Hi, Two quick questions on Chapter 11: Page 7 of the Acted notes says: "Bank customers’ risk appetites are closely aligned with those of debtholders. Building society account holders’ risk appetites are more similar to those of shareholders." 1. Presume 'customers' refer to those with saving accounts and so are like debtholders since risk losing savings if the bank has a liquidity/credit crisis. (Assuming there is no national compensation scheme for the full savings amount). How would borrowers (eg. mortgage holders) be classified? 2. Presume that Building society account holders’ are deemed similar to shareholders since they benefit from profits (via beneficial borrowing/savings rates and occasional cash payments, such as Nationwide in May 2023). But in terms of risk appetite, would expect that account holders are more concerned about losing entire savings than missing out on these occasional side benefits (beneficial rates and cash payments). So appreciate if someone would expand on the definitions of a shareholder vs bondholder's risk appetite.
adding another question on this Chapter (11) and thanks in advance for any answers: 3. Page 15 (section 1.12: 'the general public) writes that "It can be debated whether the media, including newspapers or television, have a duty to ensure that reporting is responsible and in the public interest. Irresponsible reporting can exacerbate the reactions of those with limited access to other information or with limited expertise, and can in itself escalate problems." Personally agree with the dangers of irresponsible media but what does this have to do with SP9? (is it referring to the risk of policyholders starting boycott on social media & similar reputational risks or something completely different?)
Hi Bill, Thanks for the questions! 1. Yes, savings account customers are concerned about the ability of the bank to pay them back and so are similar to debtholders. Borrowers would be debtors, but in the list of stakeholders in the chapters would still be customers as they would still be interested in the security of the company and eg obtaining good rates on further borrowing / renewal of a fixed rate. 2. It is more that building societies are owned by their customers / members. They get a say in how the building society is run and so it is similar to a shareholder relationship. 3. It's not just the reputational risk of bad stories about an organisation, it's also that the general public will make financial decisions partly based on information in the media. If the general public reacts in a way which is not anticipated by an organisation due to misinformation / irresponsible reporting, that may increase risks. Alvin.
