What happens if a bank goes bust?

formulaonefan

What happens if a bank goes bust? lets say for example: Kaupthing edge. There are articles online about their credit worth and they have borrowed 400% etc. etc. What if they go bust?

I know that as FSA approved bank your money is protected up to £35,000/- but no one has ever posted any answers to the following questions:

1. How long will it take to get our money back if a bank goes bust?
2. Who do we contact to get our money back?
3. What evidence do we need to provide to get our money back? for example: kaupthing edge savings is online based company. If they go bust I'm sure their website will not be accessible, then how do we prove how much we had etc? Do you guys take printout of your balance? Do you guys have print-out of account number etc?

I just feel there are lots of unknown and it could become quiet stressful and have to go through lots of process to get our money back and could take as much as 6 months before we get our money back.

Sorry for all the doom and gloom. I just would like to be prepared for the worst and HOPE for the very best. Recently lots of companies are going bust and people are getting caught by surprise (i.e. XL and XOOM). I have a feeling many more to come.

How have you prepared for the worst?

Cranston_2

formulaonefan wrote: »

How have you prepared for the worst?

Yes, my money is with banks that have very strong balance sheets (Abbey and HSBC).

Firstly, I don't expect any bank to go bust.

But if one did go bust check out what happened to BCCI which was closed down in 1991. Years of legal action followed and depositors lost a large % of their money. Stress beyond what you can imagine.

formulaonefan

Cranston wrote: »

Yes, my money is with banks that have very strong balance sheets (Abbey and HSBC).

Firstly, I don't expect any bank to go bust.

Check out what happened to BCCI which was closed down in 1991. Years of legal action followed and depositors lost a large % of their money.

That is very wise in the current economy. Never know which ones goes bust, do we?

Cranston_2

formulaonefan wrote: »

. Never know which ones goes bust, do we?

Yes, if you watch the stock market closely you will know which banks are the ones to avoid.

The banks that suffer the biggest declines in their stock prices are the most risky. Compare the Alliance & Leicester, Northern Rock, Bradford Bingley etc stock chart to that of HSBC.

formulaonefan

Cranston wrote: »

Yes, if you watch the stock market closely you will know which banks are the ones to avoid.

The banks that suffer the biggest declines in their stock prices are the most risky. Compare the Alliance & Leicester, Northern Rock, Bradford Bingley etc stock chart to that of HSBC.

Any link please?

Cranston_2

Here are links to charts.

A&L

HSBC

Bradford Bingley

Bco Santander - Abbey's owners

Masomnia

Stock isn't necessarilly the best way to decide which to avoid. Lehman Brothers would have looked pretty safe a few days ago by that measure.

In mentioning BCCI you're neglecting that they collapsed in 1991, when the FSCS was not in effect. The whole process would be very different today.

The truth is, no one really knows because it hasn't happened, no one's had to claim from the FSA as far as I know.

The government wouldn't let it happen anyway, the financial implications would be huge.

Cranston_2

Masomnia wrote: »

Stock isn't necessarilly the best way to decide which to avoid. Lehman Brothers would have looked pretty safe a few days ago by that measure.

Lehman brothers stock chart link.

Feb 2007 Lehman's stock was above $80, in July 2008 it went below $20 - a 75% decline. You may have seen Lehman stock as safe a few days ago but I and many others did not.

Stock price as a predictor of corporate profitability is not perfect but I argue it is the best indicator available

LongTermLurker

formulaonefan wrote: »

1. How long will it take to get our money back if a bank goes bust?
2. Who do we contact to get our money back?
3. What evidence do we need to provide to get our money back? for example: kaupthing edge savings is online based company. If they go bust I'm sure their website will not be accessible, then how do we prove how much we had etc? Do you guys take printout of your balance? Do you guys have print-out of account number etc?

(4) How have you prepared for the worst?

1) No-one knows, because it's never been tested, but the assumption is it could be around 6 months - yes, frustrating and stressful indeed.

2) The banks (I assume) would advise that but (I would assume) you would hear full details in the press/news/FSA website; in any case, it would be somewhere within the FSA/FSCS

3) You should have your account number in an introductory letter. In any case, it would be sensible to record that or print out the basic account page. As to proving the amount, if the bank went bust it wouldn't be to its benefit to disguise the figures - it has no money, so 1 billion or 10 billion makes no difference. You would have to trust their accounts, certainly, unless you could prove some other way - I record all transactions on a piece of paper, so if I say I paid £100 in on 10 Jan, then I can prove that £100 went out of my other bank to that account number on 10 Jan. Because you can only withdraw to your linked account, you will alos have evidence of what has been withdrawn.

4) Don't put all your eggs in one basket - if you have £30k, although it would be covered by one bank, if that bank failed you would lose access to 100% of your savings for about 6 months and it wouldn't earn any more interest. But if you put £10k in 3 banks, you should hope to retain access to 66% of your funds in interest-generating accounts. I also wouldn't put all my money into one economy, so Icesave and KE wouldn't get 50% each either.

But if one did go bust check out what happened to BCCI which was closed down in 1991.

I'm not sure 17 year old history would be relevant; protection has hopefully improved in that time.

barak

Cranston - Your link to Banco Santander (Abbey's owners) didn't work for me - I found it at

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=uk%3Abanco+santander&sid=0&o_symb=uk%3Abanco+santander&freq=1

It certainly should be seen as well as HSBC, in contrast to the others.

isofa

This has been covered over and over again on these boards and simple search will bring up the discussion threads.

AFAIK no personal depositor has technically lost any money in a UK bank for 100 odd years.

I doubt it'll ever happen, the government has set a precedent by wading into the NR situation. Barings and BCCI can't be compared in the same discussion - as I said searching the forum will explain why.

I have absolutely no concerns about this issue, the risk is minuscule IMO despite the financial climate. Far more chance of getting hit by a bus!