Riskiest banks to save with

slipthru

Has anyone else read this artical and if so what are your thoughts? Is it just scare mongering or something to seriously consider?

http://www.moneyweek.com/file/41437/credit-default-swaps-how-to-spot-the-riskiest-banks.html

I see here Icesave are a risky bank at the moment.

But if they’re Icelandic, then be afraid; these banks are starting to be priced for bankruptcy risk and it’s not clear what protection UK savers might have with these foreign accounts.
Kaupthing is now having to pay almost 6% more than 5-year government bond yields (i.e. 10.2%) to raise funds. Kaupthing’s savings account pays just 6.5% AER, which doesn’t even come close to compensating us for the risk I’d say. The markets seem to be telling us that there is a very real default risk here. Glitnir Bank is not much better and even Landsbanki (owner of the popular Icesave internet banking business) has to pay the credit markets 3.2% more than risk-free rates and 2.45% more than ING does, for funds.
Given that Icesave pays 6.3% on their easy access internet savings account and ING pays 5.15%, perhaps shopping around for the highest savings rate right now is not actually the best thing to do. Perhaps, just perhaps, we should pay more attention to the risk side of the equation too.

Steve_xx

I think that this topic has already been discussed on here. However, it is reasonable to say that you are protected 100% upto the first 35k deposted in these banks should they default.

If you are a Northern Roock depositor then you are protected 100%, with no upper limit of protection, for the moment. Nobody can be sure at this point when the Northern Rock 'moment' will come to an end.

Note, that if any bank should default, that it might take FSCS some time to refund your deposits and during that interim period, ie from the date on which the bank defaults, you will not earn interest on your deposit.

chesky369

If everybody kept their savings to the 35k limit with a single bank, then there would be no need for anyone to panic. I do this as a matter of course, so that I don't have to worry about such scare stories.

Steve_xx

chesky369 wrote: »

If everybody kept their savings to the 35k limit with a single bank, then there would be no need for anyone to panic. I do this as a matter of course, so that I don't have to worry about such scare stories.

You would do better to keep your savings to say 33k in each bank. That allows for interest @ 6% bringing the total deposited to £34980 after 1 year.

nilrem_2

Since the problems at NR which was made a hell of a lot worse by savers panicking and withdrawing their cash (many of whom had less than the guaranteed amount anyway) we keep getting these scare stories telling people not to keep more than 35K in any one institution yet the risks of any UK based bank going 'under' losing savers money is highly unlikely and practically unthinkable.

AFAIAA no savers lost any cash from NR and I know of no other *normal bank or building society that has gone bust losing savers money in the UK for a very long time indeed, why are people so concerned about their bank going under? It is so unlikely; in fact one is far more likely to be killed in a motor accident than losing cash by ones bank going bust, yet every day most of us are happy to be out in our cars.

IMHO some of these reports we are fed are highly misleading and very irresponsible!

* (You cannot include Barings or BCCI as they were not 'normal' banks and no personal UK saver lost money.)

Steve_xx

nilrem wrote: »

Since the problems at NR which was made a hell of a lot worse by savers panicking and withdrawing their cash (many of whom had less than the guaranteed amount anyway) we keep getting these scare stories telling people not to keep more than 35K in any one institution yet the risks of any UK based bank going 'under' losing savers money is highly unlikely and practically unthinkable.

AFAIAA no savers lost any cash from NR and I know of no other *normal bank or building society that has gone bust losing savers money in the UK for a very long time indeed, why are people so concerned about their bank going under? It is so unlikely; in fact one is far more likely to be killed in a motor accident than losing cash by ones bank going bust, yet every day most of us are happy to be out in our cars.

IMHO some of these reports we are fed are highly misleading and very irresponsible!

* (You cannot include Barings or BCCI as they were not 'normal' banks and no personal UK saver lost money.)

I take your points and I concur in part.

However, it is not beyond the bounds of possibility for any UK bank to go bust. These are businesses and they, like any other business, can fail. The debacle at the Northern Rock came about suddenly, and, as part of the fallout of a problem that loomed large in the USA. It was thought that NR had recklessly and effectively put all its eggs in the one basket, in other words, its directors were not running the show correctly. The company is effectively nationilsed now. In isolation, I guess it's not beyond the UK governments' affordability to prop it up as it has had to do. The real problem would come if there was simultaneous failure at say four banks. That would really test the ability of the Bank of England to bail them out.

At the time that the NR story broke there were plenty of mutterings that Barclays might be in difficulty, and Alliance & Leicester were also thought to be jittery. The scapegoat came in th form of NR, but we don't actually know if that's the end of it.

nilrem_2

Steve_xx wrote: »

I take your points and I concur in part.

However, it is not beyond the bounds of possibility for any UK bank to go bust. These are businesses and they, like any other business, can fail. The debacle at the Northern Rock came about suddenly, and, as part of the fallout of a problem that loomed large in the USA. It was thought that NR had recklessly and effectively put all its eggs in the one basket, in other words, its directors were not running the show correctly. The company is effectively nationilsed now. In isolation, I guess it's not beyond the UK governments' affordability to prop it up as it has had to do. The real problem would come if there was simultaneous failure at say four banks. That would really test the ability of the Bank of England to bail them out.

At the time that the NR story broke there were plenty of mutterings that Barclays might be in difficulty, and Alliance & Leicester were also thought to be jittery. The scapegoat came in th form of NR, but we don't actually know if that's the end of it.

IMHO The government could not possibly allow any UK bank to fail if it lost savers money, were it to do so then you would see a 'run' on every UK bank and building society that would make the 'run' on NR look like a garden party! the outcome of this would be a complete breakdown of society and would be unthinkable.

Can you not imagine the pictures on TV of practically every one who had savings in any UK institution queuing up outside demanding their cash back, we saw a sample of what would happen when NR needed help!

IMHO there is no chance on earth that 4 UK banks could go bust as you suggest unless of course the government refused to support any single bank getting into difficulties in which case it would be total curtains for UK society anyway as I predicated above.

charlieboycat

Is there a risk (excuse the pun) of confusing the improbable with the impossible? If Bank A has a liquidity crisis and HMG/BOE can't/don't/won't step in pdq then Bank A can't pay what it owes Bank B (let alone its depositors trying to withdraw their savings) - giving Bank B a liquidity crisis. And so on; the knock-on effect doesn't really bear thinking about. But "impossible"? Or merely "improbable"?

tradetime

The BBC did a docurama of something like that a few years back, kind of based on the Barrings concept, but with the model being a major UK banking player, their contention was that if a major bank were to fail the ripple effect around the world would be something to behold since the finances of the major banks are so interlinked.

Steve_xx

nilrem wrote: »

IMHO The government could not possibly allow any UK bank to fail if it lost savers money, were it to do so then you would see a 'run' on every UK bank and building society that would make the 'run' on NR look like a garden party! the outcome of this would be a complete breakdown of society and would be unthinkable.

Can you not imagine the pictures on TV of practically every one who had savings in any UK institution queuing up outside demanding their cash back, we saw a sample of what would happen when NR needed help!

IMHO there is no chance on earth that 4 UK banks could go bust as you suggest unless of course the government refused to support any single bank getting into difficulties in which case it would be total curtains for UK society anyway as I predicated above.

There is a possibility that there could be a run on several banks. If depositors hadn't rushed to get their cash from NR when they did the banks' problems might have blown over. The fact that it happened caused shock and lead to further tightening of lending criteria between banks and this effectively squeezed the lifeblood from NR.

I think the point I was trying to make earlier was how possible it would be for the Bank of England to support say 4 banks that had gotten into difficulty simultaneously. I mean, how much money is there actually available to prop up these failed banks?

I think it all an unlikely scenario, but not an impossible one. And the government has already signalled that any future similar episodes will be dealt with behind the scenes. Obviously so as not to cause panic.

nilrem_2

How many UK banks have actually gone bust losing savers their cash in the last 75years? Personally I don't know of any.