Channel 4 news running a feature on risks of foreign banks

ps646566

Aegis wrote: »

I think you might be confused about the situation. Icesave and other foreign banks operating in the UK are covered as much as any other organisation by the FSCS, meaning that you will get your money back if the institution goes bust. The only difference is that the bank's home country will cough up whatever they can first, than the FSCS will reimburse you for the remainder.

So if anything, you are safer like this because you have the other country's scheme as well as the UK one to cover any losses incurred due to the insolvency of a bank.



This has nothing to do with the compensation scheme, which was not required in the Northern Rock crisis. No depositor ever came close to losing their money, and the foreign government could easily nationalise the bank and deal with the situation in the same way as we did with NRK.

And yes, it's worth it for 2 percentage points difference. 4.5% would be an appalling rate, barely beating RPI. As always, diversification would be the key if you were really worried.

But that is the point, if the home country scheme cannot or will not contribute its piece, then I don't see what redress you would have. Even if they did there could be an awful lot of delay, aggravation, and stress involved. The foreign government could choose to do what HMG did with Northern Rock -- but would it ? Iceland, as has been pointed out, is a very small country with limited resources. India is potentially politically unstable. The British government will have no vested interest in gratuitously bailing out people who have chosen to invest in foreign-based rather than UK-based banks, even after being cautioned by the FSA.

Whether the risk is worth it for 2 % points is a judgment call (and I mean 0.2%). My judgment says not. For the sake of those still invested with foreign banks, I hope that our judgments on this are never really put to the test.

Aegis

ps646566 wrote: »

But that is the point, if the home country scheme cannot or will not contribute its piece, then I don't see what redress you would have.

You'd get the whole amount from the FSCS in that case. they cover up to £35k less anything you get from other compensation schemes. If you get nothing from the bank's home scheme, then the FSCS will be responsible for the whole £35k. Yes, it might take a little while, but probably not significantly longer than a UK bank going under.

Even if they did there could be an awful lot of delay, aggravation, and stress involved.

The Northern Rock fiasco was all that, and the savers were never in trouble. Home-grown certainly doesn't mean stress-free!

The foreign government could choose to do what HMG did with Northern Rock -- but would it ?

Probably, yes. With a significant portion of their economy revolving around financials, they'd have to be morons to allow one of their banks to collapse completely. As someone already mentioned, the Icelandic government has said that they foresee any failing bank being bought out by one of the other banks, who would then take on the assets and liabilities of the ruined banks.

Iceland, as has been pointed out, is a very small country with limited resources. India is potentially politically unstable. The British government will have no vested interest in gratuitously bailing out people who have chosen to invest in foreign-based rather than UK-based banks, even after being cautioned by the FSA.

The FSCS would be obliged to pay out for any institution it has guaranteed.

Whether the risk is worth it for 2 % points is a judgment call (and I mean 0.2%). My judgment says not. For the sake of those still invested with foreign banks, I hope that our judgments on this are never really put to the test.

0.2%? I don't know many UK banks with 6.3% instant access accounts with no withdrawal penalties... 5.5% is more like it, and a full 1% difference is more than enough for me to send my business their way.

ps646566

I guess we'll have to agree to differ about the attendant risks and drawbacks, and whether they are worth taking.

But there are alternatives without losing vast amounts of interest. Here's the first few results from searching a well-know money website -- instant access accounts, showing interest rate and minimum balance :-

Alliance & Leicester 6.50% £1
Kaupthing Edge 6.50% £1,000
FirstSave 6.26% £100
Abbey 6.25% £1
Northern Rock 6.25% £1
ICICI Bank UK 6.17% £1
Bradford & Bingley 6.15% £1
Newcastle BS 6.13% £250
Manchester BS 6.11% £1,000
Heritable Bank 6.06%
Anglo Irish Bank 6.05% £1
Icesave 6.05% £250
ASDA 6.00% £100
Bradford & Bingley 6.00% £1,000
ING Direct (UK) 6.00% £1
Principality BS 6.00% £1
AA 5.90% £500
AA 5.90% £500
Birmingham Midshires 5.88% £1
Bank of Scotland 5.87% £1

Stormy

ps646566 wrote: »

Alliance & Leicester 6.50% £1

I refuse to bank with those burglars ever again, they are the bank most likely to "catch the investor" and then cancel the product and let the rates fall, giving you no option to move the account within the institution.

It happened to me three times with A&L.

The risk with Icesave and Kaupthing is no greater than with any UK bank, and as its been pointed out, time and time again the UK FSCS covers both institutions (they are both operating UK accounts, to UK regulations) for upto 35K. End of.

Anything else is scaremongering.

http://www.fscs.org.uk/consumer/How_to_Claim/Deposits/EEA_firms_that_have_topped_up/

It may take longer, but I seriously doubt anyone would lose out. I also seriously doubt either bank is close to going under.

Mike

ps646566

Stormy wrote: »

I refuse to bank with those burglars ever again, they are the bank most likely to "catch the investor" and then cancel the product and let the rates fall, giving you no option to move the account within the institution.

It happened to me three times with A&L.

The risk with Icesave and Kaupthing is no greater than with any UK bank, and as its been pointed out, time and time again the UK FSCS covers both institutions (they are both operating UK accounts, to UK regulations) for upto 35K. End of.

Anything else is scaremongering.

http://www.fscs.org.uk/consumer/How_to_Claim/Deposits/EEA_firms_that_have_topped_up/

It may take longer, but I seriously doubt anyone would lose out.

Mike

They are all likely to drop rates once they've pulled in their target amount. I wonder how long Kaupthing's rate will be that high ? With regard to having to move money within the institution, I don't why that's the only recourse unless it's an account with strings attached, which I tend to avoid in the first place. Otherwise, if they drop the rate to an uncompetitive level, or give you crap customer service, then just move the money.

With regard to alleged scaremongering, if that's all it is then I still don't see why the FSA or Channel 4 would want to be party to it.

Stormy

ps646566 wrote: »

They are all likely to drop rates once they've pulled in their target amount. I wonder how long Kaupthing's rate will be that high ?

Very likely, i'll move it out to another bank as I always do. Just A&L have proved to me beyond a reasonable doubt that they play that game every time.

If you read the article on Channel 4 the FSA don't actually say anything about either Icelandic bank, they aim it generically at foreign banks.

Kaupthing: http://www.kaupthingedge.co.uk/Help/Faqs.aspx?id=03

10. Is my money safe?

Yes. Your money will be held by Kaupthing Singer & Friedlander Ltd. Furthermore, your deposit will be protected under the UK Financial Services Compensation Scheme, which can pay compensation (currently up to £35,000) where a firm is unable to pay claims against it. For further details refer to www.fscs.org.uk.

Icesave: http://www.icesave.co.uk/financial-protection.html

financial protection

Deposits made with Icesave are protected under the Icelandic Deposit Guarantees and Investor-Compensation Scheme (details of this scheme may be obtained from www.landsbanki.com/legislation). Payments under this scheme are limited to the first €20,887 (or the sterling equivalent) of your total deposits held with us.

You have further protection from the UK Financial Services Compensation Scheme (www.fscs.org.uk). Payments under this scheme are limited to 100% of the first £35,000 per account holder of all your deposits with us, less any payments made under the Icelandic scheme. This means that the maximum claim amount as at October 2007 is £35,000.
The total financial protection given to you under both schemes is no less than you would receive if your deposit was only protected by the UK scheme. In the extremely improbable event of a claim being made under the schemes, the relevant authorities will co-ordinate any claim and will ensure that compensation is paid as promptly as it would be under a single scheme. Further details about both schemes can be obtained from our web site or by post, on request.

I see no reason for anyone who has money with either institution to worry, regardless of what Channel 4 say.

Mike

ianmr65

ps646566 wrote: »

With regard to alleged scaremongering, if that's all it is then I still don't see why the FSA or Channel 4 would want to be party to it.

As previously stated, Channel 4 are in business to make programmes and SELL ADVERTISING. If they don't get viewers they won't sell advertising. This sort of story gets viewers. They jumped on the story following an article in the FT, and did very little research. When they asked the FSA to COMMENT, the fsa representative who probably did not know a CDS spread from his elbow, or how his own organisation's compensation scheme works, trotted out some pat and bland advice.
THE FSA HAVE NEVER MADE AN OFFICIAL STATEMENT ABOUT 'FORIEGN BANKS'

Greycrow

It would be much more benefical to us if the FSA chappie would let us know which banks trading here are exposed to the Bear Sterns shambles, and the extent of their exposure. That would greatly assist me, as to where to re- invest my savings.
My guess is, none further north than Scotland.

ianmr65

Greycrow wrote: »

It would be much more benefical to us if the FSA chappie would let us know which banks trading here are exposed to the Bear Sterns shambles, and the extent of their exposure. That would greatly assist me, as to where to re- invest my savings.
My guess is, none further north than Scotland.

Barclays capital are the fith biggest investor in Bear stearns, but many other uk banks will be holding Bear streans paper, and many will have just unloaded it. No one really knows who's exposed to what at the moment. Least of all the FSA.
This is what's causing the turmoil on the credit markets. Stopping banks and hedge funds and soverign funds from lending to each other. They have stopped trusting what the other banks are telling them
This means that institutions, like Bear who are relliant on the credit markets for liquidity, are most at risk, and institutions who rely on property mortgage for their business are also at risk.

In a falling house price market, the credit crisis has meant that mortgage approvals have also dropped, as banks can't borrow on the international credit markets to fund their mortage portfolio. That means less people can afford to buy or move home, thus will take out fewer mortgages which will in turn lead to more drops.

So the more your bank is reliant on mortage business, the more it is liable to be at risk.

Happy Days!!

Greycrow

[quote=
Happy Days!![/quote]

Not sure about the happy bit but we have an interesting few coming up.