Saturday, January 17, 2009

Trading whilst insolvent

Didn't we once have a quaint little law about trading whilst insolvent?

If so, it doesn't seem to apply to the banks.

British banks are 'technically insolvent'
By Ben Russell and David Prosser

Britains biggest banks are "technically insolvent", Royal Bank of Scotland said yesterday, as the global banking industry was rocked by another day of turmoil, including the announcement of $23bn (£16bn) of new losses from Merrill Lynch and Citigroup, the giant US institutions.

Analysts working for RBS, one of several British banks to have received emergency funding from the UK Government last year, told the City that "the domestic UK banks are technically insolvent on a fully marked-to-market basis".

The warning does not mean British banks are about to go bust, because the assessment is purely theoretical, and RBS said the position was "not unusual at this stage in the economic cycle".

"..the assessment is purely theoretical.." Ah, that's ok then. It's just that when I was running businesses the figures on the balance sheet, as "theoretical" as they were, formed the basis for our decisions like: whether to continue trading or risk criminal procedings.

I guess bank managers don't have to worry about such trivialities.


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