MSE News: Bank of Cyprus may get UK savings protection

innovate

The 'unlimited' irish protection had nothing to do with the FSCS scheme - i.e. the BoI didn't contribute anything to the FSCS. Now that there is a BoI (UK), they contribute to the FSCS (just as is proposed for the Bank of Cyprus).

A bit like VT82, I would not have put a penny of my money into the PO whilst the funds were subject to a guarantee by the irish Government. It's a very different matter now with the FSCS protection.

oldvicar

VT82 wrote: »

If I had over £85k to save prior to when this happened, I certainly wouldn't have put it into the Post Office and hence relied on the Irish government's ability to pay an unlimited sum out. And with under £85k to save, I'd much rather it was guaranteed by the FSCS than by the Irish government.

So I think you're in the minority in thinking this was a downgrade in protection.

I carefully referred to the protection promised not to the quality of the guarantors (although Ireland uniquely did offer a sovereign guarantee). I was being slightly naughty

When the change to Post Office (BoI) protection happened nobody seemed to be bothering about who stood behind the promises. It's a recent development for MSE to differentiate between the UK FSCS and equivalent foreign schemes with an implication that the UK scheme is in some way 'better', ostensibly on the grounds of difficulty in dealing with overseas schemes in a foreign language (such as English with an Irish brogue ?)

It is worth remembering (especially for fixed term deposits) that you can very easily lose UK FSCS protection: Banks can be sold, and they can also be rescued without being paid out by the FSCS. For example in 2008 depositors with some Icelandic banks were covered by the UK FSCS but were not paid out. Instead they found themselves transferred by the UK government to ING, and hence to the Dutch protection scheme. Fortunately the Dutch government saved ING from collapse with a large (€10bn) cash injection the following month.

Finally note use of the word "guarantee" is studiously avoided wherever possible when referring to the FSCS, although it occasionally slips through. The words "protection" and "compensation limit" are used to invoke feelings of confidence instead. The government got in to an awful mess with leaflets suggesting that pensions were "guaranteed" when Equitable Life collapsed, because apparently they weren't.

oldvicar

innovate wrote: »

The 'unlimited' irish protection had nothing to do with the FSCS scheme - i.e. the BoI didn't contribute anything to the FSCS. Now that there is a BoI (UK), they contribute to the FSCS (just as is proposed for the Bank of Cyprus).

A bit like VT82, I would not have put a penny of my money into the PO whilst the funds were subject to a guarantee by the irish Government. It's a very different matter now with the FSCS protection.

Is it really very different now?

Suppose for a moment that Bank of Ireland UK, or Bank of Cyprus UK (those wholly owned subsidiaries to be covered by the UK FSCS) for no reason other than rumour and panic were to face a Bank Run with depositors all wanting their money back at once, Northern Rock style. What is likely to happen?


I think:

• Least likely, the UK government will use taxpayer funds to rescue them, either to buy a stake or to nationalise them (they are wholly owned by foreign banks after all). In the early stages the BoE may provide some extra liquidity though.
• Also unlikey is to let them fail, and have the FSCS pay out.
• Most likely the UK government and European regulators will allow (nay encourage) the foreign parent to directly assume their responsibilities, no matter how troubled the parent may be at the time. Crisis averted, depositors money safe, and still covered by pukka compensation schemes of EU states. Back to square one. It's almost as if they were never covered by the UK FSCS at all.

For what its worth, I wouldn't save my money with PO either then or now.

John_Pierpoint

ashleypride wrote: »

I agree, but at least they will pay into the UK compensation fund, unlike the Icelandic banks when the government compensated savers anyway.

If I remember correctly one of the Iceland banks had all its assets in the UK seized under the "terrorism" act and these were used to compensate UK personal depositors?

John_Pierpoint

Reaper wrote: »

Although alls its shares will be owned by the parent there will be a limitation on the withdrawal of funds preventing it being bankrupted by a desperate parent taking all the assets out.
.

Just what did happen to all the cash balances in Lehman Bros. ????

Did London ever get back its share from USA.?

How much was involved ?

http://money.cnn.com/2012/03/06/markets/lehman_bankruptcy/index.htm

Reaper

oldvicar wrote: »

For example in 2008 depositors with some Icelandic banks were covered by the UK FSCS but were not paid out. Instead they found themselves transferred by the UK government to ING, and hence to the Dutch protection scheme.

I believe you are referring to Kaupthing bank which went bust along with Icesave. In both cases the guarantees were not with the FSCS, but had the "passport" exemption. That meant the home country's compensation scheme applies for most of the amount and that is where the problem lay. Iceland defaulted when Icesave went bust, though fortunately the UK stepped in to cover it (though they were under no obligation to do so) and has been trying to seize and claim back money from Iceland ever since.

With Kaupthing they went a different route to Icesave and arranged a takeover of the savings accounts. This was much better as UK savers had speedy access to their money.

Though you are worried your bank might be bought by one operating a passport exemption there are now very few that do as, not surprisingly, savers see them as less secure. Here is the list of all the passport exemption banks:
Anglo Irish
ING Direct
Triodos Bank
and of course Bank of Cyprus which is about to become a full FSCS member.

Before putting money in the above you should consider how likely you think it is the home country would be to pay you, as it is not certain the UK would step in again to cover savers.

Reaper

John_Pierpoint wrote: »

Just what did happen to all the cash balances in Lehman Bros. ????

Did London ever get back its share from USA.?

How much was involved ?

http://money.cnn.com/2012/03/06/markets/lehman_bankruptcy/index.htm

Lehman Brothers was not a retail bank. They did not offer savings accounts to Joe Public. And there was nothing to stop them taking assets from their UK arm.

oldvicar

Reaper wrote: »

I believe you are referring to Kaupthing bank which went bust along with Icesave. In both cases the guarantees were not with the FSCS, but had the "passport" exemption.

Not True. Yes, Icesave was passported, but Kaupthing (and Heritable) were fully covered by the UK FSCS, just like BoI UK and as is proposed for Bank of Cyprus. The UK government transferred savers deposits from a UK to a foreign entity.

Reaper wrote: »

That meant the home country's compensation scheme applies for most of the amount and that is where the problem lay. Iceland defaulted when Icesave went bust, though fortunately the UK stepped in to cover it (though they were under no obligation to do so) and has been trying to seize and claim back money from Iceland ever since.

Iceland (the country) had NOT defaulted when the UK government dubiously used its terrorism laws to seize Icesave's assets.

Reaper wrote: »

Though you are worried your bank might be bought by one operating a passport exemption there are now very few that do as, not surprisingly, savers see them as less secure. Here is the list of all the passport exemption banks:
Anglo Irish
ING Direct
Triodos Bank
and of course Bank of Cyprus which is about to become a full FSCS member.

Before putting money in the above you should consider how likely you think it is the home country would be to pay you, as it is not certain the UK would step in again to cover savers.

On the contrary, the issue is not that a UK bank might be taken over by a bank already operating over here under the passport scheme, and therefore having some oversight by the FSA. It is that a foreign bank which doesn't take deposits in the UK (such as the parent of the UK subsidiary) and hasn't been subject to the same oversight by UK authorities might take over. That's more a leap into the relative unknown, and worse than being with a foreign passported bank all along.

Reaper

oldvicar wrote: »

Yes, Icesave was passported, but Kaupthing (and Heritable) were fully covered by the UK FSCS

I stand corrected. I'm told my memory isn't what it used to be, but I can't remember.

Iceland (the country) had NOT defaulted when the UK government dubiously used its terrorism laws to seize Icesave's assets.

That depends at what point you judge it defaulted. According to Wikipedia the seizing process began following a phone call between Darling and Mathiesen in which it was confirmed that Iceland did not intend compensating foreign savers.

On the contrary, the issue is not that a UK bank might be taken over by a bank already operating over here under the passport scheme, and therefore having some oversight by the FSA. It is that a foreign bank which doesn't take deposits in the UK (such as the parent of the UK subsidiary) and hasn't been subject to the same oversight by UK authorities might take over. That's more a leap into the relative unknown, and worse than being with a foreign passported bank all along.

I see what you are saying, but in the case of savings accounts being passed on it is easy enough to withdraw your money if you don't like where it ends up. I don't see the possibility as a risk to my money.

oldvicar

Reaper wrote: »

I stand corrected. I'm told my memory isn't what it used to be, but I can't remember.

...


I see what you are saying, but in the case of savings accounts being passed on it is easy enough to withdraw your money if you don't like where it ends up. I don't see the possibility as a risk to my money.

TBH my memory isn't that good either - I had to look it up. I even got confused in my own mind between Kaupthing and Bradford & Bingley - which of course had deposits taken over by Santander (UK).

...

If you are relying on it being easy to withdraw money in the event yours is moved to a bank you're not sure of, then be sure to avoid notice and fixed term accounts and stick with the instant access.

The above remark applies generally, but funnily enough in the case Bank of Cyprus all the table topping rates apply to fixed bonds and notice account. The instant access pays just 0.25% - I can get 6 times that rate with 100% Treasury backed NS&I, and its paid out gross.