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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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Anti-terror laws abused again for non-terriorst purposes Thursday, October 09, 2008

After the use of terror suspect laws by the US authorities to extradite UK bankers in connection with Enron, the UK Government has followed suit by using the 2001 Anti-Terrorism, Crime and Security Act, passed after the September 11 attacks, to freeze Landsbanki’s estimated £4bn UK financial assets.

The reason for the seizure is to prevent the repatriation of assets back to Iceland and to allow the Government to recoup sums to cover the Icelandic Deposit Protection payment shortfall.

There are reportedly 300,000 Landsbanki depositors in the UK who will be hoping to get the same protection as those in Icesave.

Whilst the motives of the Government may be "pure" and their inventive use of law may have achieved the best outcome for UK plc, I am greatly concerned that laws enacted to provide Government with sweeping powers are being used for a purpose other than that which they were intended.

When passed into law, Government Ministers were undoubtedly providing assurances about why such laws were required [not including banking crisis], how they would obviously be responsible in using such laws to fight terrorism and laughing off concerns about the potential misuse of sweeping powers - much like the debate over detention without charge for 42 days has played out.

Labels: Iceland, Icesave, Landsbanki, UK Government

posted by John Wilson @ 8:36 AM Permanent Link ,

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Enough to make you scream Wednesday, October 08, 2008

UK - London - The City: Bank of England and Fi...

Image by wallyg via FlickrThe growing clamour for interest rates to be cut rather misses the point.

The Bank of England can set the Bank Base Rate i.e. the rate at which it will transact with banks. However, the rate at which banks lend to each other is higher than this to reflect the additional risk (know as LIBOR rate). Presently the differential between the base rate and LIBOR is approaching several hundred basis points (100 basis points = 1%) rather than the usual handful of basis points.

Yet banks are refusing to lend to each other regardless of the "price", other than overnight, because of the perceived risks and uncertainty overshadowing counterparties - reducing rates in such circumstances doesn't remedy that.

At the same time as not lending to each other, banks are not lending to corporates or individuals because in the current climate they are hoarding cash to meet immediate and future claims on them by savers/depositors.

For savers, safety has become of paramount importance more so than the rate paid - previously savers "assumed" banks were all reasonably safe and hunted round for the highest rates e.g. depositing funds with Icesave. Now, regardless of the rate offered they are unwilling to deposit funds with institutions they consider "shaky", which in turn chokes off the supply of funds that can be lent.

A shortage of funds available to lend results in rationing and price ("rates") is the mechanism for this. A shortage pushes prices up and not down.

Unfortunately the public's understanding remains linked to a past [4 weeks ago or more] when credit was in abundance and you simply needed to reduce interest rates to stimulate the economy and turn the credit taps on. Hopefully, you are better informed.

Labels: bank of england, Icesave

posted by John Wilson @ 8:36 AM Permanent Link ,

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Icesave accounts have been frozen Tuesday, October 07, 2008

Following the nationalisation of Iceland's second largest bank, Landsbanki, its' UK internet banking arm which has the unfortunate name of Icesave has frozen all activity on accounts.

Its' home page has the simple and concise message

We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly.

The internet bank is covered by the UK Deposit Protection Scheme, which protects each customer for up to £50,000 [changed from £35,000 today].

For the superstitious amongst you, the jinx of Newcastle appears to have struck again - Icesave's contact details indicate that it is the location of their processing centre, as well as being home to Northern Rock. Worryingly, whilst they disagree on the location of the postcode given for Icesave of NE28 5AL (Microsoft can't even find that postcode!), Google maps suggest the Bank is in the middle of a housing estate near Wallsend.

On a related note, some funny emails doing the rounds on several themes related to the crisis

Mums in trouble with their families for going to Iceland, a twist on the foodstore slogan, with Fathers quoted as saying they always knew its' business model was on slippery ground
Mock-ups of queues forming outside Iceland stores as shoppers panic about its' possible collapse
Questions in banking circles about why no-one realised their was something fishy about Iceland and whether their Govt can revert to any slush funds