“Why is the normal task of ensuring liquidity flows easily through the economy tightly meshed with other riskier operations? By riskier operations I don’t just mean investment banking, but also lending to other riskier banks or companies.

Just as consumer deposits are guaranteed by central banks, why isn’t lending to businesses also guaranteed in a sense, to ensure such disruption is not repeated? ”

Is that part a joke haha?

More pressure on the FS sector. Fair enough. Please don’t conflate it with scapegoating by calling it “banker bashing”.

Amazingly Sunny appears to be moving towards a more free-market position (which may be a shock to him) – basically if you borrow from the government, you get penalised by extra obligations and regulation.

Otherwise, you have to maintain your stocks of money suitably to ensure you are covered (which is what those banks not already in hock to the taxpayer would do).

Although calling it banker bashing is a bit stupid – because it is not the bankers who will suffer. It is those with less access to easy credit (as the banks need to rebuild their finances).

One question though – is this about high street banking or the city, as the two appear to be conflated in the original post?

Another reason is that bankers are increasingly nothing more than crooks. In the US the new scandal is the huge home repossessions that have been fraudulently waved through. It is now coming to light that when the banks packaged up all these loans and sold them on they lost sight of who actually owns the loans. They have been fraudulently waving through thousands of repossessions whithout any legal paperwork to back it up. Many people who were not even in arrears are losing their homes. This is not business,it is fraud.

Of course the bankers who have the crooked polticians in their pockets, will get away with it. Banking bashing has not gone far enough in my opinion. Maybe we need to start having public hangings of bankers.

what has QE got do with bank liquidity problems? How can you solve a bank’s liquidity problems by buying its liquid assets (gilts) from it?

3
Whatever regulation has been put on bankers in the past, it certainly has not constrained them from being greedy and self-interested, which is what they are supposed to be in a capitalist system.
That said, I think it’s a big mistake to bash bankers and relieving Goodwin of his knighthood only serves to give the impression that justice has been done and everything is just fine, we can just carry-on with our present economic model because the baddies have been outed.
This banker bashing jamboree is not supported by most lefties, we need to concentrate on the structural problems within the economic base not individual actors.

Why is the normal task of ensuring liquidity flows easily through the economy tightly meshed with other riskier operations? By riskier operations I don’t just mean investment banking, but also lending to other riskier banks or companies.

Um, why is bank lending so tightly meshed with bank lending?

There are a million and one criticisms of the wider financial sector beyond simply ‘ bankers ‘ that are perfectly valid. What is objectionable is when you personalise and demonise by appealing to the baying mobs basest instincts. There is nothing ‘ progressive ‘ about scapegoating people just because of the type of industry they are employed in.

“Just as consumer deposits are guaranteed by central banks ”

Deposits of up to £85,000 are guaranteed by the Treasury as a free insurance subsidy for liquid savers. Moreover, the same people do nothing but whine about their rate of return on the taxpayer guaranteed deposits. Considering the current poor demand for credit, there is no reason why anyone should get any positive return from taxpayer guaranteed savings. If they want a positive rate of return they should put their money to work in productive investments and not in liquid deposits.

“… why isn’t lending to businesses also guaranteed in a sense, to ensure such disruption is not repeated? ”

http://www.bbc.co.uk/news/business-15908514

http://www.4-traders.com/news/UPDATE-BOE-Posen-MPC-Could-Buy-More-Than-Just-Gilts–14001456/

If there is a problem with business obtaining credit, and I’m not 100 per cent sure there is a problem, it is small businesses where the problem lies. Big business can easily access finance through equity, bonds, commercial paper and bank debt. Not being happy at the price of credit is not the same as being unable to obtain credit. That appears to be the complaint from small businesses. However, there has been a general repricing of risk and that is why the risky have to pay more for credit.

What is badly needed in the UK is the development of a bond market for small caps. American commentators are regularly amazed that the UK with such an advanced financial sector hardly has a bond market for SME worth speaking about. That could be part of the reason why the SME find it more difficult to grow in the UK compared to the U.S. Our SME dependency on bank debt is an over dependency as we have found out with impaired banks.

Guaranteeing lending to businesses is a bit different to guaranteeing deposits, because there’s a risk of default with lending but no risk of default with deposits (because there’s nothing to repay). So guaranteeing the provision of loans by law is dubious. Effectively ensuring that more lending takes place by taking full control of the banks would be the logical answer there.

Of course, an publicly-controlled arms-length banking sector would be the logical answer to a lot of the ongoing hand-wringing about banks. But because I’m applying logic, rather than all manner of discredited economic ‘theories’, I therefore have no idea what I’m talking about…

You talk as if the bankers now in place are the same bankers whose risky behaviour caused the crisis.

Fred the Shred is out on his ear.

Everyone at Lehmans lost their jobs.

Rachel Reeves (Halifax/HBOS 2006-9) is in the Shadow Cabinet.

Why punish an innocent successor generation?

@OP, Sunny: “The city receives an extraordinary amount of attention for such a small sector. According to the Times last week the City of London was worth only 2.8% of our GDP.”

It’s not the 2.8% of GDP that is most important. What really makes a difference to the UK is what is done with the money that circulates in the banking system, the money that is loaned to companies etc.

The turnover of Transport for London is about £9 billion per annum but that figure means something only to accountants. Ordinary people appreciate the transport bit in the name.

@11 – You sure about that? Surely the ‘money that circulates in the banking system’ – I assume you mean lending – will stay here pretty much no matter what. That’s because it represents banks’ business – essentially their retails arms – and can only be conducted here.

The questions about ‘banker bashing’ revolve around the chances of them relocating their corporate locations and headquarters overseas, towards allegedly more hospitable political and fiscal climates. In other words, fleeing bonus taxes, bank levies, 50% income tax and anti-banker sentiment. That would affect the aforementioned taxes, plus corporation tax, and the staffing at UK headquarters. It wouldn’t affect the retail operations.

Bank lending in the UK is the equivalent of supermarket branches – as long as there’s a market here, those branches will remain whether the supermarket corporation is based in the UK (Tesco) or overseas (Aldi, Lidl).

“While arming myself with a degree in economics”

Really?

That makes a great deal of what you write more depressing. That you should know this stuff but that you don’t is indeed depressing.

“At the height of the crash, US banks were simply given $13bn overnight. ”

No, they weren’t. Go and read what you link to again. They earned $13 billion on overnight money from the Fed from Aug 2007 to April 2010. This isn’t the same thing at all.

“Everything could be choked off at a whim, through administrative error or for political reasons, and we wouldn’t have democratic recourse. Organisations such as WikiLeaks were simply frozen out of the global financial system at the click of a button.”

You’re claiming that the banking system is insufficiently regulated: that could even be true. But Wikileaks is an example of the regulation of the banking system, not its non-regulation. The US Govt has decided that it will (at least threaten to) withdraw the banking licence of anyone who provides payment facilities to Wikileaks. As it has done with Interpal. As it has done with Al-Qaeda.

Now, we might think it very stupid indeed to lump an odd pro-Palestinian charity and a whistleblowing website with murderous terrorists (I certainly do) but this is not an example of non-regulation. This is an example of regulatory power over the banking system.

“But pandering to the City is also hurting our economy……. also has great potential to disrupt other sectors.”

Err, yes, that’s what a financial system is supposed to do, at least in part. Finance that disruptive change, that creative destruction, which is captialism.

“Just as consumer deposits are guaranteed by central banks, why isn’t lending to businesses also guaranteed in a sense,”

Because deposit guarantees are a near essential part of fractional reserve banking. Come along Mr. Economics Degree, you know this. All banks in an FRB system are illiquid. If everyone turns up asking for their deposits back they can’t pay them. They’re illiquid, for this is what banks do, turn short term deposits into long term loans. This maturity transformation is what banks are for (as Brad Delong says, if you borrow short and lend long you’re a bank, if you don’t you’re not). This is as true of a mutually owned building society (turning deposit accounts into 25 year mortgages) as it is of Lloyds or Barclays.

Such banks may well be solvent, but they’re illiquid, and thus they are subject to runs. And we really don’t like bank runs. When solvent but illiquid institutions get turned into insolvent ones by everyone turning up and asking for their money back. Now.

Which is why we have deposit insurance for retail deposits. Why we now have the bank levy to pay for deposit insurance at those too big to fail banks.

Come along now, you know this.

“Why is the normal task of ensuring liquidity flows easily through the economy tightly meshed with other riskier operations?”

I’m trying to guess what you mean here.

here is what the word “liquidity” actually means. Liquidity cannot “flow”.

I guess you might mean:

1. ensuring the availability of credit (a very different thing from liquidity)
2. ensuring that people can withdraw cash from ATMs, debit cards, electronic payment services are operational etc. (in the same ballpark as liquidity)

as Tim J points out, 1. would amount to asking why lending is tightly meshed to lending. The subsequent sentences about guaranteeing lending makes it look like that’s what you have in mind. But it’s nonsensical.

but is your diagnosis of the ills of the current financial system really 2; that ATMs and debit cards are run by the same outfits that also engage in other “riskier operations”? well okay, I guess we need all that stuff to keep operating if banks fall over, but isn’t that already covered by regulations, and isn’t that the easy bit of dealing with financial crises – after all the deposits which we may wish to withdraw from ATMs or use via our debit cards are already insured. I’d have thought we already know how to keep payment services working whilst the parent bank goes bust.

#14. “but is your diagnosis of the ills of the current financial system really 2; that ATMs and debit cards are run by the same outfits that also engage in other “riskier operations”? well okay, I guess we need all that stuff to keep operating if banks fall over,”

Yes, if the “stuff” stopped operating then “things” would become chaotic.

“ but isn’t that already covered by regulations,”

Yes, to a degree. The cash of small depositors is guaranteed by the state.

“and isn’t that the easy bit of dealing with financial crises”

No. Guaranteeing the cash of small depositors is a simplistic solution that turns out to be the cause of a raft of other problems.

Banks facilitate the circulation of both capital and currency. Tooke regarded these as separate branches of banking:
“to collect capital from those who have not immediate employment for it”,
and to “receive deposits of the incomes of their customers and to pay out the amount, as it is wanted for expenditure by the latter in the objects of their consumption”
“One relates to the concentration of capital on the one hand and the distribution of it on the other, the other is employed in administering the circulation for local purposes of the district.” Tooke, Inquiry into the Currency Principle, pp. 36, 37.
The need to secure the circulation of currency so that people can receive their wages and pay their bills puts governments at the mercy of the banks.

Control of current accounts and cash machines give the banks the equivalent of a gun and make the rest of the population hostages.

The threat is clear:
“bail us out or the public gets it.”

Lewisham People Before Profit’s policy is to separate the essential circulation of currency from all other banking activities.

but George, we had the worst financial crisis like evah … we got a credit crunch, not a cash in circulation or payment services failure. If all we cared about was cash & payments, we could easily have let RBS & co go under whilst keeping their cash & payment services alive – letting banks go bust doesn’t mean the evaporate, they go into administration.

anyway, you might be a narrow banking advocate, but is that what Sunny’s advocating? Are we supposed to be keeping up the banker bashing until we get narrow banking?

9 Chaminda

Government guaranteeing the provision of loans is dubious, but government “ensuring more lending happens” by taking full control of the banks isn’t?

Logic fail, I fear. The dodginess of SME loans is not to do with the creditworthiness of the lending banks but the creditworthiness of the receiving businesses. It is completely immaterial whether the bank lending to the SME is privately managed or government-controlled: if the SME goes bust it loses its money either way. What you are saying in effect is that government is better at picking winners than banks are. On what basis do you make that claim?

Deposit insurance protects savers against the possibility of banks going bust. Potentially this is a MUCH bigger claim on government than guarantee of SME lending would be, and carries a raft of problems with it particularly of the moral hazard variety – which is why it is limited to £85,000. If government can afford to protect savers against the failure of banks, why shouldn’t it protect banks (and by extension savers) against the failure of SME’s?

Sunny

At risk of getting shouted down, I feel I must issue a warning about very tight regulation of “traditional” banking activities coupled with a free-for-all in anything else. Even a brief review of the history of American banking shows that tight regulation of deposit-taking and retail lending encouraged the creation of so-called “shadow banks” – companies that to all intents and purposes behaved like banks but were not subject to the same regulations. And in the US financial crisis it was these “shadow banks” particularly that got into serious trouble and required bailing out by government – even though they were not subject to government control. The UK crisis was different in that it was mainly due to excessive risk in traditional banking activities, which is why separation and tight regulation of traditional activities looks attractive, especially as in the popular imagination this would make their deposits and mortgages “safe” from the depredations of “casino banking”. But I would HATE to see the UK adopt the sort of solution that in America helped to create an unregulated monstrosity that nearly bankrupted the world economy.

#16. “we could easily have let RBS & co go under whilst keeping their cash & payment services alive ”

With the greatest respect: no “we” could not have easily let RBS & co go under.

If RBS had closed their cash machines then Lloyds would have been next closely followed by Barclays all the others including HSBC.

“The Financial Services Authority demanded 60-minute updates on cash flooding out of the bank’s branches and hole-in-the-wall machines in the days before Britain’s historic bank bailout”

http://www.guardian.co.uk/business/2009/oct/11/banking-crisis-one-year-on

There were emergency meetings at the Treasury the weekend of 11-12 October 2008. As a result £25, £45 than £75 bn. were committed.

With the greatest respect: no “we” could not have easily let RBS & co go under.

If RBS had closed their cash machines then Lloyds would have been next closely followed by Barclays all the others including HSBC.

“The Financial Services Authority demanded 60-minute updates on cash flooding out of the bank’s branches and hole-in-the-wall machines in the days before Britain’s historic bank bailout”

http://www.guardian.co.uk/business/2009/oct/11/banking-crisis-one-year-on

There were emergency meetings at the Treasury the weekend of 11-12 October 2008. As a result £25, £45 than £75 bn. were committed.

#17. “It is completely immaterial whether the bank lending to the SME is privately managed or government-controlled: if the SME goes bust it loses its money either way.”

No, because privately-managed banks are happy to let SME bankrupt so long as they get their money back. What we need are institutions that are ecommitted to the sucess of the business thay lend to.

“What you are saying in effect is that government is better at picking winners than banks are. On what basis do you make that claim?”

Privately-managed banks have no equity stake in SMEs. They have no interest in “picking winners”, so long as the entrepreneur has collateral they are happy to lend them the money to go ahead with the stupidest ideas imaginable. Once the capital is spent the banks steps in, pulls the plug, and claims the collateral.

What we need are council investment banks that have a vested interest in the success of SMEs in their area.

I agree with George Hallam that the problem in 2007/08 was that there were no legal ways to just let banks go bankrupt and keep the payment system operating. Considering at the time RBS entities were responsible for one third of all daily UK electronic payments and a quarter of all UK salaries, it is not difficult to imagine the scale of utter chaos a bankruptcy would have caused. Moreover, one bank bankruptcy massively increases the chances of the next bank going bankrupt until there are none left.

What the policymakers are trying to do now is have a system in place that allows reckless banks to fail as a company while keeping the payments system and deposits secure. That system just did not exist in 2008. Ring fencing retail from investment banking can be seen in this light. Bankruptcies in 2008 would have seen depositors spending years as creditors waiting to see how much of their money they got back. Businesses totally unconnected to banking with money on deposit would have found that they were well down the list as creditors with senior bondholders at the top. Tens of thousands of businesses would discover that they only got paid from the sale of assets after everyone else. In a fire sale of assets, buyers want to buy assets, not liabilities which businesses with money on deposit are. The scale of the innocent businesses that would have been put out of business in an RBS bankruptcy can only be guessed, but it would have surely have been in the tens of thousands. Making sure that reckless banks can fail and the innocent do not suffer with them is the objective. We certainly do not as yet have that system.

We certainly could have just let things take their course and let the whole system collapse. The more dreamy seem to think that was a valid option with strong banks coming in to takeover collapsing ones. The cavalry of the strong banks would not have come to the rescue because they would have been dead too. Most of British industry would have collapsed with the banks and we could have started again. Albeit with unemployment in the teens of millions. It was an option, just not a very realistic or appealing option.

I realise some people believe we should have done nothing. However, if we assume that the government was going to intervene. Was the type of intervention by the Labour government to inject capital and take equity stakes the best intervention? At the time it did appear to be vastly superior to the U.S. intervention of TARP. In hindsight, it was a mistake and a UK TARP would have been better. We are stuck with billions of shares that we can’t sell and the public have a sense that we lent the banks money and they are not paying it back. A toxic brew.

It is important to remember why the banks were in trouble. At the most basic level their assets were losing value and swallowing their capital. I think it was Stephanie Flanders who said that there were no toxic asset only toxic prices. That is very true. The assets were falling in price and turning toxic because the banks owned them and the banks were failing because their assets were falling in price and each was feeding on the other. The Treasury and BoE buying their falling assets from them would have prevented them needing the injections of capital and we would not now have all those billions of shares. In investment terms government is an infinite borrower or investor. Basically the government is always going to be there. Therefore, government can operate on different timescales than anyone else. They could have bought the assets and been in a position to sit on them until the assets recovered their prices. That probably would have been better than buying shares in the banks.

The main problem with the buying of assets by the government and as I understand it they did consider those things is the banks would have taken every opportunity to rip off the government. The government would have needed to have brought in at great expense some independent experts to advise them on what they were actually buying and not to overpay. With civil servants at the negotiating table the banks would have just licked their lips and smiled. John Lanchester said it best:

” It’s not just buying a pig in a poke: it’s buying a pig in a poke at a price determined by the seller, at a time when there is no market in pigs. “

#21 great post. Lots of important information.

The irony of all this is that the banks don’t make any money out of current accounts.

Supporting them requires an enormous infrastructure and lots of staff.

The banks run current accounts as a ‘loss leader’ to bring in customers for their profitable ‘products’.

A few years back the DHSS (or whatever it’s called) proposed a scheme to give the unemployed/disabled bank accounts so that benefits could be paid electronically. This would have saved the state a lot of money in administrative costs and (hopefully) reduced fraud.

The banks were horrified. They would have had millions of extra customers none of whom would have been in the market for their money-spinning products. Predictably, the scheme was binned.

I think the time has come to relieve the banks of the burden of supporting the payment system. We need a secure, state-run, enterprise like the old Giro Bank. I believe that there is a campaign to have such a Post Office-based bank.

20 George Hallam

You undermine your own argument. On the one hand you claim that banks will lend to anyone and anything because they don’t care as long as they get their money back – which can’t possibly be true, by the way, or we wouldn’t be seeing such a crisis in lending to SMEs, would we? Then on the other hand you want councils to support SMEs to prevent them going bust – in other words to carry on lending to failing enterprises long after banks would have pulled the plug. Quite apart from the obvious inconsistency here, personally I’d rather my local council didn’t waste my rates and my taxes on propping up dud businesses.

Your idea that banks should take equity stakes in the businesses they support is a good one. But that can of course be achieved within the private sector – and indeed already is, since that is how business angels operate. We need to be a little careful, however, because private equity firms of course take equity stakes in the companies they buy, but I wouldn’t exactly call loading the company’s balance sheet with the debt used to purchase the company “support”, would you?

George,

I’m not confident you are reading what I write. I write about letting banks go under whilst keeping their cash & payment operations going, you respond with “if RBS had closed their cash machines …”

Richard W

well I am surprised to learn that there was no legal framework in place to put banks into administration and keep their cash and payment systems operational. You mention the ring fencing, perhaps the Vickers recovery and resolution plans (pdf) are relevant here too.

Yes of course when banks go bust you get all manner of difficulties sorting through their creditors. I had imagined it would be possible to keep payment system operational, even if it involved nationalizing the banks in question, whilst all that was going on, but maybe I underestimate the difficulties involved.

I still think that the fact the banks run our payments infrastructure is a long way down my list of “things that are wrong with the banking system”, ought I revise my position, do you think Richard?

I’m not confident you are reading what I write. I write about letting banks go under whilst keeping their cash & payment operations going, you respond with “if RBS had closed their cash machines …”

Perhaps I misunderstood you. You wrote:
“we got a credit crunch, not a cash in circulation or payment services failure. “

True enough. But you didn’t mention the reason we didn’t have a payment services failure. I was because Brown acted to prop up RBS and HBOS.
You then went on to say:

“If all we cared about was cash & payments, we could easily have let RBS & co go under whilst keeping their cash & payment services alive.”

I doubt this. Keeping the circulation of currency going is not really the easy bit of dealing with financial crises unless you are prepared to use drastic remedies (something our political masters are not prepared to do).
If RBS had closed their cash machines then the likelihood is that there would have been a run on ALL the commercial banks including those that were theoretically safe like HSBC.

My argument is that banks effective control of circulation of currency gave them the leverage on politicians to force a short-term ‘fix’ that was a non-solution to the crisis.

George

yes, Richard suggests I underestimate the difficulties of ensuring continuity of payment and cash services when a bank goes into administration. Vickers may be dealing with this. I know we had to ensure continuity there, I had just thought it could be done whilst putting banks into receivership / nationalising them, whatever, so it wasn’t really the hold they had over us.

However there are at least two other reasons why we needed to bail out the banks, other than to preserve cash and payment services: continuing the supply of credit, the avoidance of losses for bank creditors. If you removed cash and payments from the picture, these would have been reason enough, I think. So I don’t think splitting cash and payment services off into a separate system would achieve so much.

@ 24. Luis Enrique

Yes, they can always nationalise to keep the whole system working. Politicians and their officials see that as an absolute last resort when everything else has failed. They really do not want to be running banks because then every decision of the bank has the potential to become a political row. Here was Mervyn King speaking about the shortcomings of the UK system in 2007. Remember this interview was in the midst of the NR saga and nearly a year before the main UK banking crisis.

” MK: Well it’s true that in some countries there is a system in which it?s possible to intervene pre-emptively and take the retail depositors out of the bank and transfer their accounts to another bank. And its very attractive to have that facility because if we?d have had that power that is something that I’m sure we would have exercised or the FSA would have exercised at the point when we gave the lender of last resort support to Northern Rock, because that would have prevented a retail run on the bank. We don’t have that power in Britain. We need it. That?s one of the lessons of this. So to allow Northern Rock to fail would have meant to put the bank into administration. And once the bank had gone into administration the retail depositors would have been locked into it into a process while the administrator of the banks sold off the assets and worked out how to repay the various creditors.

And the retail depositors would have been unsecured creditors, on a par with all other creditors, and it would have taken them easily a year or possibly more to get their money. That, after all, is exactly what happened in the case of BBCI and later Barings, but this was a bank with a large number of depositors it would have been a very difficult operation. It would have been deeply unfair on the retail depositors to allow them to suffer in that way, so again we need a system in this country in which we can prevent the retail depositors from being trapped. The United States has a system, Canada has a system, other countries have a system — that?s why we could not allow Northern Rock just to fail. ”
http://www.guardian.co.uk/business/2007/nov/06/21

thanks Richard. And is that power MK would like to have had part of the Vickers resolution thing? Although you talk about nationalization, I had imagined it might be possible to keep banking services up and running whilst the bank is in administration, i.e. allowed to go bust, and whilst I realise what I have been calling here “cash and payment services” cannot be separated out from the question of who is going to get their money back, I’d thought the existence of deposit guarantees would have meant most bank customers were covered and could keep using their accounts as normal. I suppose, as you say, that’s what ring fencing is all about. In which case, has this problem been addressed now and George can stop worrying?

The regulators are trying to get a system where the company can fail wiping out the shareholders and forcing the bondholders of the bank to take losses. At the same time protecting the depositors and the narrow banking services. However, English law is very favourable to bondholders and that is why many all over the world insist on English law for bond contracts. Even the EU forced English law, as opposed to Greek law on Greece.

An effectively bankrupt bank still operating as a major part of the banking system would just not work. No one would accept such a body as counterparty. The other banks owed money for settlement at a later date would seize any money they could and the whole system would grind to a halt.

Richard

Well this is well outside any area where I have any expertise, but I don’t immediately see why transactions into and out of accounts where balances are guaranteed cannot be settled, especially if there is a resolution procedure in place, backed up by the BoE and everybody knows there is a dividing line, one side of which is business as usual. Why not accept a debit card from a bust bank if you know the account balance in question is guaranteed and will be settled because that part of the bust bank is operational? Why wont the BoE provide the cash to put in ATMs when it knows withdrawals are only from guaranteed balances in account being overseen by administrators?

If other banks are “owed money for settlement at a later date”, if it’s from the bit of the bank on life support, they can have it, if it’s on the otherside of the banks they have to await the end result of the liqudation.

Sure, if the bank is big and systematically important that all the other stuff – wholesale, corporate, investment etc. – the otherside of the retail cash and payments wall, is too vital to be allowed to fail, the sure, bailout it is. But then that’s my point, in that case we wouldn’t be bailing it out because we need to keep the retail cash and payments bit operational, but for other reasons

@30. Luis Enrique: “Well this is well outside any area where I have any expertise, but I don’t immediately see why transactions into and out of accounts where balances are guaranteed cannot be settled, especially if there is a resolution procedure in place, backed up by the BoE and everybody knows there is a dividing line, one side of which is business as usual.”

That is almost certainly a logistical consideration that is not built into the software used for inter bank transfers, ATM machines etc. Yes, it could be implemented, but if it isn’t present at the time a bank goes into receivership the concept is unlikely to be of much benefit to account holders. Additionally bank workers and service providers need to understand that they will be paid on time, just like last month.