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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.

Labels: Anglo Irish Bank, Deposit Protection Scheme, Icesave

posted by John Wilson @ 11:30 AM Permanent Link ,

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London Scottish Bank closes Monday, December 01, 2008

Over the weekend, London Scottish Bank was forced to close as it no longer met the FSA's threshold conditions for authorisation.

The Government has announced that no depositors will lose any money regardless of the size of their deposits, including those over the deposit protection threshold.

Labels: Deposit Protection Scheme, Financial Services Authority

posted by John Wilson @ 1:46 PM Permanent Link ,

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Inconsistencies in asset protection schemes may cause flights to safety Monday, October 06, 2008

With national Governments in Europe independently determining investor protection schemes on the fly, worries are rightly being raised about regulatory arbitrage causing flights to safety e.g. money being switched to Germany or Ireland, who are reportedly offering 100% protection, from countries like the UK with capped schemes.

Oddly, yet to come into the spotlight is the differential on protection that is offered between banks and other financial institutions that are holding investor wealth such as Stockbrokers, Insurers and Independent Financial Advisers.

When the spotlight of the mainstream press turns on this, it may cause similar investor panic and force a widening of the guarantees being offered by Governments.

Labels: Deposit Protection Scheme, Federal Deposit Insurance Corporation, Financial Services Authority, Financial Services Compensation Scheme, FSA

posted by John Wilson @ 9:35 PM Permanent Link ,

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HBOS and the Deposit Protection Scheme Thursday, September 18, 2008

Image via WikipediaSadly I am marked out in our family social circles [school parents and friends etc] as someone who allegedly knows about technology matters [translation - "you can fix my computer/printer/network"], and similarly knows about Finance. Consequently, the last few days have invariably involved answering questions about a) what's going on in the City and share prices and b) is my money safe with XXXXX.

Listening to people, common misconceptions and superficial knowledge abounds, much of which has been recycled from the "popular" press e.g. the evils of short sellers, the fault of the banks in giving too much credit [setting aside that many people benefited from loose credit in the economy], derivatives being the cause [ask people what they are referring to or to define them and the conversation stops], speculators / hedge funds being villians.

I confess that I have greatest difficulty answering b), partly because the repercusions of a wrong answer are immense. Hence, I've tended to limit my answer to "Go to a big institution - the bigger the better for now". HSBC, Barclays Bank, RBS and LloydsTSB probably count as too big to fail, but it's getting harder to make that call. I've supplemented this with the guidance that diversifying deposits between institutions is wise, and if you are particularly concerned then have regard for the amount covered under the Deposit Protection Scheme in the UK.

The Scheme covers up to a limit of £35,000 per customer for the total of their deposits with an organisation, regardless of how many accounts they hold or whether they are a single or joint account holder [a joint account for 2 people counts as 2 customers in this regard]. The scheme also nets off deposits against any loan balances i.e. any monies owed on a mortgage or overdraft will be offset against any deposits and the net amount covered under the scheme.

However, the sting in the scheme covers the word "organisation". Different banking groups operate slightly different structures. In the case of RBS, which also owns the NatWest brand, these legally operate as distinct organisations for the purposes of the scheme. However, Halifax, Bank of Scotland and Birmingham Midshires, which are all part of the HBOS Group, only count as one organisation [Bank of Scotland plc] - all the brand names are Divisions of the same organisation.

This subtle distinction is not obvious to the "man in the street" and if you asked customers of these Divisions who their deposits were with placed with, I am confident that a sizeable majority would answer with the brand name. By extension of this, it is likely that by virtue of historical arrangements or ignorance, some customers will indeed have separate relationships with different parts of the HBOS without realising they are dealing with the same entity.

Importantly, you couldn't blame them for such an error. Inspecting several of the websites of the HBOS group that accept deposits, only Birmingham Midshires makes clear on its' home page that it is a Division of Bank of Scotland plc. In contrast, no reference is made to this on the Halifax home page, despite its' significance - you have to check the Contact Us section in one of the footer links to find this.

To their credit, the BBC have been reporting this issue for several months, including today.