FSCS cash limit coming down to £75K / new £1m temp protection

polyphonic99

With the Greek Banking system on the verge of collapse, with possible contagion to the rest of the Eurozone, what better time for the idiots at the Bank of England to undermine confidence in the British banking system.

Surely the EU rules say deposit protection should be "AT LEAST" equivalent to 100,000 Euros. If the Euro depreciated to say 5 Euro to 1 GBP, then the current logic would say that the UK should only offer £20,000 protection. This is absolutely bonkers.

If you take account of 25% inflation since 2010, then the actual value of the deposit protection will not be reduced from 85,000 to 75,000 but to 53,000.

jimjames

When it's "less than 5%" affected I can hardly see it having any impact on confidence as over 95% are unaffected by this.

kidmugsy

dunstonh wrote: »

it is acting as intended and agreed.

The ability of many people on this forum to get their knickers in a twist about precious little is very striking.

TheTracker

Perhaps the naysayers would prefer we joined the euro and this little problem would go away.

Pincher

What we could worry about is what assets this guarantee is based on.

A joker government could easily say they will compensate up to ten million pounds, and then say sorry man, Treasury's empty, or let me go and print a trillion drachmas, ten noites of one million each OK?

I hold the illusion that an FSCS scheme is an actual liability a government has to account for, and reducing the guaranteed amount releases some reserve they can use elsewhere.

kidmugsy

Pincher wrote: »

What we could worry about is what assets this guarantee is based on.

A joker government could easily say they will compensate up to ten million pounds, and then say sorry man, Treasury's empty, or let me go and print a trillion drachmas, ten noites of one million each OK?

I hold the illusion that an FSCS scheme is an actual liability a government has to account for, and reducing the guaranteed amount releases some reserve they can use elsewhere.

We have a fiat currency backed by a government with high and still increasing debt. Consequently such guarantees may well prove illusory. As long as the electorate is happy to vote for governments that increase debt that's how it will be. It may be that universal franchise democracy and a welfare state are an unsustainable combination. What might trigger a collapse? Demography perhaps.

masonic

Pincher wrote: »

What we could worry about is what assets this guarantee is based on.

A joker government could easily say they will compensate up to ten million pounds, and then say sorry man, Treasury's empty, or let me go and print a trillion drachmas, ten noites of one million each OK?

The underlying EU directive does set out certain requirements for these schemes, but you are right to be concerned about how compensation from foreign schemes would work for UK savers. We've already seen the Icelandic compensation scheme fail to compensate UK savers (in this case the UK Government generously stepped in, but that's not to say they would be able and/or willing do so in future). The reduction of the FSCS compensation limit highlights the impact of exchange rates on compensation. At least the FSCS limit will be fixed at this new level for 5 years. However, passport schemes will be based on whatever EUR100,000 is worth at the time - and if a major European bank collapses, I'd imagine that won't have a particularly positive impact on the EUR:GBP exchange rate. Personally, I will be sticking to banks covered by the UK scheme as I don't really want to take on the extra counterparty and currency risk of the passport scheme.

I hold the illusion that an FSCS scheme is an actual liability a government has to account for, and reducing the guaranteed amount releases some reserve they can use elsewhere.

Like most insurance, it is funded by premiums levied on the banking industry and, as mentioned earlier in the thread, the reduction is immaterial since it only affects 5% of customers who will see a 12% reduction in the level of cover they have. I work that out as meaning the FSCS could only shave 0.6% from its reserves if it wanted to maintain the same level of reserves after the change comes into effect.

Archi_Bald

Pincher wrote: »

What we could worry about is what assets this guarantee is based on.

A joker government could easily say they will compensate up to ten million pounds, and then say sorry man, Treasury's empty, or let me go and print a trillion drachmas, ten noites of one million each OK?

I hold the illusion that an FSCS scheme is an actual liability a government has to account for, and reducing the guaranteed amount releases some reserve they can use elsewhere.

The FSCS is not a 'government scheme'. It is an industry scheme that the financial services industry must provide by law. The liability is with the financial services industry, not the government.

What is the Financial Services Compensation Scheme (FSCS)?
The FSCS is the UK's statutory fund of last resort for customers of financial services firms. This means that FSCS can pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it. The FSCS is an independent body, set up under the Financial Services & Markets Act 2000 (FSMA). We do not charge individual consumers for using our service.
http://www.fscs.org.uk/what-we-cover/questions-and-answers#question0

For FSCS funding, see http://www.fscs.org.uk/industry/funding

TheTracker

I reckon that if it was a big enough issue then there would be a competitive 3rd party market of insurers of funds over the FSCS threshold and perhaps below another. Eg buy insurance with 0.4% of holdings between 75 and 200k. But, the market is very small. It's a doddle to put 75k in each of 6 institutions and get £450k covered. Probably more. And it's now a doddle to get £1m covered short term.

It's a good example of poor journalism. The tightening of a constraint that effects a small number of people is given broader coverage and more attention than the loosening of another constraint that brings benefit to many more.

polymaff

It seems to me that the only issue worth campaigning about here is that the £85k limit should apply to all fixed term contracts already in place on the 3rd July, through to their end date.

Hopefully the institutions will push this issue during the consultation mentioned, as they won't want to have to make special arrangements to deal with withdrawals just before 1/1/16. I doubt that the challenger banks also want to receive a sudden burst of new investments, either.