MSE News: Santander safety Q&A: your questions answered

MoneySaverLog

Is cash really safe is perhaps the question that should be asked.

If a big bank was to collapse...

1 How long would it take for FSCS to pay out?
2 Will the pound be devalued as a result?

If the answer to 2 is Yes, then by how much? As you can see there appears to be a much more serious issue here if the BOE start printing shed loads of cash to buy themselves out of a hole caused by the compensation payouts.

What can the honest person in the street do to protect their savings from such a devaluation without risking it in commodities such as gold or silver?

jamesd

franklee wrote: »

What about people who have cash ISAs in a bank that goes under? Is the FSCS compensation done in a way that allows the cash to keep it's tax free status?

Yes. You get a certificate that you provide to an ISA provider and that means the money won't count again as part of your ISA allowance. This happened in several cases already, Icesave and the Southsea Mortgage & Investment Company for cash ISAs and Keydata, a stocks and shares ISA provider and assorted other S&S ISA providers involved in that event. There's currently a little uncertainty for amounts over £85,000, the FSCS limit and you should not count on it for amounts over that.

In addition, to formalise these arrangements, there are to be new rules on reinstating ISAs that will allow the full amount in a cash ISA to be paid into another cash or S&S ISA even when an investor has not received full compensation and certificate from the FSCS. This includes money that exceeds the £85,000 FSCS cap, so you could put in £100,000 even if you only received £85,000 from the FSCS. Similar treatment for S&S ISA investments. These rules aren't in effect yet.

So this is being handled very well and there's no need for any concern about it unless you have more than £85,000 in a single cash ISA or investment.

mst007

First time poster here. Just throwing this into the melting pot...where are the Govt going to get up to £85,000 per person from? UK PLC is bust already. I imagine its going to be more funny money at best, which will add to inflation, OR private borrowing which will add to the deficit. Either way, the British taxpayer is yet again potentially paying out for banks incompetence. Better to withdraw your money now and save GB a fortune.

MoneySaverLog

mst007 wrote: »

Better to withdraw your money now and save GB a fortune.

The banks do not have enough money for everyone to take out their money, that's the point. If they did the bank would collapse and the printers would be working overtime and the value of any pound in your pocket will be worth less.

jamesd

mst007 wrote: »

where are the Govt going to get up to £85,000 per person from? UK PLC is bust already.

The same way as has already happened in the past:

1. The FSCS borrows the money from the Treasury under a loan agreement.
2. The FSCS then increases the levy it makes on financial service providers of similar types and uses that increased levy to repay the loan.

No British government is going to allow a bank to go bust and cause any significant loss to retail deposit customers of the bank. The consequences are so obviously bad that it's just not going to be allowed and the government, Bank of England and FSA have the legal power to directly take over the bank to prevent it from happening. Even if the bank's management disagrees.

The £85,000 doesn't just vanish or get invented. What happens in general is that a bank has an obligation to pay people but is temporarily unable to do that due to a run or similar shortage of cash. It can't just tell its mortgage or personal loan customers to immediately repay to get the money back from them. So a temporary arrangement to get the money that it's lent out is put in place. Then as the repayments come in, that temporary arrangement can be repaid, as has been happening for the money involved in the last round in 2008-9.

If for some reason those temporary arrangements aren't possible then the FSCS steps in and borrows the money from the Treasury and that gets funded by UK government bonds, which are in very high demand and fetching record prices at the moment.

Under anti-terrorism legislation it's a criminal offense to encourage runs on banks. Best to steer well clear of doing anything that may be seen to be advocating large-scale withdrawing of money from banks in a run. I don't know whether your post is sufficient to be illegal but it's a really bad idea to encourage it anyway.

mst007

Thanks for the correction on the FSCS being the senior creditor, I didnt know this. Whether the FSCS has enough reserve funds or needs a loan from the Treasury, I would hazard a guess only a handful of people know that. As regards the anti-terrorism legislation, it hasnt worked very well with Iceland so far has it? :-)

jamesd

Iceland isn't subject to UK law.

The regulators and governments really did learn from what happened in 2008-9 and have acted to make it all much smoother if it's needed again. But the preventative measures - effectively unlimited emergency loans and much higher bank reserve requirements - are also much stronger so it's also less likely to be needed than before.

The Greek stuff is political and other brinkmanship to get politicians and people to accept what they do not like to get what they do want, which is staying in the Euro. It'll be messy for a while yet but not a disaster even if it goes badly. Not that it's doing my investment values any good while it happens, though I'm doing some gradual cheap investment buying at the moment while the sale's on...

oldvicar

jamesd wrote: »

...
the FSCS steps in and borrows the money from the Treasury and that gets funded by UK government bonds, which are in very high demand and fetching record prices at the moment. ....

Bit naughty to say that without pointing out that the demand for UK bonds is partly because UK is a 'safe haven', but mostly because the Bank of England has bought up about a third of the entire stock in the past couple of years by using 'funny money' for its QE programmes.

mst007

I`m with you on this one Oldvicar. More QE anyone?

Re Greece, with the IMF running for the backdoor and Eurobonds political suicide for Germany, the G8 need to come up with something VERY big this weekend. If they dont, Spain, Ireland, Portugal, Italy and potentially France are only a matter of weeks or months behind the "Grexit". I am literally clueless on investments at the minute...

ses6jwg

A bank as globally wide reaching as Santander would not be allowed to go bust. They are the 4th largest bank in the world by profit. If they were allowed to go bust the entire banking system would collapse and the last thing you'd be worrying about would be your !!!!ing cash ISA. You'd be worrying why Morrisons is being looted and why the armed forces are in the streets.

The UK government and ECB would simply print more currency to prop the FSCS and therefore the bank up as they did with HBOS. This would devalue everybody's savings.