Financial Services Compensation Scheme

Hermanmunster_2

If we experience a really BIG BUST with the whole financial system grinding to a halt as nearly happened in 2008 with major banks going bust I am wondering if the up to £85000 compensation guarantee with the Financial Services Compensation Scheme would be able to cope with the amount of claims that would be loaded on it?

masonic

Yes, it's an industry funded scheme, but the Treasury would print as much money as needed to cover the obligations if the coffers ran dry. I doubt we will ever have a repeat of the scenario in which even money over the compensation limit was covered.

Johnnyboy11

Look to the 2012-13 Cypriot Financial Crisis for your answer, and in particular the 'one-off' bank deposit levy. I have no confidence whatsoever in the Central Banks or FSCS.

dunstonh

Hermanmunster wrote: »

If we experience a really BIG BUST with the whole financial system grinding to a halt as nearly happened in 2008 with major banks going bust I am wondering if the up to £85000 compensation guarantee with the Financial Services Compensation Scheme would be able to cope with the amount of claims that would be loaded on it?

Ring fencing of the retail banks should take care of that. Investment banks will now be allowed to fail without them impacting on the retail banks.

FSCS is industry funded but borrows money from the treasury. As the UK can print money, running out is not an issue (although it has other consequences)

masonic

Johnnyboy11 wrote: »

Look to the 2012-13 Cypriot Financial Crisis for your answer, and in particular the 'one-off' bank deposit levy. I have no confidence whatsoever in the Central Banks or FSCS.

That applied to deposits above the depositor protection limit. No qualifying deposit of €100,000 or less was subject to the levy. See https://www.reuters.com/article/us-cyprus-parliament/cyprus-banks-remain-closed-to-avert-run-on-deposits-idUSBRE92G03I20130325

dunstonh

It should also be noted that the UK has a valuable financial services sector in which it is a global market leader. One of the few areas we still are. A levy like Cyprus would be significantly more damaging to the sector and the knock-on effect could cost the country far more. There are easier things to hit the money for in the UK.

antrobus

dunstonh wrote: »

Ring fencing of the retail banks should take care of that. Investment banks will now be allowed to fail without them impacting on the retail banks.

...)

Given the recent experience of 2007-08 it would be more accurate to state that retail banks will now be allowed to fail without them impacting on the investment banks.

After all, neither the Northern Rock nor the B&B were known for their investment banking acumen.

Alexland

Or maybe neither will be allowed to fail and the ring fencing was just so it looked like the government was taking some action.

Hermanmunster_2

What worries me is the worldwide debt system is out of control and when the trillions of un payable debt is compounded by quadrillions of credit default swaps on that debt if the whole thing blows up due to a stock market crash in say America and /or Europe what happens over there soon spreads over here (probably due to our financial services sector being a global market leader ) and before we know where we are the UK will be badly affected in the banking sector .Brexit is on the tip of causing a recession one way or the other leave or stay and a crash of confidence will send everything into a downward spiral including house prices and retail sales .Its all self feeding and the banks will be hit hard with a loss of liquidity .This could well be a severe test for the Financial Services Compensation Scheme (Scheme being the operative word ) which could easily be just that a scheme devised to impart confidence to depositors but without any real foundation for its ability to pay out big time .

masonic

Why would you be worried about the ability of the scheme to pay out when it can just create new money? You should worry more about the spending power of the money you have decreasing. That's always happening to a greater or lesser extent.

The Treasury created £375bn of new money from thin air between 2009-2012. To put that in context there's about a trillion pounds held in consumer deposit accounts, not all of which is protected by the FSCS, and a proportion of which is backed by capital reserves.

Hermanmunster_2

Money will evaporate into bad debt in the aforementioned scenario and we will initially have deflation and they probably will print money to counteract deflation but if they had to print money in a deflationary depression they may just let the retail public be subjects of a bail in scheme to replace the Financial services compensation scheme.