need to be brought to account over why they failed to act earlier. Paulson in particular should be facing some very serious accusations of negligence especially re the Net capital rule. “Why not step in at the ninth hour and save the odd bank that looks like collapsing but only if all other avenues have been explored”

The run on the Northern Rock in the UK convinced the UK government that the ninth hour is way too late to step in. If the government waits for the run to happen and then steps in they find themselves having to nationalise a virtually worthless business.

Personally I really don’t like the idea of governments propping up failing private businesses like this but in the circumstances I don’t see any alternative.

There need to be some really serious enquiries into this mess. People like Gordon Brown and Henry Paulson need to be brought to account over why they failed to act earlier. Paulson in particular should be facing some very serious accusations of negligence especially re the Net capital rule.

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