that the population don't know all this. I hope it's not new to anyone on here though.
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 …
that the population don't know all this. I hope it's not new to anyone on here though.
I sorta hope some of it is new to at least a few people on here. For if not the editor and I have made something of a mistake in telling you what you all already know....
It's nice to have it written down, for reference.
New to me. I'm an IT guy, not a finance one. I like these kind of pieces El Reg do from time to time, they shed light on a world which is usually as baffling to me as the internals of my servers are to my boss.
Economics and finance are among those things where the more you learn about it, the more unhappy and confused you get. I don't know if this principle has been named yet, but it should be.
A lot of the financial terminology is meant to be obscure and misunderstood by outsiders, because, if they understood it, they would try to put an end to it.
"I don't know if this principle has been named yet, but it should be."
Have a contrapositive: Ignorance is Bliss.
I created a second bank account so that I had an autonomous 'pile of money' for my band. It meant we could take the proceeds from playing a gig and using it to contribute to pressing a run of CDs. None of this had an impact on my household bank account.
Until, that is, my wife signed a cheque from the band cheque book to pay a household utility bill. And the bank cashed it, despite my wife's signature being a different name and shape from mine, WTF is the point of all this security info, if it is all just lip-service at the end of the day? Surely CAPTCHA technology is good enough to automate signature recognition?
My wife had a cheque bounced because the bank discovered all of a sudden that they didn't have a sample of her signature. They'd set the account up and happily paid out cheques for years before anyone noticed.
What's more interesting than peoples' reticence to switch banks is their reluctance to have more than one current account. We know, some through experience and some through sage advice, that it's unwise to only have 1 front-door key or a single kidney. Sure, you can get by with just the one but having a spare is a good move. Come the day you really, really need that fallback, it's already too late to try to get one.
As the article says, changing banks is easy. So is opening a new account. Having access to two sources of money (and maybe two separate credit cards - wallets do get lost, handbags do get stolen) is just as sensible - and it's free.
Sure, you get double the amount of paperwork. But in these days of internet banking it's just another password, or security dongle, to keep track of. The upside is that you don't have all you eggs in the same basket. So a bit of "local difficulty" with one bank's inept IT doesn't turn an inconvenience into a crisis.
"changing banks is easy. So is opening a new account."
No it's not. My bank refused to let me open a new account until I'd either spent money buying a passport, or spent money getting a driving license.
Not so easy. Some banks in some countries require that your salary goes into their account. But I guess according to your argument we should each have two jobs to handle this constraint and hedge against the risk of losing one of them?
Nice idea though. I have 3 accounts spread over two different countries.
Good advice, if you have savings.
Trouble is that two overdrafts cost more than one overdraft, and there's an awful lot of people living one unexpected bill away from bankrupcy.
Also if one bank suffered a CAUFU (which this was not), the effects would be systemic and (possibly) the whole UK banking system would be forced to a stop. Indeed, the whold global banking system might be forced to a stop.
>changing banks is easy. So is opening a new account
As an ex-pat you try going back to the UK and opening a bank account. You will need to prove you are not a terrorist nor a drug dealer and apparently the best way to do this is to provide a couple of utility bills in your name as these are things that terrorists nor drug dealers have any use for. Unfortunately neither do I.
I have money in the UK and from time to time go back to move it from bank to bank and it's not so simple. Last time I got a cashiers check from one bank, took it to another and had to wait over an hour before they were satisfied everything was legitimate.
Next time I go back to the UK I will be informing the bank in advance that I will be withdrawing everything in cash. I will then buy gold coins from various sources as buying too many in place means I am a terrorist or drug dealer. I'll the retire to my adopted country and wait for the Euro to fall.
Did I mention the UKs obsession with terrorists and drug dealers.
The utility bill thing always baffled me; it would be trivial for any half-competent techie (not to mention a professional forger employed by one of the fearsome terrorists and drug dealers) to fake one using logos and whatnot procured from the interwebs. What exactly is the point?
"What exactly is the point?"
The illusion of security: banks seem to be very keen on it. Cheaper than actual security, I suppose.
With all this electronic billing and online banking, who has paper bills these days?
Well, someone's got to bring money into the country, don't they?
Opening a new account isn't that easy. First, you're assuming a perfect credit history. Banks aren't REQUIRED to let you open an account that actually does anything interesting (I know friends with UK doctorates who were sitting for years on "basic" accounts that didn't have so much as a debit card and being refused any sort of "normal" account - despite earning twice what I do). If you do want an account, that's a credit search more on your record. You probably won't get an overdraft on it (which can be a risk in itself if you're juggling accounts and can't remember which one actually has the money in). You'll probably be required (for any sort of interesting account features) to pay a monthly fee and/or pay your wages into it. Extra credit cards are, again, yet-another credit search on your history.
That's before you get into the hassle of all that paperwork and management of two accounts. It's not as easy as you make out. In fact, I'd say MOVING your account entirely (to someone who will give you those more interesting features like A CARD YOU CAN USE ONLINE) is ten times easier. Hell, nowadays, they even move your direct debits etc. over for you and you don't have to do anything.
I don't have a second account, not because I don't want one, but because almost certainly the expense and hassle of having one (even if I could get one) wouldn't be worth it. Much easier to just keep some emergency cash elsewhere, or have a credit card with another provider (even a pre-pay will do) should something go wrong.
Banks *do* hold you hostage. Not by refusing to open an account, but by placing more demands on any decent, usable account (e.g. debit card, credit card, overdraft, monthly fee, etc.) to make them more hassle than they are worth for the once-in-a-lifetime bank outage like this one. Read the news. Basically the banks want the end of "free banking". And they are already starting to do it as much as they can. That means that having a second account is actually an extra expense that isn't justified by being able to have another bank account - it's just easier to get a credit card from someone else or store a small amount of cash elsewhere.
OK, it's difficult for you as an expat. But for me, British resident and domiciled, taxpayer-in-full (especially as a single person), it was not.
My first UK bank fouled up a direct debit to the tune of £1000. So now they have just my direct debits and petty cash. I keep my main money "safe" at a second UK bank. It does mean I have two credit cards, so I use whichever has the furthest-away billing date.
Because I am involved with various clubs and societies, I am "known" to all the UK banks, and could probably open more accounts. But two feels like enough.
Keep your expat account for a couple of months until you have proof of residence if you're moving back, otherwise just use your offshore account as normal. Not difficult at all. I used to transfer from account to account, currencies etc. without problems. Maybe you just chose the wrong bank (I was with Lloyds offshore, who are crap on many levels but clearly not this one) or the wrong country to move to.
Pretty sure that a lot of the bureaugracy and process involved with money movements (which only apply to transfers of more than a few thousand, so not relevant for normal expenditure) are international rules not just the UK, and were in response to actual money laundering ignored by the banking system (see recent stories realting to HSBC and Nigerian dictators), so don't let your bank give someone else the blame.
I've always used a digital copy of my utility bills, gimped blurred lines through the actual figures and account numbers... never had a copy presented like that refused. It occurred to me almost instantly I could simply substitute the address or other details on the bill. Costly signals, nothing more.
OTOH I've changed bank account 3 times in the last 7 years and each time has not been easy at all (most recently last year). Even the new bank (who has incentive of a new customer) seems to fsck it up and play havoc with my direct debits. There's the law and then there's civil tort - unfortunately civil tort is a punishment to the victim in time and convenience as much as it should be to the fumbling bank.
True, to open an account you need some paperwork, typically photo ID and proof of address, and usually also documentation that shows where your income is coming from, such as work contract. In theory this is to prevent money-laundering, in practice, money-launderers know all about running small cash-based businesses, so it's mostly just paperwork.
However no bank will close your account, once opened, even if your salary stops going in there. Firstly, it's none of the bank's business where my money is going to, and secondly they will be perfectly happy to have your account just sitting there unused. It's not costing them anything, and however tiny the amount in the balance, they are still making something off it. So just go and open a new account with a different bank, and transfer your direct salary deposit there, and keep your old account with your old bank. Believe me, no one at the old bank will even notice*
* unless you're some hedge-fund manager or similair whose deposits are in 5 or 6 figures
I've always wondered why nature gave us redundant kidneys, very considerable distributed redundancy in our livers and brains, but only the one heart.
Frankly, even providing a real bill with a fake name is probably trivial. I don't remember ever having to provide a copy of my passport to my utility provider, as far as they're concerned I could be called Raoul Duke, and I'd get a bill in that name, which then I could take to the bank etc etc. Of course that still requires a fake driving license or ID, but rumour has it that these can be found.
But on the other hand, how else COULD you prove that you are who you say you are and that the money you are putting into the bank is legitimately yours? It's a flawed system, but it DOES minimise petty fraud, and large-scale fraud will, I think, always be with us since at some scale, the amount possible to defraud will be larger than the cost it takes to overcome the security.
"Basically the banks want the end of "free banking"."
That's one of the huge elephants in the room right there. Banks already make money from every account, simply because they don't pay interest on it (or a miserly amount on a savings account), and then they loan that out for anything from 3-6 %age points more. With more and more automation, e-banking, mobile banking etc, combined with closing of branches (not to mention offshoring of jobs), banks' costs are actually going down. But they reckon if they ALL introduce a small fee to give you an account, then the customer won't switch banks.
Reality is that the relentless drive for profit is whet drives a lot of big corporations. Now, don't get me wrong, I consider myself a capitalist and believe in the markets driving forward progress and prosperity... BUT the markets always operated before in an environment where care for the customers was taken into account (also because of localised location of businesses, they were forced to some extent to have good customer care). Nowadays the priorities seem to go thus:
2) top executives
Of course, I exaggerate... but the point is, banks are making money from my deposits, they should be competing to offer me the best rates, but instead they are competing to screw as much money as they can from customers while cutting costs (and therefore services), all the while that top executive pay reportedly keeps on rising. So clearly teh 'free market' is not working in this case.
Even this structure is skewed in some fruity and socially-minded tech companies that sell stock without voting rights attached,
Yes - I have had to! My utility bills are either in my wiffs name or online. Wot wow we to do? Anon for obvious reasons.
changing banks is easy. So is opening a new account.
quite. Having more than one account is not difficult. Changing which one receives the maoin income from time to time is not difficult. Nor is changing standing orders. If you must use direct debit, that can be changed too. So why does anyone find it difficult to change banks. I have three on the go at the moment.
" "changing banks is easy. So is opening a new account."
No it's not. My bank refused to let me open a new account until I'd either spent money buying a passport, or spent money getting a driving license. "
Mine also wouldn't let me change my address without licence(don't have) / passport (was out of date).
The bank were however happy to register me for internet and telephone banking, & send details to old address, thereby giving control of my account to the strangers now living there. To help give them this idea the bank continued to send my statements to my old address until I finally acquired a passport (was too skint to renew at time so took a while)...
It's a habit.
There is some set of rules, implementing some official guidance, and it included utility bills because they were once useful as a partial proof of ID.
They're not so useful any more, but they are still on the list.
"...passport (was out of date)."
Why do banks and the likes care that passports are out of date? Its not being used to travel and its still your face in the picture.
My current employer has the option to split your salary over two accounts: a fixed amount into one, the remainder into the other. Both banks thus see a regular flow of money, and are satisfied.
Utility Bill is an interesting requirement. In theory you could quite happily forge your own without any effort. However, it might cause you more of a problem than you think if you do. I'm not saying the banks do this, but the following is all possible.
1) Look at the account number on the utility bill. Ask the utility in question to confirm the existence of that customer and the address and name on the bill. Confirm the bills are paid and have been physically (for paper bills) sent to the address in question.
2) Cross check all the utility information with records on the credit history. If the name is different in some way, add an AKA (I've seen misspellings of my name on a utility bill crop up on my credit report). Specifically cross check the address with the credit check that was done when you rented (or purchased) the property in question.
Next, remember what the identity check is about. It is largely about anti money-laundering legislation (drug dealers and terrorists). If you open an account, things cross-check reasonably well with your credit report, and the account is used pretty normally (salary goes in once or twice a month; credit card, mobile phone, and other bills are paid; rent or mortgage is paid; cash is withdrawn for beers; etc.) then you won't hear another thing. If large payments are regularly moved into or out of account, or things look non-standard, the initial identity information you provided might be used in more detail to start an investigation.
As far as I know it is a criminal offence in the UK to open a bank account with false details. Banks ask to see (and photocopy) your utility bills so that they have a record of you giving these details. This is helpful in any prosecution as it stops you claiming that the details were wrong because of a typing error etc.
I work for such a bank, and it's easy: Set up an automated transfer in internet banking the day after payday so that a set amount gets transferred out into your account in another institution.
"Basically the banks want the end of "free banking"."
Everyone seems to have forgotten that the banks pushed the government to move all benefit payments away from things like pension books and cheques cashed at post offices. The penalty was a law that requires banks to offer a no-frills bank account for those on benefits, with no bank charges, no overdrafts, no insurance products, etc. All of the banks hide these in the product listings on their websites and will actively discourage anyone from opening a no frills account but they all have them. These basic accounts are easy to open but still require two proofs of ID (one for you and one for your UK address). I switched to one of these from an offshore account to have FSCS protection and avoid bank charges.
"Some banks in some countries require that your salary goes into their account"
In the countries where that happens, their Executive and Legislative branches are not doing their work nor fulfilling their obligations towards their citizens.*
*Just like everywhere else. Sigh...
I tried to move to the Gnatwest when I moved house to within 50 yards of their branch. Went in, nobody could be arsed to see me, 'fill in this form and we will contact you with an appointment' , filled in the form and am still waiting after 5 years.
The Mrs went through the same procedure a few weeks later. She is still waiting for an appointment although she did ring them a couple of times and called in. Nobody was interested and nobody could find any record of the previous visits.
Brother-in-law wanted to open an account (different bank), went in with bag full of money, passport, driving license, mortgage paperwork etc. Nobody was interested. "Ring us and make an appointment".
Changing banks is hard.
That would require the utilities to be able to disclose personal data which was gathered and is held for a totally different purpose.
Possible, yes. Going to happen, no.
I have been with the same bank since 1978, used internet banking for many years, and regularly visit the local branch. I already have 4 accounts with them. Recently I decided to check if they had any better savings accounts I could sign up for on-line. But at the top of the screen was a big red banner saying they couldn't let me do that until I went into the branch with a utility bill to verify my identity.
Just worth pointing out: Fred Goodwin would never have offshored. In fact, he stopped NatWest offshoring their call centres after the RBS purchase. The new lot, put in by the government, slashed charitable giving and pensions and started moving offshore like it was going out of fashion. The then government and the current government didn't seem to have a problem with a UK tax payer bailed out bank making UK tax payers redundant, in favour of offshore jobs.
So that's one good thing about Fred Goodwin. I doubt there is more than one.
RBS started offshoring its investment bank in 2006.
RBS closed its final salary pension to all new employees in 2007.
What the new lot have done is followed the same policies, only more so. Moving some stuff offshore is probably not a bad idea (Helpdesk, legacy internal business apps, etc) - shipping off core bank functionality is not so good.
Actually, following on from the ABN Amro purchase, just before everything went wrong and still under his leadership, the plan was going to be to merge a large proportion of the UK (core business) back office functions with ABNs. Conveniently these had already been offshored to the lowest bidder. That was the point where I got out so I'm not sure what happened to that idea after the shit started hitting the fan.
He outsourced like a b**ch though... complete with reducing costs every year to the point of stupidity.
And fire-rehire every year to evade employment regs.
Considering people were the main costs. Obviious what was going to happen in the end Unpaid overtime, anyone?
that so few people understand what banks *really* do.
Banks do not loan out the money punters save. Banks actually borrow cash from the money markets and/or the local Central (i.e. national) Bank and/or other banks at low rates, and lend it out at higher rates.
But banks also speculate. It wasn't always thus - until fairly recently retail and speculative banking were kept strictly separate.
Then - after industry lobbying - we had deregulation, and now they're not so separate.
This is very, very bad. It means that when a bank makes a huge loss on its speculation, the money that punters have saved - which is a relatively small percentage of the bank's balance sheet - isn't firewalled. So it has to be guaranteed by the government.
Or in other words, ultimately taxpayers guarantee their own money. (And good luck with *that.*)
Banks do have some nominal reserve requirements. They're supposed to always keep some cash in hand and/or deposited with the Central Bank, just in case. The theory is that when money is loaned out, there's always some small reserve against it.
Now - who wants to guess what the reserve requirement is in the UK?
No idea? Okay - it's nuffink. Zero. Fuck all. It's officially a *voluntary* requirement (if you can get your head around that bit of nonsense.)
There is *no* obligation on banks in the UK to keep any reserve at all.
So when something bad happens, all the banks look at their own 'assets', realise they have a gigantic worthless shitpile of failed investments and worthless loans, and stop lending to each other - because they know the other banks are in the same boat.
And suddenly, 2008. And possibly 2012 too.
What is to be done? Osborne is making noises about splitting retail and speculative banking again. Which is a start.
But really, the whole system is completely insane.
In any case, the real role of banks isn't lending, it's risk analysis. Good Keynesians know - empirically - that throwing cash at a stuck economy can unstick it. The cash can be made out of thin air, just like all cash is. But it needs someone in charge to say 'Let's do this.'
All banks ever do is decide which projects and activities are 'viable' and which aren't. But banks are hardly unbiased - q.v. Farepack - and they're not only a danger to everyone, they're also a danger to themselves.
So - take them out and shoot them. Go back to boring high street banking, close the casino, and spend the saved money on useful things - because casino speculation is always, with absolute reliability, ruinous to any functioning economy.
Sort of, money deposited in Banks is is one of the forms of collateral used by the banks for their borrow.
The Banks most affected by the current downturn often turn out to be those that took advantage of Mr Browns relaxing of the reserve/capital requirements as his assertion that he had "ended boom and bust" not understanding he had created "boom and depression". This allowed the Banks to borrow more against their Tier 1 Capital, depriving them of the reserves need to survive a downturn.
Please note it's Tax Payers that elect governments and it's governments that create and police the rules. So tax payers made the mistake of electing a government that was clearly losing control of spending and our now paying the price for this. We the voters must take responsibility of our part in this.
The current financial crises was created in Downing Street by Mr Brown.
But wasn't the banking collapse due to all those bad mortgages and not down to bad speculation? In which case splitting the banks into two won't have fixed the previous problems. It was the boring banking bit which caused the problems.
Mr. Worstall may be bored to death by one of the most fundamental questions of the economy (sort of like being bored to death by blood in your urine), but it's fascinating nevertheless.
"I would like to start off by stressing the following important idea: all the financial and economic problems we are struggling with today are the result, in one way or another, of something that happened precisely in this country on July 19, 1844. What happened on that fateful day that has conditioned up to the present time the financial and economic evolution of the whole world? On that date, Peel's bank act was enacted after years of debate between Banking and Currency School theorists on the true causes of the artificial economic booms and the subsequent financial crises that had been affecting England especially since the beginning of the Industrial Revolution."