Monday, 9 April 2012

Mis-selling Derivatives ? Do Let's Grow Up

OK, first up there are laws about this stuff and no bank should be selling derivatives to any person or organisation deemed incapable of understanding them properly. Know your customer and all that. But an interest-rate collar to a commercial enterprise ? It's pretty simple stuff, despite Robert Peston's silly attempt to make it sound complicated.

An 'asymmetric cap and collar' ? Do us a favour, Pesto, it's a collar (or a cap and floor, same thing), and the asymmetry has nothing to do with the issue. The premium sounds ridiculously steep and it's that which raises the eyebrows, not the collar itself. But who knows what the credit-risk looked like for Barclays on the floor leg ? And how would a basic swap have been priced to the same customer at the same time ?

If Barclays have indeed screwed up on 'know your customer', the deal will be unenforceable anyway. So one presumes that technically speaking, they haven't.

Move along, nothing to see here.

ND

4 comments:

Lord Blagger said...

So lets see. What about mortgages?

Fixed rate - oh dear that's an interest rate swap. Lets ban

Capped mortgages - oh dear - derivative lets ban it.

Floored - ditto

Want to repay early? - Oh dear you've got an option there. We'll have to ban that too.

Approval for a mortgage? Oh dear that's an option on a mortgage. We'll have to ban that too.

...

rwendland said...

I thought Peston's main point was that in the past too many small businessmen naively thought the Bank had thier business' interests at heart ("having banked with Barclays all his working life, he assumed the bank was serving his best interests "), rather than selling what made the most commission/profit for the bank.

In that he has a point that small business needs to get with it with modern capitalism. And maybe employ (trustworthy?) consultants from time to time!

Steven_L said...

no bank should be selling derivatives to any person or organisation deemed incapable of understanding them properly

They are still flogging these 'structured capital at risk' things you kindly explained to me in the dark days of early 2009 are you selling them a put warrant.

Anonymous said...

It's a small point but HMG, through NS&I still sell that old passbook.

It pays 0.2 % interest. An amount anyone could get on a basic current account rather than a Savings account.

NS&I never encouraged their savers to find something better. Why should thy?

(this account is coming to an end very soon. We may find out how millions of them there are. I would guess 2-3 million accounts)