Science, People & Politics, First volume (i-iii), volume iii, issue 6, Nov.-Dec., 2008.

Banking in a troubled climate

When I left The University of Leeds in 1980 I moved to London to start a new job. I needed money. So I went to the bank to borrow some. The manager at the Leeds University branch of NatWest (the meaning and job description of a bank manager has changed quite a lot since those days) looked at the job, the salary (it was low) and where I was going to live. He said yes they could lend me some money but suggested first that I ask my family. He pointed out how expensive London is and that I would not have to pay my family interest. There-in lies the difference between borrowing (no interest) and a business transaction where one pays for the privilege of using money belonging to someone quite unknown to oneself.

If the bank manager was thinking of my long-term prospects he did not actually say so, and anyway this was a short-term loan. My prospects actually were quite good in a modest sort of way, and have on occasions been good, even though, as it happens, things have not quite unfolded as I had every reason to envisage they would, and at the end of 2006 I went through bankruptcy. A bankruptcy which has nothing at all to do with the current credit crunch or irresponsible lending by banks or irresponsible borrowing by me etc

Perhaps the bank manager's words in 1980 sound now to be patriarchal but at the time I did not hear them as such. I explained that sensible as what he suggested was it was not feasible, and so he okayed the needed loan.

Then a few years later I needed to borrow money for a mortgage. I seem to recall that two and a half plus one was at the time the standard rate, ie that what one could borrow was determined by two and a half times the salary of one borrower plus one times the salary of the second borrower. If such a loan is granted near the beginning of a career that gives both borrowers freedom and does not tie them to one job or lifestyle for life.

I doubt there is a borrower or a lender in the UK not trying to figure out why the ratios changed and just what we were all thinking about whilst the transition happened. In the circumstances it is not at all surprising that in June a 2008 report (Mid-year economic outlook on the Euro area 2008-2009) the European Banking Federation reported that some banks were reverting to a traditional model of doing business, and encouraging deposits.

Excellent - as long as you live in a country with a stable currency that holds its value and are doing business with other countries where there is not a massive exchange rate fluctuation between your currency and theirs.

What constitutes a massive exchange rate fluctuation from one's own business perspective obviously depends on how much one is buying or selling from that country. So, doubtless there are companies all around Europe wondering just where in the range of Euro-dollar exchange rates for 2009 the needle will actually stick. The European Banking Federation June report said that forecasts of the dollar-euro exchange rate for mid to late 2009 range from Euros 1.25 to the dollar to Euros 1.5 to the dollar. Quite a difference, so worthwhile I suppose to have dollar and Euro and sterling accounts and to forward buy now goods and services which one knows one can afford and if one trusts one's supplier to still be there in 2009, and to make the purchase with cash already in the bank (not credit), just to take the edge of uncertainty out of life in 2009. That also might just help those without cash in the bank now for forward purchasing by helping to keep prices stable in 2009. It might just reduce business for the bankruptcy courts.
Helen Gavaghan.

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