Too Much Co-Operation

Lessons Still Not learnt 

 

The story causing most confusion and concern to the financial sector at the moment is the Co-op Bank's proposal to buy 631 Lloyds branches that would effectively triple the size of their banking operations. 

It was doing this with the blessing of the Treasury and Chancellor of the Exchequer, who last year hailed the Co-op's expansion as creating "a new challenger bank" that would give "real choice to customers and supports the economy".

What's more (and crucially), the regulator (Financial Services Authority) did not object to the Co-op Bank’s expansion.......which all looks a little odd now.

 

And here's why......

 

Where a bank lends money either to a personal customer or a business, it must set aside money in case it's never repaid. The more riskier the loan / mortgage, the more it must set aside for a contingency buffer. Simple and effective.

 

The problem is……Co-op Bank has just realised that it has not set aside enough cash......to the tune of around £800 million. Or to put that another way, it can't manage the banking operations it has currently (before it trebles in size) and it may need a bailout out.

 

So why oh why did Lloyds, the Financial Services Authority, the Treasury, the Chancellor of the Exchequer and the Co-op board all agree that they were the best buyer of Lloyds's branches just months ago without looking at the balance sheet to gage their current effectiveness? Shameful.

 

Is it just me or are there still too many clueless idiots working in the banking sector and the regulation of it?