FSCS Question

damianw

A hypothetical question (in that it doesn't affect me right now but the answer would be interesting to know) that I've been thinking about:

Imagine you had about 60k of savings in a 5 year fix rate in Bank or Building Soc A, and another 60k in Bank B with similar conditions.

If A and B were to merge, the combined amount of savings would be over the FSCS insured limit of 85k. When this has happened in the past, A & B have retained their separate licences and therefore separate insurances for a period of time for all existing depositors but eventually and usually within 5 years, there is a tendency to consolidate the banking licences, meaning that the revised limit of 85k would be less than your savings in the institution of c.120k (+interest to date)

At this point, if the new merged bank were to go bust, you'd risk losing some of your money.

So, the question is: After the merger of the banking licences, would you be within your rights to claim that a fundamental part of your contract had been breached (you no longer have insurance on all your savings) and therefore move your money elsewhere without penalty, before the end of the fix term?

Obviously as this is a hypothetical question, the precise amounts and fix lengths don't matter, as long as in aggregate the total is over the FSCS limit and the fix term takes you past the point where the licences are merged.

Thanks.

dunstonh

So, the question is: After the merger of the banking licences, would you be within your rights to claim that a fundamental part of your contract had been breached (you no longer have insurance on all your savings) and therefore move your money elsewhere without penalty, before the end of the fix term?

No contract has been breached. FSCS protection is not part of your contract.

However, I seem to recall that this issue was going to be looked at and that banking licences would have to be maintained for a period afterwards. I can't recall any outcome to it though.

Burridge60

This came up when Lloyds rescued HBOS and I think some of the companies retained their individual licences and some didn't.

It is always worth checking out how you stand when you are written to about the merger.

Don't know what happened about Coop and Britannia nor Santander brands abbey and a&l.

Loughton_Monkey

It is certainly an interesting question, and one that would immediately become an 'issue' if and when the next merger happens, and the two institutions happen to be 'heavy' in fixed rate funds of longer duration than the seperate licenses.

It is unlikely, in my view, to happen without this issue being 'sorted' as part of the merger process, since it would be easily identified. Such a merger would obviously involve FSA and they would 'resolve' it somehow before the event. Possible solutions would be:

1. Insisting on 2 licenses for as long as bonds take to 'run off'; either 'totally' or effectively merge them but keep the other one on to 'house' only the fixed rate.

2. Put a 'codicil' increasing protection to £170K for this specific situation (which would be capable of clear written definition).

3. Force merged bank to allow [partial] withdrawl from such account(s) with 'no penalty' [which would 'challenge' a definitive definition!]

Burridge60

In the old days Banks rescued Banks and Building Societies quickly merged with Building Societies to stave off problems.

Now we have the FSCS so no one has to bother and when the pooh really flies about the Government step in.

Don't you think we are all being just a little bit mollycoddled and protected from ourselves at the end of the day and being made to pay for it too.

davidgmmafan

I would HOPE that in the event of a complaint the organisation in question would agree to waive any cancellation penalty or loss of interest if a partial withdrawal was made. That said banks often like to dig thier heels in for no apparent reason.

I do also have an FSCS question. Why the blazes is it advertised on the television? What does it cost and why are we paying for it? What The first question of the three is the main one. I mean does anybody know what the goal is???

alanq

When Abbey and Alliance And Leicester licences were merged Santander offered penalty-free notice-free withdrawals of amounts exceeding the FSCS limit.
http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=504794&in_page_id=7

There were temporary measures until the end of 2010 for merged building societies giving £50,000 protection for each. For 2011 onwards there is only £85,000 protection in total for each of the merged groups of societies (e.g. Nationwide, Cheshire, Derbyshire, Dunfermline). I am not aware of any of those offering similar waivers to Santander.
http://www.which.co.uk/money/savings-and-investments/guides/are-my-savings-safe/mergers---are-my-savings-still-safe/

Aegis

davidgmmafan wrote: »

I would HOPE that in the event of a complaint the organisation in question would agree to waive any cancellation penalty or loss of interest if a partial withdrawal was made. That said banks often like to dig thier heels in for no apparent reason.

I do also have an FSCS question. Why the blazes is it advertised on the television? What does it cost and why are we paying for it? What The first question of the three is the main one. I mean does anybody know what the goal is???

I've not seen any of these adverts yet, but if this is the case it will likely be commissioned and paid for by the FSA, which is itself paid for by levies on the financial services sector. Probably no tax money spent on it, if that's what you're worried about.

dunstonh

I do also have an FSCS question. Why the blazes is it advertised on the television? What does it cost and why are we paying for it? What The first question of the three is the main one. I mean does anybody know what the goal is???

I asked the same question. Why is it being advertised.

However, unlike you, I am actually paying for it. I think its disgraceful. In a year when IFAs are being asked to pay 6 to 10 times more than last years FSCS levy, we get expensive TV adverts that say nothing of benefit. IFAs are reporting increases in just the FSCS levy (not the FSA one or the FOS one that is on top of this) from figures of £1300 to over £6000. One firm say their levy increased from £1 million to £6 million.

Increases like that are hard to absorb so I guess it will be the end consumer that ends up paying for it.

Paul_Herring

Aegis wrote: »

I've not seen any of these adverts yet,

http://www.youtube.com/watch?v=8m1xaQUw-yw

Waste of money if you ask me, no matter who's money it is being spent.