Idiot fucking Ritchie

And as for banks there are good reasons why they should pay more in tax, and George Osborne is recognising this, so it is hardly radical to say so. First it is because they get massive state subsidies e.g. in the form of deposit guarantees for those who save with them.

What fucking subsidy?

Funding
The FSCS is funded by levies on firms authorised by the PRA and the FCA. The FSCS’s costs are made up of management expenses and compensation payments

Under our funding system, for the purposes of funding the FSCS compensation costs, the FSCS levy is split into eight broad classes:

deposits,
life and pensions,
general insurance,
general insurance intermediation,
life and pensions intermediation,
investment intermediation,
investments, and
home finance.
The first three classes are referred to as the PRA classes, while the last five are referred to as the FCA classes.

Thresholds

Each firm’s contribution is calculated on the tariff base applicable to the relevant class. Each firm contributes proportionally. A threshold for each class is set by the PRA and FCA by reference to what a particular class (taken as a whole) can be expected to afford in a year. The threshold sets the maximum that the FSCS can levy for compensation in any one year. The model operates on the basis that a class will meet the compensation claims from defaults in that class up to the threshold.

Under the previous system (which ended on 31 March 2013) FSCS was able to raise up to £4.03 billion for failures in any class as all classes were part of the same retail pool.

Under the new funding arrangements which took effect on 1 April 2013, the amount that can be raised by levy in the year will vary, depending on the funding class. Only FCA classes will receive support from other classes and so for PRA classes the amount that FSCS can levy in any year is the individual class limit. For FCA classes it is the amount of the relevant FCA retail pool.

Deposit guarantees are an insurance scheme for which the banks pay premiums.

Ritchie’s a cretin, isn’t he? An ignorant one.

9 thoughts on “Idiot fucking Ritchie”

  1. Isn’t it underwritten (at least implied) by the government? Wasn’t that Osborne’s excuse for the original bank levy?

  2. Two different things.

    The too big to fail subsidy is indeed balanced by the bank levy. The standard up to 100,000 k euro deposit guarantee is funded by direct insurance payments by the banks.

  3. Murphy is gradually coming under the spotlight. For him this is his moment to shine and it is also a chance for his ideas to be finally subjected to scrutiny.

  4. Deposit guarantees are an insurance scheme for which the banks pay premiums.

    Ritchie’s a cretin, isn’t he? An ignorant one.

    Well, yes, but . . . in this case he may not be *totally* wrong.

    I don’t know the details of how you guy handle this over there but these banks may be receiving a subsidy from a state insurer in the form of lower premiums for that insurance than a private insurer would demand.

    If RM were not such a complete moron, he would have made that explicit in his comment instead of leaving open such an obvious avenue of attack – and its not like shouldn’t know by now that people are going to pick apart every flaw they find.

  5. What about the subsidy that is the central bank as lender of last resort? Whichever which way you cut it, having a banking license under a fractional reserve banking system is something of a rent seeking privilege imo.

  6. James g

    LOLR need not be a subsidy – if it merely ensures that solvent but illiquid banks are able to fund themselves. Where there are issues is where we are not certain about solvency – which is why we have the discussion on deposit insurance + too big to fail.

    incunabulum

    A deposit insurance scheme need not require government support. The Icelandics pulled this with their deposit insurance scheme when they failed to compensate Icesave savers overseas:

    https://en.wikipedia.org/wiki/EFTA_Surveillance_Authority_v_Iceland

    In practice, governments tend to end up underwriting the deposit insurance further (to either the level of the original scheme or further to unlimited guarantees) for their home depositors due to worries about a political backlash or about systemic stability.

    This state of affairs pre-crisis did represent a de facto subsidy, which regulators are attempting to deal with by requiring living wills, by beefing up deposit insurance, separating casino banking etc. I’m sceptical about some of these things. Notably I expect the whole government bond thing to end in tears.

  7. They can pay an infinite amount of tax. Lend an employee some money created out of thin air. Name him as a proxy for tax payments and Bob’s your uncle.

    Dick the Prick just needs someone like me to join up his ideas.

  8. Ken
    A deposit insurance scheme need not require government support. The Icelandics pulled this with their deposit insurance scheme when they failed to compensate Icesave savers overseas:

    I know it *need not* – but I was saying that the UK deposit insurance scheme *may* be getting a subsidy from the government in the form of lower premiums than a private insurer would charge.

    Assuming the government is backing the scheme (and a bunch of other assumptions) – I just didn’t feel like looking up the details of how the UK’s version of FDIC works.

    As such, RM *may* not be wrong in this – though he a)tries to get you to infer that the subsidy is both larger and more direct than it may be, and b)is a moron because he should know by now that he doesn’t have any leeway in his statements anymore. Too many people have seen him make elementary mistakes. Sure, some of that may be misspeaking, but right now he needs to make his arguments *watertight* with no room for ambiguity.

    That he doesn’t bother to take that care is just driving his brand straight into the ground.

    I know, I know – never correct your enemy when he’s making a mistake.

  9. Agammamon

    The problem is that Tim is correct to point out that the scheme above is supposedly funded in full by the banks themselves, but that at the height of a major systemic crisis, governments come under pressure to back the deposit guarantee further. Since this is a future political question, we cannot say with any certainty that there is a subsidy. We know from existing research that there is some evidence that banks took advantage of deposit guarantees in the past.

    The government is explicitly not backing the scheme and in addition the new rules (bail-ins, living wills, separating casino banks etc) are all meant to reduce the odds that they will be forced into the political choice to support the depositors.

    It’s a complex issue, but Tim is far more right than RM on this point.

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