Fears over safety net (Icesave)

Jonbvn

Interesting article in The Times today.

http://business.timesonline.co.uk/tol/business/money/savings/article3340738.ece

UK SAVERS investing in Icesave, the Icelandic internet-only bank, could face delays receiving compensation if it suddenly ran out of cash.
Savers who use banks solely regulated by UK authorities will receive £35,000 from the Financial Services Compensation Scheme (FSCS) if their bank defaults.

However, many of the 100,000 British savers who have placed £5 billion in Icesave savings accounts may not realise that they are not entitled to exactly the same guarantee.

Icesave, owned by Landsbanki, the Icelandic bank, is only partly regulated by the UK’s Financial Services Authority (FSA). The Icelandic authorities are ultimately responsible for the bank and must pay out compensation to distressed savers before a they can claim from the FSCS.

10_66

If the home compensation scheme failed, would the FSCS cover the whole £35,000?

tradetime

I can't help thinking the sudden rash of scare stories regarding foreign banks has more to do with the homegrown banking industry trying to stop money going overseas without actually having to compete with the interest rates being offered.

Fella

tradetime wrote: »

I can't help thinking the sudden rash of scare stories regarding foreign banks has more to do with the homegrown banking industry trying to stop money going overseas without actually having to compete with the interest rates being offered.

That may be true but it's still important to understand the small print of the guarantee. I think there's a tendency for people to be a little blase about amounts up to £35K "because they're covered by the FSCS". In reality it would probably be a nightmare of hassle & delays (& as others have mentioned, possibly proving your deposits) if a Co. did go bust.

Ultimately I think the guarantee would be honoured, but I must admit it would no longer be enough to convince me to entrust money to anyone who looked in serious danger of going busto.

Am still in Icesave at the mo but will keep a close eye on this personally.

This quote is also a little ambiguous:

Under the Icelandic Deposit Guarantees and Investor Compensation Scheme, the first €20,887 (£15,635) of savers’ deposits is guaranteed.
The rest of any £35,000 claim would be made up by the FSCS, into which Icesave contributes.
However, the FSCS website also carries this warning: “The home state scheme has lead responsibility for claims, and must pay the first part of any compensation.

So where would that leave savers if, for example, the home state scheme was bankrupt? It's not beyond the realms of imagination to envisage protracted legal wrangling etc etc. And our Govt would not have the same motivation to help savers with a foreign bank that they had to bail out NRK.

Not trying to scaremonger, just trying to understand if there is genuine cause for concern & not be over-complacent.

tradetime

I think that's pretty fair comment Fella.

Primrose

Oh dear! Have just switched a large proportion of our Icesave deposits to their One and Two Year Bonds to try and protect against future BOE interest rate falls. I hope this is just general scaremongering on behalf of British banks who have been badly affected by the credit crunch and wonder whether the more publicity is given to it, the more people might panic and try to withdraw their savings, probably unnecessarily. The media has enormous power to influence the population these days and if they hadn't publicised the Northern Rock situation I wonder whether we would ever have seen all those queues outside the bank, and possibly the situation would not have have not gone quite so pear-shaped as it did.

tradetime

I think a lot of it is scaremongering, as the images of the NR bank run are still very fresh in everyones minds. I also suspect as I've said above there is likely to be a little stirring by the homegrown banking industry.
However I do think that a degree of caution should also be exercised, an example of this would be that I am inclined to think that someone with under £35,000 say £30k should still split there money between 2 or 3 of the top paying banks.

[Deleted User]

I am also inclined to believe that this is scaremongering. I have also converted most of my icesave cash into 6 month and 1 year bonds and money cannot be withdrawn from them. The upside (for the bank) is that the bonds will provide a degree of stability as I am sure that many savers have gone down the bond route

I must admit to doing a bit of jiggling with the account though, because the total was/is above the 35k and I will go down the steps to 35k as and when the bonds mature.

Lavendyr

What I don't understand is why Icesave is being singled out in that article as a primary focus. What about Kaupthing, ICICI, ING and other foreign banks?

The article says at the end " The Bank of Ireland, Anglo Irish Bank, TD Waterhouse, the Dutch bank ING and Bank of Cyprus also top up their home compensation schemes in this way" yet focuses otherwise on Icesave. Shouldn't people with money in ING and so on be just as concerned regarding this point?

I fully appreciate the risks the article refers to, but to single out Icesave so much reeks of bias.

chesky369

I think we should all keep an eye on our banks; however I do feel that most of this little rush of stories about ICEsave is irresponsible scaremongering and that UK banks are trying to undermine the bank which they see as a threat. Either that, or it may be the anti-whaling lobby.

Meltdown_2

There is another article in today's Sunday Times (available via Times Online) entitled "Time to bale out of Iceland?" by the same person (Elizabeth Colman).
link to article

That article covers both Icesave/Landsbanki and Kaupthing - indeed it states "Admittedly, most of the concern about Iceland centres on Kaupthing, the country's largest bank". (an aside: Is Glitnir no longer the largest?)

It also mentions that the average balance in an Icesave easy-access account is £38,000, though some have as much as £1M with the bank.

The article closes with an interesting quote by Sue Hannums of AWD Chase de Vere. "We are happy to recommend any bank that can guarantee savers' deposits. However we would not recommend savers invest any more than £35,000 in each account. This applies to UK banks as well."

:eek: