Bail in to secure to save the banks

Ryanq24a

How can I protect my savings? New laws were passed to allow banks to use depositors money to save the banks from collapse, known as bail in. However the FSCS protect savings up to £85k. should the banking institute fail. Well the banking institute wont fail if  'bail in' is implemented as they will take savers money,  therefore I believe savers are at great risk. I e-mailed the FSCS twice regarding this issue with no response. Tp protect myself, should I open several bank accounts to spread the risk? is the NS&I secure from bail in? as this is backed by the government. Does anyone have a list of separate banking institutes which would hopefully be protected under the FSCS? 

Linton

It has always been the case since banks were invented something like 500 years ago that you gave them your money and they gave you a promise they would pay it back. In the meantime banks could do what they liked with it as it was their money. 

The only very recent (compared with 500 years) change is to bring in limited state sponsored protection through the FSCS. Prior to then if a bank went bust depositors could lose everything.
NS&I is run by the government who guarantee 100% protection for all deposits.
Have a look at https://www.moneysavingexpert.com/savings/safe-savings/

Prism

Its not depositors money that gets used in that situation - its shareholders

bowlhead99

Ryanq24a said:

How can I protect my savings? New laws were passed to allow banks to use depositors money to save the banks from collapse, known as bail in. 

Not that new, the implementing rules came in five years ago.

If there is a bail-in, the bank's capital is restructured so that the existing shareholders are wiped out and the people to whom the bank owes money will have those amounts (or some of those amounts) converted to new shares in the bank. 

However, there's a hierarchy of creditors which is the same in a bail-in as it would be in insolvency. FSCS-eligible deposits from natural persons and SMEs have a higher priority ranking in insolvency than the claims of ordinary unsecured creditors - such as the people who lent money to the bank and hold its bonds or unsecured loan notes, or the people who sold it stationery or desks or internet service or leased it an office building and haven't had their bills paid. 

Then within those millions of pounds of FSCS-eligible deposits, the element of your deposit that would have actually been covered by FSCS (i.e. the £85000) has an even higher priority ranking in insolvency or bail-in.

So if there was a bail-in while you had £100k on deposit, £85k would be a “covered deposit” and have a higher priority ranking than the remaining £15k which in turn would have a higher ranking than ordinary unsecured creditors (bondholders and suppliers and depositors who weren't individuals or SMEs eligible for FSCS).

If the bank wanted to get bail-out funds from the government it would first have to do a bail-in process in which the shareholders lost all their investments and the bondholders and other creditors and institutional depositors lost part of their investments or deposits/ other receivables and were given shares, and the bank then raised new debt finance.

However, when running a bail in process to recapitalise itself, the bank doesn't have to wipe out the individuals with eligible deposits or covered deposits because they are in a different higher tier in the hierarchy from bondholders and other unsecured creditors. So they could bail-in some of the bondholders' and institutional depositors' and creditors' money  to re-capitalise the bank, but wouldn't even get to start using individuals' balances until they had taken 100% of everything else.

The  government wouldn't expect the banks seeking bail-outs to wipe out individuals' balances (and especially not covered balances) through bail-ins because if a retail bank did that to their depositors, they'd really struggle to get any individual to deposit with them again, and might as well go bust, and the government doesn't want individual savers to have their deposits converted to worthless shares and then lost.

If a bank was crazy enough to bail-in individual customer's deposits within the compensation limit you would just go to the ombudsman who would agree that giving you bank shares was not adequate consideration for the deposit you held and recommend the bank pay you out, and pay out all the other covered deposits from other customers too, and the scale of that payout if they didn't have the money would put the bank into insolvency, which FSCS would cover...

So IMHO you don't need to worry about losing your deposits if below normal FSCS limit. The govt (via the regulator) has the power to direct banks to do what it wants (the threat of which, caused banks to cancel dividends yesterday) and as the government wants individuals to be able to trust that UK banks are safe to deposit money in due to the fair operation of the FSCS, they shouldn't support banks screwing you over and leaving you with an uncompensated loss on the part of your balance under £85k.

The Cyprus situation a few years ago where funds were taken from depositors only applied to those depositors with more than the covered amounts.

A bank failure/insolvency is something that can happen, with or without a bail-in, so if you have over £85k with a bank or building society or credit union and you know such institutions are having a hard time at the moment (which is obvious given their borrowers are individuals and businesses facing unusual hardship from Covid-19 measures) it's very sensible to move amounts over £85k to separate institutions.

 For the list of which banks are separately FSCS-covered institutions rather than sharing a banking license with another member of their group, see the tool on the link Linton provided above.

greggymagic

Oh look..... Another 1st time poster signed up to try and stoke fear and encourage a run on the banks....... What a surprise....... 

It's becoming a daily thing...... Maybe its the same person signing up with multiple accounts. 

kuratowski

Maybe it is.  Or maybe this is one of those meme ideas that is floating around the less financially literate parts of the population.  There is a cliché that generals are always fighting the last war; I do think a lot of people are simplistically equating the current covid-19 crisis with the financial crisis of 2008-09.  So these posts could well be genuine.  Either way I believe the best thing is to give posters the benefit of the doubt and give an honest, factual answer.  If nothing else because anyone else reading the thread in the future will be better informed.