How safe do you stick to the 85K FSCS Protection?

alternate

Band7 said:

FSCS is not a government guarantee, and it is very much a fund. Not a fund that's traded on the stock market, but a fund that is administered by FSCS, with statutory levies paid by the financial services industry. https://www.fscs.org.uk/about-us/funding/

my mistake

Swipe

MA260 said:

It is generally not worth the risk in that you can receive similar interest across banks. Although as an aside would anyone ever own shares invest on stock markets or pensions if they were that risk adverse as this is the smallest of risks compared to owning any other asset.

There has been a lot of regulation since 2008 to reduce the risk of these scenarios.  You would think you would here murmurings on the financial markets, in the press or on bulletin boards like this before anything happened to an institution and you would have some warning to take action.

Yes, I had initiated a 30K transfer just prior to the Icesave collapse. Luckily I read on here all the panic and was able to cancel the transfer just before it went in. It just ended up it going down with £3K of my money in instead of £33K. I think the stress would have been a whole lot worse if I'd not got a heads up here.

IvanOpinion

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

The fund bit is already covered.  I agree with your second para that the need to rely on the FSCS guarantee will be a last resort and not something that they really expect to happen. If it should happen then, for a smaller bank the full amount may be paid out, but if it was a larger/major bank then I suspect that a full pay out would be unlikely.

If that causes a run on banks then, so be it, more people could lose more money as the pence in the pound gets less.

wmb194

IvanOpinion said:

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

The fund bit is already covered.  I agree with your second para that the need to rely on the FSCS guarantee will be a last resort and not something that they really expect to happen. If it should happen then, for a smaller bank the full amount may be paid out, but if it was a larger/major bank then I suspect that a full pay out would be unlikely.

If that causes a run on banks then, so be it, more people could lose more money as the pence in the pound gets less.

We already have a very good idea of what will happen if a major bank, and probably the Nationwide, fails: it will be part or fully nationalised, they'll be stabilised, the FSCS won't be called upon and depositors will remain whole. Next time around they'll look to wipe out corporate bond and hybrid capital holders and the like but depositors will be senior to these. For instance, this is what happened with RBS and Lloyds during the GFC.

phillw

wmb194 said:
We already have a very good idea of what will happen if a major bank, and probably the Nationwide, fails: it will be part or fully nationalised, they'll be stabilised, the FSCS won't be called upon and depositors will remain whole. Next time around they'll look to wipe out corporate bond and hybrid capital holders and the like but depositors will be senior to these. For instance, this is what happened with RBS and Lloyds during the GFC.

I suspect nationwide would go to FSCS as their "shareholders" are the members.

Banks would become owned by their creditors, with deposits at least guaranteed up to the FSCS limit but potentially to the full amount if there was enough money.

https://www.bankofengland.co.uk/paper/2021/executing-bail-in-an-operational-guide-from-the-boe

As for the original question, I don't currently have £85k in any single institution. If there was a benefit to doing so that would outweigh the risk then I would consider it.

IvanOpinion

wmb194 said:

IvanOpinion said:

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

The fund bit is already covered.  I agree with your second para that the need to rely on the FSCS guarantee will be a last resort and not something that they really expect to happen. If it should happen then, for a smaller bank the full amount may be paid out, but if it was a larger/major bank then I suspect that a full pay out would be unlikely.

If that causes a run on banks then, so be it, more people could lose more money as the pence in the pound gets less.

We already have a very good idea of what will happen if a major bank, and probably the Nationwide, fails: it will be part or fully nationalised, they'll be stabilised, the FSCS won't be called upon and depositors will remain whole. Next time around they'll look to wipe out corporate bond and hybrid capital holders and the like but depositors will be senior to these. For instance, this is what happened with RBS and Lloyds during the GFC.

Which is pretty much repeating what I said?

Band7

IvanOpinion said:

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

The fund bit is already covered.  I agree with your second para that the need to rely on the FSCS guarantee will be a last resort and not something that they really expect to happen. 

Although none of the big names has gone bellies up since 2008, a lot of smaller ones have. Just look at how much FSCS have paid out to date

Band7

Swipe said:

MA260 said:

It is generally not worth the risk in that you can receive similar interest across banks. Although as an aside would anyone ever own shares invest on stock markets or pensions if they were that risk adverse as this is the smallest of risks compared to owning any other asset.

There has been a lot of regulation since 2008 to reduce the risk of these scenarios.  You would think you would here murmurings on the financial markets, in the press or on bulletin boards like this before anything happened to an institution and you would have some warning to take action.

Yes, I had initiated a 30K transfer just prior to the Icesave collapse. Luckily I read on here all the panic and was able to cancel the transfer just before it went in. It just ended up it going down with £3K of my money in instead of £33K. I think the stress would have been a whole lot worse if I'd not got a heads up here.

You didn't lose your £3k though as we were all reimbursed.

Swipe

Band7 said:

Swipe said:

MA260 said:

It is generally not worth the risk in that you can receive similar interest across banks. Although as an aside would anyone ever own shares invest on stock markets or pensions if they were that risk adverse as this is the smallest of risks compared to owning any other asset.

There has been a lot of regulation since 2008 to reduce the risk of these scenarios.  You would think you would here murmurings on the financial markets, in the press or on bulletin boards like this before anything happened to an institution and you would have some warning to take action.

Yes, I had initiated a 30K transfer just prior to the Icesave collapse. Luckily I read on here all the panic and was able to cancel the transfer just before it went in. It just ended up it going down with £3K of my money in instead of £33K. I think the stress would have been a whole lot worse if I'd not got a heads up here.

You didn't lose your £3k though as we were all reimbursed.

I wasn't aware I said I did, just that the threat of losing £3K rather than £33K was much less stress. At the time no one knew if they'd get their money back or not until Alistair Darling came out and said he'd refund it.

wmb194

IvanOpinion said:

wmb194 said:

IvanOpinion said:

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

The fund bit is already covered.  I agree with your second para that the need to rely on the FSCS guarantee will be a last resort and not something that they really expect to happen. If it should happen then, for a smaller bank the full amount may be paid out, but if it was a larger/major bank then I suspect that a full pay out would be unlikely.

If that causes a run on banks then, so be it, more people could lose more money as the pence in the pound gets less.

We already have a very good idea of what will happen if a major bank, and probably the Nationwide, fails: it will be part or fully nationalised, they'll be stabilised, the FSCS won't be called upon and depositors will remain whole. Next time around they'll look to wipe out corporate bond and hybrid capital holders and the like but depositors will be senior to these. For instance, this is what happened with RBS and Lloyds during the GFC.

Which is pretty much repeating what I said?

I don't think so, you were talking about the FSCS being used and people being paid pennies on the pound - "[if a large bank failed] ...a full payout would be unlikely."

The key thing about the big banks and why they'd need to be propped up to the fullest extent is the uninsured businesses that need credit and cannot afford to lose their deposits. If the banks fail then they fail, other businesses fail, people lose their jobs and the dominos continue to fall.