HBOS / LLoyds £35000 savings guarantee

roddydogs

This is posted elsewhere, but in the event of several banks (domino effect) going bust, where on earth do people think the "Government" ie us taxpayers, are going to find the "up to £35,000" to pay everybody out?

dunstonh

roddydogs wrote: »

This is posted elsewhere, but in the event of several banks (domino effect) going bust, where on earth do people think the "Government" ie us taxpayers, are going to find the "up to £35,000" to pay everybody out?

Why do you think its the Govt that would pay the £35k?

roddydogs

dunstonh wrote: »

Why do you think its the Govt that would pay the £35k?

So who is guaranteeing the £35,000? is it not the government? the argument still applies the if several big banks went bust, their just would not be enough money to pay out.

opinions4u

dunstonh wrote: »

Why do you think its the Govt that would pay the £35k?

This is a fabulous question for the circumstances outlined.

1) It should be the FSCS. I would liken the size of their modest fund in comparison to UK savings balances to using the cash in my wallet to repay my mortgage in full.
2) If the cupboard is bare, then the banks should pay. But if they are tumbling, they will have no money.
3) If the banks have no money, then somebody has to lend it to them. The only likely lender is the Bank of England (representing HM Government). Quite how the remaining banks would repay this is a mystery.
4) As the Bank of England would have to call on the nation's reserves, they would need to replace this by borrowing themselves or raising taxes from the people.
5) Nobody would be foolish enough to lend to the Bank of England in such circumstances.
6) Income tax for a year would have to treble to bail out HBOS, let alone more than one bank. The knock on economic effects of this are unthinkable (have you tried trebling a 40% tax rate?).

The FSCS is like a comfort blanket for savers. It's only purpose is to make us feel that our money is safe. But if you use it as shelter from a hurricane it's going to get soggy and blown away.

The reality is that the system (mergers, takeovers etc) will pick up failing banks and building societies before they crash. We've seen that this over the last two weeks with Cheshire, Derbyshire and HBOS, and last year with the alternative method of nationalisation.