Bank brains could be put to better use

What a waste!

The fundamental basis of banking is that banks make a profit from the differential between the interest paid on deposits and the interest paid by borrowers.

As long as we don’t all ask for our money back at the same time they can of course lend out our deposits multiple times (the number of times they can lend out the deposits is limited by regulation). RBS and others tried to escape from this straitjacket in four ways.

First, by making forays into overseas markets – if you won’t bank with the Bank of China why would someone from Beijing bank with RBS?

Second, by buying other banks – this may deliver some efficiencies in the short term (such as employing fewer staff and making greater profits) but delivers little long-term value.

Third, by lending money to riskier clients who pay a higher borrowing cost – for example extending mortgages to home buyers who don’t have to prove they have any income.

Fourth, by coming up with obscure products that no-one understands or sell customers products they don’t need (such as payment protection insurance).

It’s unlikely that UK banks are going to try the first, third and fourth option again very soon and the second isn’t an option as there isn’t really anyone left to buy.  The UK Government should stop telling us how important banking is and start thinking about how we can deploy our country’s brain power into more productive areas.

It could start by hiving off a few bright sparks to work out to fabricate North Sea infrastructure rather than getting the Koreans to do it for us.

Andrew S R Gordon

Craiglockhart View

Edinburgh

Now that the banks have been forced to repay the proceeds of their various customer rip-off schemes, they are making losses. Clearly this was the way they had always been making their money.

They should be nationalised and run for the benefit of the state, and not as a private club where rich kids get richer at the expense of the general public.

Malcolm Parkin

Kinnesswood

Kinross