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MSE News: FSCS - 'You won't lose a penny of protected savings'
Former_MSE_Guy
Posts: 1,650 Forumite
"With many worried amid the euro crisis, the Government's compensation arm has moved to reassure concerned savers ..."
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Why do I feel like a football manager who's just been told his job is safe?"It will take, five, 10, 15 years to get back to where we need to be. But it's no longer the individual banks that are in the wrong, it's the banking industry as a whole." - Steven Cooper, head of personal and business banking at Barclays, talking to Martin Lewis0
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The major downside to losing my £85k for 7 days would be where to put it afterwards that pays a half decent rate of interest.0
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We can always borrow from the government,
who can always borrow more money.
It's a good thing his name isn't Papadopolous.0 -
We/HMG can always print as much money as we like as we have our own currency
...unlike G-Pap0 -
There's a horrible moral hazard in the 100% FSCS guarantee scheme. Lets illustrate with an example which whilst taken to extremes and therefore hypothetical illustrates what is really going on:
Mr Greedy saves his money in a 10 year fixed term bond paying 29% AER with a nearly insolvent bank - call it Papadopolous Bank (UK) Ltd.
Mr and Mrs Prudent, and all their little Prudents, save their money with the most solvent banks they can find, but unfortunately these pay less than 2% interest on their savings.
After about 3 years Papadoplous Bank (UK) Ltd inevitably goes belly-up. The following sequence of events occur:- The Prudent Family sleep well that night, knowing that their original savings are still safe;
- The next day the UK FSCS sends Mr Greedy all his original deposit and accumulated interest. He has nearly doubled his money;
- The following month the FSCS sends bills to all the solvent banks to pay for net losses incurred in compensating savers with Papadopolous Bank (UK);
- A few weeks later the Prudent's notice that their interest rates have been cut further. Their banks are squeezing savings rates in a struggle to maintain profits and solvency despite the drain on resources imposed by the FSCS.
Do we really want to encourage the behaviour of the Mr Greedys and the banks they save with? Do we really want to risk losing all our building societies by forcing them to pay for the errors of dodgy bankers?0 -
Very reassuring
the fact of the matter is if every saver in the country went into the banks today and asked for all their money, there wouldn`t be enough to pay them all.
The investment side of banking is nothing more than a gambling den and the sooner savings are completely ring-fenced the better.
Why is it taking the government another eight years to get the banks to comply?
By then it`s likely to be well watered down and the banks will continue doing what they do best, screwing everyone and paying themselves massive bonuses.0 -
Very reassuring
the fact of the matter is if every saver in the country went into the banks today and asked for all their money, there wouldn`t be enough to pay them all....
If you mean 'money' in the sense of the folding stuff well then, yes, that's pretty much true. But you could have written the same sentence and replaced 'banks' with 'building societies' or 'credit unions' and the same would be true. It doesn't really signify anything.The investment side of banking is nothing more than a gambling den and the sooner savings are completely ring-fenced the better.
Never really understood the enthusiasm for this 'ring-fencing'. Northern Rock and the Bradford and Bingley both went pop; neither were particularly well known for their investment banking arms.
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There's a horrible moral hazard in the 100% FSCS guarantee scheme....
Pretty much yes. See, for example;
The Moral Hazard Implications of Deposit Insurance Theory and Evidence
http://www.imf.org/external/np/seminars/eng/2006/mfl/pam.pdf0 -
You won't lose a penny of PROTECTED savings - yup, that is exactly what all these insurance schemes are!0
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There is another way of looking at the same example...There's a horrible moral hazard in the 100% FSCS guarantee scheme. Lets illustrate with an example which whilst taken to extremes and therefore hypothetical illustrates what is really going on:
Mr Greedy saves his money in a 10 year fixed term bond paying 29% AER with a nearly insolvent bank - call it Papadopolous Bank (UK) Ltd.
Mr and Mrs Prudent, and all their little Prudents, save their money with the most solvent banks they can find, but unfortunately these pay less than 2% interest on their savings.
Papadopolous Bank's is having a liquidity problem so offer higher interest rates to attract cash and bring their finances under control. Mr Greedy moves his money there and in doing so helps stabilise the bank.
Mr & Mrs Prudent meanwhile hear rumours of problems at the bank, withdraw all their money in a panic and give it to a different bank that doesn't need it (and hence pays poor interest rates).
Looking at it from that viewpoint Mr Greedy is helping save the bank while Mr & Mrs Prudent are doing their best to kill it.
There may be moral hazard but it is not as clear cut as you make out.
The only moral hazard I see is investment arms of banks being able to borrow money at low rates to gamble with because the lenders know governments will be forced to prop them up to save their retail arms and protect savers if the gambles don't work out. That is why there should be separation between the two and why the banks are fighting it because the investment arms will stop being so profitable if they have to borrow at real market rates where lenders start to price their rates to take into account the chance of default.0
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