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Denmark doubles capital buffer to contain wider Danske Bank risks
- safgasCVS 8y agoThe financial sector never fails to demonstrate how utterly worthless it is.
- crishoj 8y agoPerhaps not entirely useless, but certainly unscrupulous and corrupt.
- linkmotif 8y agoFinance makes the world go round
- rvense 8y agoNo, other things makes the world go round. Finance is responsible for the downward momentum in this death spiral...
- makotech222 8y agoLabor makes the world go round. Finance is a parasite.
- MR4D 8y agoThat’s what the gears in an engine say about the oil....until someone removes the oil.
- tokai 8y agoThe oil is laboring as well, even though its labor isn't directly productive. It is doing work that supports production of engine power. Finance is an unsavory backseat passenger that demands to be cooled by a fan taking a huge amount of HP from the engine, claiming that the car wouldn't move anywhere without him/her and the parasitic fan.
- kzrdude 8y agoFinance is a service industry, it should create value for its customers. For example, making means available for creating a company. Always measure their utility Vs how well they serve everything outside of finance.
- arghwhat 8y agoFinance provides slight convenience and a few useful products (like mortgages). The vast majority of the financial sector does nothing significant to the outside world, and often just cause negative side-effects. A good story to tell here is the total bank strike in Ireland that lasted a year, where everything operated just fine without the banks.
- gaius 8y agoThe vast majority of the financial sector does nothing significant to the outside world, and often just cause negative side-effects. So... like Silicon Valley then?
- safgasCVS 8y agoShun the non-believer! (I guess we're both getting downvoted today huh)
- HONEST_ANNIE 8y ago> few useful products (like mortgages). ... and personal loans, commercial loans, transactions and transfers, overdraft agreements, insurance brokerage, underwriting, and reinsurance. Ireland was poor and undeveloped economy during 1966–76 bank strikes. Irish pound had one-to-one link to pound sterling, so Ireland didn't even have monetary policy. Companies were able to operate with their accounts in UK banks. Today it would be total chaos.
- arghwhat 8y agoCommercial loans or investments are necessary. For personal use, mortgages is the only normally needed product. Non-mortgage personal loans and overdraft agreements are not necessities (and seems to invite poor financial management). The rest are insurance products, which are also on the nice-to-have list. However, loans and insurance are a tiny fraction of what the financial sector does. The vast majority of other products would go mostly unnoticed if gone. > Today it would be total chaos. Briefly, yes. Some things without real value would collapse. But I strongly believe that it would stabilize within the first year.
- tonyedgecombe 8y agohttps://en.wikipedia.org/wiki/Financialization https://en.wikipedia.org/wiki/Financialization
- aedron 8y agoArguably worse than worseless, when it is actually destructive to society. The history of banking in most countries is the story of a repeated cycle of abusing the trust of the people with money in the bank: The bank holds people's gold -> the bank issues 'gold certificates' -> the bank issues more certificates than it has gold -> system crashes and everybody loses their money. In the end, the establishment of national banks to regulate/nationalize the appropriation of wealth. Here is the history of the Swedish national bank, as an example (it could be copy/pasted from every other European national bank): https://en.wikipedia.org/wiki/Sveriges_Riksbank#History https://en.wikipedia.org/wiki/Sveriges_Riksbank#History
- safgasCVS 8y agoSo I'll void preaching to the choir and give you this little gem instead http://uk.businessinsider.com/pubs-replaced-banks-in-ireland-in-1970-and-the-economy-was-fine-2016-1?IR=T http://uk.businessinsider.com/pubs-replaced-banks-in-ireland...
- drb91 8y agoWell, pubs are legitimately the oldest financial structure in ireland. Cheque-central!
- krona 8y agoThe industrial revolution would never have happened if not for the revolution in finance that preceded it.
- safgasCVS 8y agoThe industrial revolution was driven by the increasing adoption of coal as a shift away from burning wood and other biomass allowing for highly energy intensive industries to develop. Steam engines, massive smelting furnances etc couldnt function without the huge energy efficiency gains from the shift towards coal. That shift was driven entirely by thermal efficiencies gained. Finance powerful though it may be doesnt outrank thermodynamics
- tashoecraft 8y agoThis is looking at things from an engineers perspective, "Oh the technical solution wins because it was just better". How would this industrialists get the capital to purchase their machines? The raw materials? For their suppliers to have the product on hand, or go a long time with without repayment? All this was enabled by the finance revolution. Finance gets a bad rap (rightfully so) because it's ripe for theft and manipulation, but I don't believe we would have seen even close to the same industrial revolution if it wasn't for the progress to the financial system.
- arghwhat 8y agoThe industrial pioneers, if I'm not mistaken, were "old-school rich", with real wealth coming from either hard work or a rich linage. I doubt venture capitals and other financial solutions were involved in anything that'll make its way into a history book.
- lovich 8y agoThe term nouveau rich was coined specifically to describe the rich industrialists who had generated their fortune without being from the old aristocratic families. Also if hard work led to you having wealth then their wouldn't have been peasants, and even children could buy their own homes after a long day in the fields or mines. I am an avid critic of the financial industry, but the whole idea of lending money and having a store of it that was trusted enough to accept checks from altered all of society. Prior to that you could only purchase as much material as you had money on hand to buy, or something else to trade. There was no way to borrow 100 dollars to buy materials that you converted into 130 dollars of value without already having 100 dollars
- zimablue 8y agoI await your plan for a society with no markets.
- arghwhat 8y agoNo financial sector does not mean no "markets". It means no providers of financial products. However, some financial products emerge naturally between individual parties, such as credits and small-scale loans. I think the most noticeable loss would be the lack of mortgages (i.e. having to pay for a house up front). No simple means for online purchases would also be inconvenient (Bitcoin is still not a viable normal solution). Didn't Ireland have a complete and total bank strike for a full year in the 1970's, with absolutely no negative side-effects?
- chris_mc 8y ago>in the 1970's
- zimablue 8y agoAs you've noted yourself, if you allow markets most of the rest kind of emerges. Futures and forwards are pretty natural, unless you somehow stop it, large scale loans are no less natural than small scale loans, products between individuals get outcompeted by products between individuals and larger entities. Mortgages aren't great but having to pay for a house up front would move empower rentiers even further. I just think you need to be specific, you're already down the path of realizing that some (but not all) of this is like laws of nature, saying that there's no value in a financial sector just seems ignorant.
- dantheman0207 8y agoAwesome, looked it up on Wikipedia. Strike was actually three separate strikes, just over one year in total duration. Dates as follow: May 7 – July 30, 1966 May 1 – November 17, 1970 June 28 – September 6, 1976 According to Wikipedia[1], the banking strikes had little affect on the preexisting economic woes, namely both high unemployment and inflation. [1] https://en.wikipedia.org/wiki/Irish_bank_strikes_%281966%E2%80%9376%29 https://en.wikipedia.org/wiki/Irish_bank_strikes_%281966%E2%...
- kome 8y agoFinance is needed. Better questions would be: - How much finance is needed? And how complex? - Are financial actors capable of seeing a crime when they see it, or pecunia non olet? There is widespread, high-level, white neck, corruption in northern Europe. And that just the tip of the iceberg.
- sctb 8y agoIf that's true then presumably one doesn't need to point it out with snarky one-liners (which don't belong on Hacker News). https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- krn 8y agoWhat this article doesn't mention, is that Denmark is facing all these issues now, because Danske Bank's Estonian branch was used to move vast sums of money out of Russia by the people close to Russian government and Vladimir Putin himself, using the scheme called "The Russian Laundromat"[1]: > FSB representatives served on the board of at least one of banks that wired billions out of Russia as did Igor Putin, Putin’s cousin. He was a manager and executive board member in the Russian Land Bank. [1] https://www.occrp.org/en/laundromat/the-russian-laundromat-exposed/ https://www.occrp.org/en/laundromat/the-russian-laundromat-e...
- gadders 8y agoThere is a theory that Vladimir Putin is the actual richest man in the world.
- arghwhat 8y agoWho can beat privately owning an entire country?
- saiya-jin 8y agoProbably not true, but he is indeed super rich. If common state-media-brainwashed folks in Russia knew how rich he is, and all of it is stolen from all Russian citizens bit by bit (actually billion by billion), they would hang him on the nearest street light unceremoniously. I would expect that he diversified his wealth all over the world via 'friends', stored in shady wealth management companies, well located banks, and probably few tonnes of good old $$ and gold. Some bankers in one Zurich bank might give you some info (but might not be alive to confirm it afterwards). But he has good PR - it often looks ridiculous to western eyes, but for most russians it hits some obscure sweet spot. And of course he is not some lone wolf, rather guy on top of a massive pyramid with tons of FSB people who know their stuff a bit too well. Who else would you be expecting to run huge broken country like Russia for so long so successfully? I mean, even Arafat died as a billionaire, and Palestine ain't some Eldorado to begin with.
- bjourne 8y ago
- arghwhat 8y agoAn interesting thing to note for those that care: Danske Bank has acquired several banks over time, and integrated them into the brand. The Estonian branch is such an acquired bank. After being acquired, the normal procedure for Danske Bank would be to move the newly acquired bank completely over to Danske Bank's banking platform. This platform includes all the Danske Bank business logic and procedures, such as money laundry checks as per EU regulations. However, in this specific case, it was deemed too expensive, and the new branch was left as is, running its own banking system separate from the rest of Danske Bank. Someone responsible for that decision, which effectively left that new branch to its own devices, is probably having a bit of a bad taste in their mouth right about now.
- baq 8y ago> Someone responsible for that decision, which effectively left that new branch to its own devices, is probably having a bit of a bad taste in their mouth right about now. or not. we're talking about laundering Putin's money. it's not inconcievable that this decision was at least indirectly influenced by the Kremlin.
- arghwhat 8y agoHaving had a connection to the industry at the time, I'm quite sure that the decision was made simply as a money/frustration saver. Banking systems are the worst pile of horse-dung in existence, and no one wants to touch it if they can avoid it. It's expensive and cumbersome, and the leadership will go through great lengths to not wake the sleeping monster and risk having the card house collapse. So, I am fairly confident when my blame-o-meter is reads "incompetence" rather than "malice".
- talltimtom 8y ago> Someone responsible for that decision, which effectively left that new branch to its own devices, is probably having a bit of a bad taste in their mouth right about now. Why? Their reasoning then was that it would cost them to much to transfer the bank, “discover” the laundering and paying fines, instead they left it so they could earn more money by the time it was eventually “discovered”. These aren’t kindergartners running these banks and systems, they knew what was going on. They likely did make the right choice, the fines will be the same since now as they would have been then, and now they have a large profit to pay them from.
- chvid 8y agoThere has been a money laundry scandal in its Estonian branch of epic proportions. The risk is now a massive fine to Danske Bank. Not by the Danish state. But by either the EU or more likely the Americans. Danske Bank is the biggest bank in Denmark with +50% of all banking business. It is a liability of the Danish state meaning that if it gets in true trouble the state will bail it out.
- hocuspocus 8y ago> the state will bail it out. Would it be that bad? From my simplistic understanding of economics, the Danish central bank can bail it out with minimal side effects, right? And the state would be in a position to ask for a commensurate compensation.
- lordnacho 8y agoThe state already bailed out the banks, including this one, back in 2008. Denmark has a larger banking sector relative to the economy than most countries, and the politicians thought it was a good idea to bail them out. What's scandalous is they didn't insist on wiping out the shareholders.
- charlesdm 8y agoActually, the share and bondholders will be required to bail it in, under EU laws introduced a few years ago.
- drb91 8y agoYikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better to let the bank fail, ie learn from 2008 that bailing out encourages the bad behavior?
- charlesdm 8y agoThis is actually great for EU residents, as shareholders and bondholders will (initially) be on the hook for excess risks being taken, not residents. Not all bank shareholders were wiped out in 2008, while they clearly should have based on the amount of public money some banks got.
- interfixus 8y agoNot to worry. I have been staunchly admonished in a Danske Bank branch for attempting to pay a bill of roughly $50 (a laundry bill for an old lady of my acquaintance) without being able to produce the required official ID. I was clearly a terrorist pedophile laundering drug-money for the Russian mafia.
- samstave 8y agoIf you have not already watched it, Watch "Active Measures" about the Manafort/Putin/Trump money laundering ties... The reason I mention this here is that the former President of Estonia is interviewed in the documentary a bit. I was wondering why would they be interviewing the President of Estonia regarding the Russian Mafia/Manafort/Trump laundering -- Welp - this is why.
- cirgue 8y agoThis is a somewhat minor point, but it surprised me that the edit: Danish reserve requirement has been raised to 1%. In the US, it's at roughly 10% and has historically been between 8 and 12% for large banks. Does anyone more familiar with Danish banking know why their reserve requirement is so low compared to ours?
- wjnc 8y agoIt's Denmark, not the Netherlands we are talking about. Your intuition seems correct [1]. The 1% capital requirement in the Reuters article must be an add-on requirement and is to low to be the stand-alone requirement. Fitch put Danske at 4.2% Basel III 'fully loaded' last summer. The wiki points out how diverse the calculations can turn out so that it's pretty much pears and apples comparing these internationally. [1] https://en.m.wikipedia.org/wiki/Capital_requirement https://en.m.wikipedia.org/wiki/Capital_requirement
- venantius 8y agoThe 1% refers to a specific sub-segment of the overall capital requirements. This would be on top of any normal Basel III requirements and is typically marked as a "discretionary" capital buffer to be set by the state in question. EDIT: Ah, nuts, meant to reply to grandparent rather than parent. Oh well.
- btilly 8y agoQuestion. Is it remotely possible that as Danish financial institutions attempt to simultaneously increase their capital reserves, that will suck enough money out of circulation to start a deflationary spiral? In other words that the attempt to contain the risk can cause a crisis?
- venantius 8y agoIt's possible but pretty unlikely. The capital buffers being introduced are about 1% of Danish banks' balance sheets, and it's likely that the capital buffer for this was previously non-zero (e.g. likely 0.25% or 0.5%). So an increase of 0.5% or 0.75%. And it's worth keeping in mind that a lot of banks, for governance reasons, will already have been holding in excess of the regulatory requirement. So it's not as if most of the banks will have to come up with this money suddenly - it'll already be there and available. That's not to say that it's not a large amount of money in absolute terms, but relatively speaking if they were to reduce their loan origination for the year they have to come up with the money be something like 2-3% they'd be totally fine. That's not exactly going to kill the economy.
- gpvos 8y agoThe problem is that many banks are too big to fail. So we increase the reserves that banks must keep to protect against economic shocks. Result: small banks cannot manage anymore, no-one can enter the financial arena, more banks are too big to fail.
- occamrazor 8y agoActually the regulations already prescribe additional capital requirements for larger institutions, the so called SIFI.
- Bucephalus355 8y agoDoubling capital buffers providers surprisingly little protection. I can’t criticize the move but still, in an era of fractional banking where investment banks (really hedge funds that have a banking license) are leveraged 30 to 1 on a good day...things can get bad quickly.