Derek Louden

Abbian House

Tower Street

Tain

Ross-shire

IV19 1DY

Tel: 01862 892734

Mob: 07876 774412

Email:

LoudenDW@aol.com

Dear Sirs, 09 Sept 2014

Unlimited Credit for Casino Banks – Who voted for that?

In June at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the

Mansion House, London the Governor of the Bank of England, Mark Carney, a former

employee of merchant bank Goldman Sachs extended the right to borrow from the Bank of

England in a time of crisis to the so-called "Shadow Banks" who are the market makers.

He said:

"Just as there will be times when central banks must backstop the banking system, there are

also times when they should backstop core markets in a way that supports their contribution

to the real economy but doesn’t encourage excessive risk taking.

That need was behind the recent transformation of the Bank of England’s sterling market

framework for banks, and it is why I can announce that, in the coming year, the Bank will

widen access to our facilities to include the largest broker-dealers regulated in the UK and to

those central counterparties authorised to operate in UK markets. We will also look into

whether we should further develop our capacity to lend in currencies other than sterling."

These changes mean that the Bank of England will be on the hook for losses incurred by

central counterparties and market makers when we hit a time of crisis.

What risk have we taken on and who are these "shadow banks"?

The risk was quantified in an article in the Financial Times which ran a series of articles on

shadow banking in June this year:

http://www.ft.com/indepth/shadow-banking

In this editor Patrick Jenkins and Sam Fleming wrote that the Financial Stability Board stated

that shadow banking had grown from global assets of $26.1Tn in 2002 to $71.2Tn in 2012.

(Financial Times, 17th

June 2014)

That's the risk we're extending credit to cover our share of in a crisis.

Hands up who knew that?

The following is taken from the FSB annual review Nov 2013:

http://www.financialstabilityboard.org/publications/r_131114.htm

My second question was who are these "shadow banks"? This proved impossible to

determine. There is no sign of a list on the Bank of England's website or on that of HM

Treasury. I've attempted to list the firms I think are covered and have uploaded this to

SlideShare. I've no idea if it is accurate but hopefully it will be corrected if it isn't.

If Mr Carney gets this wrong and the banks prove unreliable then the UK will be bankrupt.

I'm not sure the UK parliament approved this. I think this was concocted in the City and

pushed through without reference to any democratic institution. George Osborne didn’t

correct Mark Carney’s statement which must then have met with his agreement. Is this

another example of why we're "Better Together"?

The Central Counterparties are (I think):

1) European Central Counterparty Limited - acts as a central clearing house for equities,

ETFs, Currency ETCs and Depositary Receipts. The trading company has made losses every

year since 2008 & consequently has paid no tax in the UK. It has a positive cash flow since

additional share capital is issued each year to cover the losses. It appears to make gross

profits as it has a positive working capital position but ends up making losses once its parent

company takes management fees and intellectual property charges. It is not clear if the

business is continuing to trade in the UK or if it has moved its operations to Holland where

a new company has been incorporated.

2) CME Clearing Europe Limited - deals with Over the Counter (OTC) commodity

derivatives and interest rate swaps. The trading company has made losses in the last two

years reported & consequently has paid no tax in the UK. It has a positive cash flow since

additional share capital is issued each year to cover the losses. It appears to make gross

profits as it has a positive working capital position but ends up making losses once its parent

company takes management fees and intellectual property charges from, as might be

suspected, an offshore tax haven (Luxemburg).

3) ICE Clear Europe Limited - deal with energy and commodity contracts and European

credit Default Swap transactions. The trading company has made profits in each of the last

five years reported & has paid significant amounts of corporation tax in the UK. It has a

positive cash flow. It has c £15Bn in Current Assets and in Current Liabilities and although

the cash pile has climbed in recent years any market collapse would rapidly deplete this.

Profits in large part are paid out to shareholders in the year in which they are earned. The

Bank of England would take a proper bath if something like this went under.

4) LCH Clearnet Limited - deals with Interest Rate Swaps, repos, equities and commodities.

The trading company has made profits in each of the last five years reported & has paid

significant amounts of corporation tax in the UK. It has a positive cash flow. It has c £370Bn

in Current Assets and c £365Bn in Current Liabilities and their cash pile has climbed in

recent years.

5) LIFFE Administration and Management Ltd - deals with Exchange

Traded interest rate products, equities, index and commodity derivatives but trades via ICE

Clear Europe Limited. This business is profitable and pays its taxes.

The larger Broker/Dealers that Mr Carney is proposing to insure are:

Gilt Market

Market Makers and Inter Dealer Brokers

This page provides the names, postal addresses and website addresses for the Gilt-edged

Market Makers (GEMMs) and Inter Dealer Brokers (IDBs). A Gilt-edged Market Maker is a

primary dealer in gilts and actively trades in either conventional gilts, index-linked gilts or

both. Inter Dealer Brokers act as intermediaries for anonymous trading between market

makers.

Gilt-edged Market Makers

Conventional and Index-linked Market Makers

Barclays Bank plc† 5 The North Colonnade

Canary Wharf

London

E14 4BB

www.barclays.com

BNP Paribas (London Branch) 10 Harewood Avenue

London

NW1 6AA

www.bnpparibas.com

Citigroup Global Markets Limited Citigroup Centre

33 Canada Square

London

E14 5LB

www.citigroup.com

Credit Suisse Securities One Cabot Square

London

E14 4QJ

www.credit-suisse.com

Deutsche Bank AG (London Branch) Winchester House

1 Great Winchester Street

London

EC2N 2DB

https://gm-secure.db.com

Goldman Sachs International Bank Peterborough Court

133 Fleet Street

London

EC4A 2BB

www.gs.com

HSBC Bank PLC† 8 Canada Square

London

E14 5HQ

www.hsbcgroup.com

Jefferies International Limited* Vintners Place

68 Upper Thames Street

London

EC4V 3BJ

www.jefferies.com

JP Morgan Securities PLC 25 Bank Street

Canary Wharf

London

E14 5JP

www.jpmorgan.com

Lloyds Bank plc 25 Gresham Street

London

EC2V 7AE

www.lloydsbankcommercial.com

Merrill Lynch International Financial Centre

2 King Edward Street

London

EC1A 1HQ

www.baml.com

Morgan Stanley & Co. International plc 20 Cabot Square

Canary Wharf

London

E14 4QW

www.morganstanley.com

Nomura International plc One Angel Lane

London

EC4R 3AB

www.nomura.com

Royal Bank of Canada Europe Limited Thames Court

One Queenhithe

London

EC4V 4DE

www.rbccm.com

Royal Bank of Scotland† 135 Bishopsgate

London

EC2M 3UR

www.rbsmarkets.com

Santander Global Banking & Markets UK 2 Triton Square

Regent's Place

London

NW1 3AN

www.santandergbm.com

Scotiabank Europe plc 201 Bishopsgate

London

EC2M 3NS

gbm.scotiabank.com

Societe Generale Corporate & Investment Banking SG House

41 Tower Hill

London

EC3N 4SG

www.sgcib.com

The Toronto-Dominion Bank (London Branch)* 60 Threadneedle Street

London

EC2R 8AP

www.td.com

UBS Limited 1 Finsbury Avenue

London

EC2M 2PP

www.ubs.com/investmentbank/

Winterflood Securities Limited†* The Atrium Building

Cannon Bridge

25 Dowgate Hill

London

EC4R 2GA

www.wins.co.uk

† Strips Market Participant

* Retail GEMM

Inter Dealer Brokers

BGC Brokers L.P. One Churchill Place

Canary Wharf

London

E14 5RD

www.bgcpartners.com

BrokerTec Europe Limited 2 Broadgate

London

EC2M 7UR

www.icap.com

Dowgate 6th Floor

Candlewick House

120 Cannon Street

London

EC4N 6AS

www.ksbb.com

GFI Securities Limited 1 Snowden Street

London

EC2A 2DQ

www.gfigroup.com

ICAP WCLK Limited 2 Broadgate

London

EC2M 7UR

www.icap.com

Tullett Prebon Gilts 155 Bishopsgate

London

EC2N 3DA

www.tullettprebon.com

1. The role of Gilt-edged Market Makers and Inter Dealer Brokers is described in the DMO

publication "A guide to the roles of the DMO and Primary Dealers in the UK government

bond market".

2. The DMO is not responsible for the content of external websites linked to or referenced

from the DMO server. The DMO neither endorses the information, content, presentation, or

accuracy of such websites, nor makes any warranty, express or implied, regarding these

external websites.

http://www.dmo.gov.uk/index.aspx?page=Gilts/Gemms_Idb

For Commodity Broker Dealers, the following list is attached:

Abacus Trading Co Ltd 1138 High Road London United Kingdom

Amalgamated Metal Corporation Plc 55 Bishopsgate London United Kingdom

Amalgamated Metal Trading Ltd

55 Bishopsgate London United Kingdom

Amt Futures Ltd 55 Bishopsgate London United Kingdom

Armajaro Coffee Ltd 16 Charles Street London United Kingdom

Armajaro Securities Ltd 16 Charles Street London United Kingdom

Arzak Global Securities Limited 32 Athol St Isle Of Man United Kingdom

Bache Commodities Ltd 9 Devonshire Sq London United Kingdom

Benn Commodities Ltd Eastfield House, North End Lane Orpington United Kingdom

Bimax Plc 11 Hollycroft Avenue London United Kingdom

Bnp Paribas Commodity Futures Ltd 10 Harewood Avenue London United Kingdom

Brandler (U K ) Ltd 20 Grove Place Bedford, BEDS United Kingdom

Britannic Trading Ltd 1 Broad Gate London United Kingdom

Bycen Ltd 7 Torkington Rd Cheadle United Kingdom

Cantaloupe (London) Ltd Flat 21 King Regent Place London United Kingdom

Capita Financial Group Ltd 2 The Boulevard Leeds United Kingdom

Capital Assets 13 Great King Street Edinburgh United Kingdom

Cargill Finance Ltd Knowle Hill Park Cobham United Kingdom

Caters Choice Parkdale House Huddersfield United Kingdom

Cenkos Channel Islands Limited Hirzel Court Guernsey United Kingdom

Coach Broker Coptic House 4-5 Cardiff, S GLAM United Kingdom

Commodity Universal Ltd Cambridge Court London United Kingdom

Compliance & Derivatives Consultancy Ltd High Westgarth Richmond United Kingdom

Consolidated Tin Smelters,Ltd 55 Bishopsgate London United Kingdom

C R S Framley Cottage Shrewsbury United Kingdom

C S Commodity Solutions Ltd Renshaw Barns Salisbury, WILTS United Kingdom

Dalehead Trustees Ltd Ebenezer St Austell United Kingdom

Donaldson, Lufkin & Jenrette International One Cabot Sq London United Kingdom

Duggan, Jonathan Po Box 167 Woodbridge United Kingdom

Futter Commodity Brokers 26 Greengate Dereham United Kingdom

Glencore Energy Uk Ltd 50 Berkeley St London United Kingdom

Glencore Uk Ltd 50 Berkeley St London United Kingdom

Global Mortgage Services Ltd 7 Eddleston Avenue Newcastle Upon Tyne United Kingdom

Gold Buying Centre Halifax 34 Market Street Halifax United Kingdom

Goldenberg Hehmeyer & Co 50 Bank St, 3rd Floor London United Kingdom

http://www.manta.com/world/Europe/United+Kingdom/commodity_contracts_brokers_and_dealers--

A10DD/

The Wholesale Market Brokers Association has the following members. Please click on a

link to access details about its member firms

BGC Partners GFI Group Inc Gottex Brokers SA

ICAP plc Martin Brokers (UK) Ltd Reuters Transaction Services Ltd Sterling International Brokers (a division of BGC Brokers LP) Sunrise Brokers LLP Tradition (UK) Ltd Tullett Prebon Ltd Vantage Capital Markets LLP

http://www.wmba.org.uk/pages/index.cfm?page_id=3&title=members_directory

As was stated at the outset, this is unlikely to be an accurate list. I’ll be happy to update and

amend it should participants demand their inclusion/exclusion from the lists. I would be

happy to remove it entirely should the Bank of England let us in on the secret of who they are

covering and, just as importantly, to what extent.

In the meantime since there is nothing we can do at Westminster to control our risk, I’m

going to pop on a B.B. King track, pray a bit, and hope against hope and experience that the

shadow banks won’t blow up the world again. Come on B.B., “let the good times roll”.

Oh, and in case you hadn’t picked up on it, I’m voting “Yes” next week to live in a

democracy run in the interests of its people, not in the interests of its bankers.