Anglo Irish Nationalised - so much for 100% deposit protection Friday, January 16, 2009
Deposit protection schemes are supposed to re-assure savers that their deposits are [mostly] safe. In recent months, combined with actual interventions to demonstrate support, many national schemes have been improved to remove any risk for most depositors e.g. UK Govt protected 100% of Icesave Bank and Irish Govt guaranteed 100% of Irish bank deposits.
Yet even a 100% guarantee doesn't seem to have deterred savers from making large scale deposit withdrawals from Anglo Irish Bank if reports are to be believed. Ireland's third-largest lender, who were also offering some of the best sterling savings rates, was nationalised last night, following a dramatic decline in its' share prices as concerns mounted and ahead of an assumed "run on the bank" perhaps fuelled by comments of the Irish Opposition Leader.
This has considerable ramifications for deposit protection policy since if savers aren't assuaged by a 100% guarantee, preferring to grab their cash rather than "take any chances", what else can Governments do? I confess that I don't have a ready answer for those banks remaining in private ownership, since it appears savers will continue to have doubts unless a bank is actually Government owned, at least for now. As I wrote here, I thought the Irish scheme, would actually be sufficient to pull in savers from the UK given the "better protection" apparently offered. Evidently Irish savers didn't share my confidence.
Anglo Irish had recently hit the headlines when its' Chairman had been found to have received enormous loans from the bank which had not been declared because of window dressing transactions around the Bank's financial year end. It was also considered to be the Bank most exposed to Ireland's property market collapse and had appeared in Cazenove's most at risk league table here.