How to Start a Bank Run

Canadian Prime Minister Justin Trudeau is going down a very dangerous path with his threat to freeze the bank accounts of protesters. What he doesn't seem to understand is that the banking system of the western world relies on trust. There are no vaults of gold bars to back our currencies. We deposit our money in the bank because we trust that we will be able to get it back out as and when we need it. When that trust evaporates we get what's known as a run on the bank. In the past that has always happened because trust in the particular bank has failed, as in the run on Northern Rock. Investors in that institution started to get worried that their deposits were not secure and so they queued round the block to get them out. Banks never have enough ready cash to pay out in that situation and so the UK Government had to step in. Otherwise Northern Rock would have gone under, taking people's deposits with it.

Now we have a situation in Canada where a politician is threatening to deny people access to their money. If banks comply with orders to freeze accounts it will have the same effect of damaging trust in the banks, even although the banks are not failing. People, not just in Canada but around the world, will look at what's going on and will start to wonder if they would be better withdrawing at least some of their cash from whichever bank it happens to be deposited with, just in case one day their account is frozen. They may not be planning to protest or do anything else which might merit Trudeau's negative attentions but the seed of doubt has been sown: maybe my money is not as safe as I thought it was. Who knows what the trigger for future invocations of emergency powers might be? They are only supposed to be invoked in extreme situations in Canada but Trudeau is driving a truck through that. More trust destroyed.

In the case of Northern Rock, UK politicians stepped in to save depositors' money (at the expense of shareholders) by nationalising the failing bank. Canada's leader is risking causing a run on healthy Canadian banks by his draconian actions. He may not care if Canadians lose their trust in him but if they lose their trust in the banking system it won't just be him who pays the price.

It's crystal clear

It is now crystal clear what voting yes in the independence referendum really means, in spite of all the assertions to the contrary. It means a return to the banking system of the 1700s, with no central bank and no bank bailouts. The Adam Smith Institute seems to think that this would encourage banks to be more responsible. Sounds a bit like putting a fox in charge of the hen house to Calton. Would you really trust a bank with your hard-earned savings in those circumstances? They may tell you that they have enough English banknotes in the vault to guarantee the Scottish notes they are printing but could you believe them? Would you? Meanwhile the SNP continue to cling to the idea that they will get a currency union with rUK in the event of a yes vote, while rumours circulate on twitter that today was possibly Alex Salmond's last FMQs. Oh, that it were true! Calton would jump for joy.

What a load of b*****s

Calton would like to thank all his readers for contributing to this blog reaching over 10,000 pageviews since it started. He is back in cold but sunny Edinburgh, just in time to avoid singeing his wings in Lochaber. Who would have thought that Fort William could be so dry? Anyway, it's back to the same old same old here in the capital, with John Swinney still singing the praises of a currency union with England in the event of a 'yes' vote next year. He continues to think that an independent Scottish government would have the full fiscal and economic freedom to vary tax and spending to deliver economic growth and to serve the best interests of the Scottish economy in such a union. Bankers to that - Ron MacLeod and Hamish Patrick to be precise.

Banks, blogs and the Budget

To be honest, Calton is still worrying about mulling over the ramifications of the new press laws Royal Charter and the escalating situation in Cyprus to be bothered about think about the Budget. No more fuel duty increases for the time being and a cut in the price of a pint are obviously a good thing but will pale into insignificance if the money in Calton's bank account can be raided at the drop of a hat to prop up ailing banks or if a complaint against this blog results in a huge fine. It's enough to make anyone burn the midnight oil, thereby depleting even further the resources which the OBR and the First Minister so spectacularly fail to agree on.

Talk to the shovel

The levy on savers in Cyprus banks is a worrying new development in the Eurozone crisis. Supposedly to teach savers not to save with dodgy banks, instead it is punishing ordinary people by relieving them of at least 6.75% of their savings in return for shares in those dodgy banks. The natural result is that they are all rushing to withdraw their money, with the help of a JCB in one case. If the ECB thinks that savers in other Eurozone countries will not be following suit and stuffing money under their mattresses, they are extremely naive. And if the Germans think that their insistence on this measure will not fan already smoldering resentment against them into roaring flames, they are mad. They have picked on Cyprus, rather than the PIGS, because it is small, weak and has reportedly been a sink for laundered money. Now the plug has been well and truly pulled, the dirty money will go elsewhere and honest savers will be the poorer. The Germans seem to think that is a price worth paying in order to send a tough message to feckless economies - their Finance Minister Wolfgang Schaeuble called the levy part of the "fair" distribution of the bailout's burden. Try telling that to the JCB driver.

Hoping for a landslide

Whether or not you agree with capping banker's bonuses, it is very worrying that the UK is not in control of the decision, which is being forced through by a majority vote in the EU. This is a decision which should be made in Westminster, not Brussels. No other European nation has a financial centre to compare with London. It is a major driver of our economy and needs to be protected by our parliament. George Osborne is doing his best but the real problem is our continued membership of the EU, which is not in our best interests. What is it going to take for our politicians to realise this? A landslide victory for UKIP in next year's European Parliament elections? Here's hoping!

Better never than late

It's good to see that Barclays and Coutts have decided to withdraw sponsorship from the Stonewall awards next year unless the 'Bigot' award is dropped however it beggars belief that they did not know what they were sponsoring this year given that Nationwide, one of last year's sponsors, withdrew after getting serious flak over their involvement. Their move today smacks of damage limitation in the face of a media storm. Stonewall do good work in preventing bullying of homosexuals, however, when they use the term 'bigot' to try and censure the speech of those who don't agree with them, they become the bully. Unfortunately for them, they picked the wrong target in Cardinal O'Brien. Nobody, Calton least of all, would have objected if they'd picked whoever said that gay people should be shot dead but the Cardinal's comments on gay marriage are not in the same category. His comments may be offensive to homosexuals but many people are deeply unhappy with the idea of marriage being redefined and feel that the Cardinal speaks for them. In labelling him a bigot, Stonewall also labels them bigots. Such name-calling only widens the gulf between the two sides of the debate and the fact that Ruth Davidson got booed for objecting to the 'Bigot' award at the Stonewall event reveals the petty nature of some of Stonewall's supporters. Stonewall would do well to dissociate itself from such people.

QE costing Scottish jobs?

Not only is the Bank of England's policy of keeping interest rates low hitting savers hard, it now seems that their policy of quantitative easing (QE) may be partly to blame for the collapse of Dawson International last week. The BofE itself admits that while QE "has a broadly neutral impact on a fully funded defined benefit scheme", "schemes that were already in substantial deficit before the financial crisis are likely to have seen those deficits increased". Quite. Exactly what has happened to the Dawson pension scheme, resulting in the company going into administration and putting 180 Scottish jobs at risk. The idea of a Scottish bank, based on old-fashioned values of thrift and probity, and our own currency should we become independent, is becoming more attractive by the day.

A leg up the property ladder

When Calton bought his first Edinburgh eyrie it was with a 95% mortgage which was 2.5 times his salary. Those were the days when your banker interviewed you before deciding whether to give you a mortgage and 3 times your salary was the absolute maximum available. Now, the housing market is only open to those with substantial deposits, leaving many young people out in the cold, so the initiative to provide 95% loans on new houses by industry body Homes for Scotland in conjunction with the Scottish Government is to be warmly welcomed. No-one wants to return to the days of irresponsible lending but the pendulum has swung too far the other way, with detrimental effects on the housing market and our building industry. Hopefully this scheme will go some way to redressing the balance and will help more people to get a foot on the property ladder.

Bank charge evasion

Of course it's morally wrong to collude with a tradesman in tax evasion by paying cash. Let us not forget that one of the things that has turned the Greek economy into a basket case has been large scale tax evasion and a burgeoning black economy. It's time we stopped seeing dodging the taxman as a faceless, victimless crime because, in the end, we are all the victims of it. That said, it's also time we stopped taxing low earners and small businesses to death. The Libdem policy of raising the personal allowance has been a welcome step in that direction. Increasing the mileage allowance for businesses would be another step in the right direction, one which is long overdue. And we need to remember that businesses pay through the nose in bank charges for every cheque they pay into their business account, which is why many prefer cash. They are not necessarily on the fiddle. Just trying to avoid lining the pockets of bankers.

Bring back real bank managers

The new scheme to boost bank lending to businesses is to be welcomed, particularly given that the number of hotels and B&Bs for sale in Scotland is at a high due to the difficulty buyers are finding in getting finance. No-one, Calton least of all, wants to see a return to the days when banks threw money at borrowers regardless of whether or not they could repay the loans, however we are now in a situation where older hotel owners looking to sell up and retire are unable to do so because they can't find a buyer. And these are viable businesses, not turkeys. The popularity of staycations has boosted the Scottish tourism industry and figures released by accountancy firm PKF this week suggest a rise in occupancy and revenues for Scottish hotels in May. What we really need is a return to the days where you sat down and discussed a loan with a bank manager who knew you and knew the business you were looking to buy, not some faceless number-cruncher on the end of an 0845 phone line (if you're lucky).

Still wanted - Santa for Farepak victims

Well it's only taken 5 and a half years and a public dressing-down from a high court judge to make Lloyds TSB cough up £8 million to compensate Farepak victims. Many savers with the collapsed company will still be massively out of pocket and so they can be forgiven for not exactly jumping up and down with joy. Also, there is still the potential for another Farepak to happen in the future, in spite of Calton's plea a few months ago. Is it because mainly poorer people use such schemes that they seem to be the Cinderella of protective legislation?

Wanted - politicians of integrity

Given that Fred Goodwin's knighthood was for services to banking, Calton thinks it entirely appropriate that he was stripped of it in the wake of the RBS debacle. Many shareholders, small and large, were persuaded to part with £2 a share in a rights issue just months before the crash and lost a lot of money as a result, while Fred walked away with a golden pension pot. Calton does not, therefore, agree with Alastair Darling that stripping Goodwin of his knighthood was a 'terrible mistake'. He does, however, think that the former Chancellor has a valid point in that others who were culpable in the banking crisis got to keep the 'Sir' in front of their name, leaving Goodwin to be the scapegoat to appease public anger. It seems that politicians these days are very quick to find a sacrificial lamb when things go wrong and the press starts howling - the sacking of Sharon Shoesmith after the Baby P affair being another example that springs to mind. Do we want our politicians to be be men and women of integrity, who do things by the rules, or people-pleasers who bow to the baying mob? Sadly, it seems that all too often we get the latter.

Pride and pocket

Having already lost his knighthood over the RBS debacle, Fred Goodwin is now also facing possible legal action from disgruntled shareholders who believe that they were misled into paying £2 for RBS shares in a rights issue just months before the crash. Calton wonders which is more painful for Fred - the dent to his pride in losing the 'Sir' or the potential hit on his pocket? It could be a double whammy. One thing is certain - there are a lot of RBS shareholders who have suffered losses through Fred's mismanagement of the bank, including a number of pension funds. Calton doesn't blame them for wanting their day in court.