What is the government afraid of with banks…

Posted by Costas Stopas

What is the government afraid of with banks…

It is said that during the dictatorship Stylianos Pattakos entered the hall of the Athens Stock Exchange one day and when he looked at the board of directors, he instructed those present, in a way that journalists, stockbrokers and investors could hear, to raise it immediately. Its price share is in the Bank of Greece, because it considered it cheap…

Of course the request was met with cheers, but markets don’t work that way…

Last week, the government called on banks within days to abide by its instructions, reduce lending rates and raise deposit rates …

The fact is that banks charge excessive commissions for operations that are now cost-effective due to automation. The only way to fix this is to open the market to free competition.

If what the government’s initiatives indicate is the existence of coordinated policies by the banks, the situation is serious. But this is not addressed through the definition of interest rate policies by the government. The Bank of Greece and the Competition Commission are responsible for investigating the existence of a banking “cartel” and taking appropriate action.

The State and the Bank of Greece must ensure that there are no oligopolistic tactics and that they do not set the interest rates at which banks must lend and borrow …

In the age of financial technology, further opening up the banking market is not a difficult task. But governments feel they have to keep the banking system under their strict tutelage… This comes at the expense of the economy.

If we have capitalism in Greece, then when banks are full of “red” loans they should be allowed to go bankrupt, shareholders lose their money and depositors lose their savings.

The same applies to the whole “capitalist” West, as happened when the banks went bankrupt in 2008, because they were loaded with “toxic” bonds, saved by the intervention of states and the money of taxpayers …

In the United States, of course, in the end, the Treasury Department got back the money it invested and at a profit, but the moral hazard it created remained. What does this mean; It turns out to the bankers that they can take more risks than they can manage, and if things don’t go well, eventually someone will bail out the banks and they can retire with their earnings…

Which bank a person chooses to place their savings in is a personal choice and the criteria are the interest rate offered by the bank and the security provided by its management. When someone chooses a So-and-So bank because it pays a higher interest rate, if that bank goes bankrupt, they themselves will have to suffer the consequences.

The same applies when he chooses to borrow in Swiss francs, for example. Because it has a lower interest rate. When the franc rises, the debt will increase as well as the costs of service, and then he may have to lose his house…

These are choices with benefits and costs that everyone must make on their own, be they bankers or borrowers.

We mentioned that in the USA the state took back the money with which it supported the banks, while in Greece, where everything goes “runaway cola”, the money for recapitalization was lost when SYRIZANEL blew up the system in 2015 …

In this sense, the government’s “orders” to banks to raise interest rates on deposits and reduce lending rates will only lead to disaster…

The Minister of Finance said last week: “The average interest rate on new deposits is 0.05% flat, and the average interest rate on new loans in October increased by 0.26% to 4.86%, which is unacceptable. The interest rate on deposits must be raised immediately.” And large, and downsized.” Interest rates on new loans “…

If the executives of the banks follow the instructions of the minister, they will only get as many as they collect commissions when sales of banking products increase. However, if only 2 out of 10 Greek companies (and households) are creditworthy and 5 out of 10 applicants receive loans, a new generation of “red” loans will begin to take shape.

Like the previous generation of “red” loans, the next one will explode when some occasion arises.

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