What happens if a bank goes bust?

LardyCake

What he said ^^^

edwinac_2

Masomnia wrote: »

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.

Not true.

Before the FSCS there was the ICS - the Investors' Compensation Scheme.

The ICS was established under the 1986 Financial Services Act.

The Rules of the ICS were virtually identical to those of the FSCS today.

Back in 2005/2006, I spoke with the FSA about the possible failure of another bank.

The bank was Providian Financial Corporation (I might post an article about this scandal some day since I believe the issue - Providian's lack of a *full* UK banking licence could be relevant today).

I specifically asked the FSA this question..

"If the bank goes down, how long before I get my cash under your compensation scheme?"

The surprisingly candid lady at the FSA replied..

"Don't hold your breath. We still haven't paid out any compensation to depositors who lost money from the failure of BCCI, and that bank failed in 1991!"

Cranston_2

What he said ^^^:beer:

LongTermLurker

What's with the "what he saids"? Who? Who?

LongTermLurker

and why aren't smilies working? :-(

LardyCake

LongTermLurker wrote: »

What's with the "what he saids"? Who? Who?

The "^^^"s are the clue, they point to the post above. Translated it means I agree with everything the poster above said. In my case it was isofa's post number 11 in this thread.

[edit] or were you being humorous?

edwinac_2

isofa wrote: »

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

We lost money when the Wimbledon and South West Bank collapsed in 1994.

Some 14 years later, and we have given up hope of ever seeing our money again.

However, the administrators, BDO Stoy Hayward do keep in regular contact. There is enough paperwork from them to fill two lever arch files.

In BDO's last letter, they were pleased to inform us of another blow-out distribution to creditors: 0.0028p in the pound, or some such. Too small to warrant sending us a cheque, but it's the thought that counts!

edwinac_2

isofa wrote: »

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!

Eleven U.S. banks have collapsed this year. Eight of those failures occurred in the last two months alone.

FDIC, the American equivalent to Britain's Financial Services Compensation Scheme, holds just $45bn on reserve against insured deposits of $4.5 trillion.

"..On top of that, the deposits of all FDIC-insured institutions stood at $8.6 trillion as of June 30, meaning that there are another $4.1 trillion of uninsured deposits in the banks. Roughly half of all deposits are uninsured, and the rest are backed by a penny on the dollar. What could possibly go wrong?"

Commentators have warned that any large scale collapse in the U.S. banking system would "quickly overwhelm" the deposit insurance scheme.

Are there good reasons to suppose the British compensation scheme is any more solid?

The following article appears in the September 5, 2008 issue of Executive Intelligence Review.

Guarantees Are Worthless, When the System Is Bankrupt

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]by John Hoefle[/SIZE][/FONT]

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]While the Federal Deposit Insurance Corporation (FDIC) has gone to great lengths to assure the public that their bank deposits are safe—at least up to the insured limit—it is obvious that the agency lacks the capital required to back up its claims. As long as the FDIC closes only small banks, it can meet its responsibilities, but it does not have the resources to even begin to deal with the magnitude of the crisis it faces.[/SIZE][/FONT]

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]The same is true of the Federal Reserve, which is running out of room on its balance sheet to continue the escalating bailout process it began last December, and also true of Fannie Mae and Freddie Mac, whose role as a dump for the toxic waste of the banking system means that they will not survive on their own. All of these players, the FDIC, the Fed, Fannie and Freddie, and others like the Federal Home Loan Banks, can always turn to the Federal Government for cash, but the Federal Government itself is operating at a deficit, already borrowing money to meet its spending requirements. Thus, while there is no shortage of guarantees, none of the players actually has the money it needs to satisfy those guarantees, in anything approaching a worst-case scenario.[/SIZE][/FONT]
[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]
[/SIZE][/FONT] [FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]The Federal Government, it is assumed, can always borrow more money, but under our current unconstitutional central banking monetary system, it borrows that money by issuing bonds, which are sold through the Fed into the financial markets. That is, it is borrowing money from the very financial markets it is attempting to bail out. One does not have to be a professional economist to spot the flaw in such a scheme (in fact, it appears, the only people who fail to see the glaring flaw in the scheme are professional economists, bankers, and their pet regulators, who have a vested interest in ignoring the obvious).[/SIZE][/FONT]

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]In the end, whatever the Federal Government does manage to borrow, becomes the obligation of the taxpayers, most of whom are themselves dependent upon borrowed money for their survival, and living in an economy which has been operating below breakeven for some four decades, and falling further behind by the day. Ultimately, the guarantees are worthless, because there is nothing backing them............[/SIZE][/FONT]

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]

Article in full at the link above..
[/SIZE][/FONT]

esbo

edwinac wrote: »

Eleven U.S. banks have collapsed this year. Eight of those failures occurred in the last two months alone.

FDIC, the American equivalent to Britain's Financial Services Compensation Scheme, holds just $45bn on reserve against insured deposits of $4.5 trillion.

"..On top of that, the deposits of all FDIC-insured institutions stood at $8.6 trillion as of June 30, meaning that there are another $4.1 trillion of uninsured deposits in the banks. Roughly half of all deposits are uninsured, and the rest are backed by a penny on the dollar. What could possibly go wrong?"

Commentators have warned that any large scale collapse in the U.S. banking system would "quickly overwhelm" the deposit insurance scheme.

Are there good reasons to suppose the British compensation scheme is any more solid?

The following article appears in the September 5, 2008 issue of Executive Intelligence Review.

[FONT=Arial,Helvetica,Geneva,Swiss,SunSans-Regular][SIZE=-1]

Article in full at the link above..
[/SIZE][/FONT]

So it's not all bad news then?

opinions4u

I have said all along, the FSCS is fine for bailing out the customers of a small broker or minor lender when it goes under. If a big player sunk without trace there is no way it could cope.

The only way to fund the FSCS properly would be for savers to pay via reduced interest rates. Reduce all rates by 1% and it would still take 100 years to fully fund the potential liability of the FSCS fully (longer actually, but I won't go in to the depths of the calculation).

If savings rates were cut by 1%, this would encourage more people to invest in other, riskier, plans such as property, shares etc.

Other than providing fake comfort, the FSCS is pointless and serves no real purpose.

The issue comes back to the lending models of banks who have effectively played pass the parcel with packaged debt. Those caught with the sub-prime package at the wrong time have lost £bns.

Better quality lending backed by customer and corporate deposits is more prudent for savers' cash than riskier lending at the sharp end of the market.