Raising the £35,000 savings guarantee?

Meltdown_2

Aegis wrote: »

There absolutely will be higher costs associated with higher guarantees, as the FSCS is required to maintain a pool of assets that can be used to fund claims. The banks have to contribute to this every year, as do other financial services companies. Increasing the level of compensation would require more money in the pool simply because the potential payouts would be higher, assuming that the FSCS doesn't make its decisions based on how much cash people actually have in total (unlikely)

This doesn't seem to tally with the way in which the FSA worked out the new funding arrangements for the FSCS. This seems to be based on previous years' funding requirements. In other words, it relates to how many firms actually went bust, and what the costs involved were. Deposit-takers don't seem to go into default very often (apart from maybe credit unions), so the historical costs for this pool have been relatively low. Since increasing the guarantee level would make customers less jittery about withdrawing funds, one could argue that this would reduce the likelihood of deposit-takers defaulting, and hence reduce notional costs.

Imagine what would happen if one of the larger banks crashed.

It's the end of the world as we know it ...
Doomed, doomed ... we're all doomed!

The other banks would then have to cough up huge amounts of cash assets, and most large companies simply don't keep that much liquidity on their balance sheets because it's utterly pointless when it could be making money elsewhere. Quite simply, the strain of a sudden huge requirement on their cash flow such as we'd see in the event of a large bank going bust would probably ruin several more institutions, which would then require more funding, etc, etc...

Which is presumably why the scheme wouldn't work like that.
Any default that requires more than £4B (as would be the case if one of the larger banks crashed) triggers the FSCS washing its hands of the matter and passing the problem over to the Treasury/BoE/FSA.
Cue feverish behind-the-scenes (Fed-style) discussions to get the other major banks to take over the assets of said bank (with appropriate sweeteners).
But what about the EU Commission? Will they be happy with this?
No. So involve them in the behind-the-scenes discussions too.

No bank is ever going to sign an agreement saying they'll pay for their rivals' business mistakes like that!

Er, they already have, by signing up to the FSCS.

RayWolfe

One point of clarity.
The figure that was talked about by Government - in passing - was 100,000 dollars, i.e., the present US limit. That would equate to 50,000 pounds, not a million miles from the present figure.
I would also say that I think this whole issue has been really overblown, The last retail bank/bs that went bust was The State Building Society in about 1958 and no one lost their deposits. But I guess it makes good copy to give people something else to worry about and to beat the Government up about.

Meltdown_2

Aegis wrote: »

I agree that it needs to be revisited and possibly redesigned from scratch.

Which is essentially what they have just done.
Whether it makes sense ...

If nothing else they need to make sure that the FSCS is solving the problems it was set up to solve!

That's probably the one thing we can say has worked. The FSCS has always (as far as I am aware) paid out the levels of compensation it is supposed to.

I just disagree with the idea that throwing more money at a problem will make it go away, which is why I disagree with the idea of raising the compensation levels (and therefore levies) without looking at alternative solutions.

There are of course alternatives that have been looked at. But in general, the banks don't like them.

Aegis

Meltdown wrote: »

Er, they already have, by signing up to the FSCS.

In a way, yes. However, the way I was trying to get across would be if, say, the rest of the banks had been literally told to bail out NRK when it crashed. That's what I was claiming they would never agree to.

Obviously they DO protect each other, but not in the way I was claiming wouldn't happen...

McSaver

Why dont they do something like 100% of the first £35,000 and then the next 80% of £65,000?

moonrakerz

earlgrey wrote: »

I think the simple answer is that because otherwise a lot of ordinary people would have lost their life's savings. I remember the BBC speaking to one person in a queue who had put the entire proceeds from the sale of their house there until they bought another. Must have been many like them.

Some would point out that the present problems originated when the former building societies and banks and were deregulated and allowed to privatise under Lawson. I think those who object to the present arrangements should tell us the course they would have preferred.

By "ordinary", I presume you mean Labour voters in the North East - as has been pointed out many times, would the outcome have been the same if it had been the Southern Rock bank based in Guildford ?
This caring Government doesn't seem too bothered about all the people elsewhere who have lost their life pensions when their companies went bust.

The management of NR ran the company like a bunch of second hand car salesmen, in fact worse. The whole thing was kept going by borrowing more and more money, more like some of the sorry tales we see on this site, where people end up borrowing from Peter to pay Paul.
A contributory factor was Gordon Brown's decision in 1997 to make the Bank of England independent - except that he didn't, he tied it in with the FSA as a so-called super regulatory authority, and the Treasury still had its sticky fingers in the mess. Result, no one was keeping their eye on the ball.

If you are going to have a free market economy, you take the rough with the smooth - I didn't hear too many people moaning when NR decided to "bribe" its customer base and converted to a bank doling out carpetbagging windfalls left, right and centre.

nilrem_2

Oblivion wrote: »

I believe at one point that Chancellor Darling even went as far as saying that a £100,000 guarantee might be on the cards,

When this was discussed on the Money Programme (Radio four) some weeks ago the general feeling was that once ministers had looked at the cost they hoped everyone would forget about £100,000 guarantee! They do seem to have got away with it!

tradetime

nilrem wrote: »

When this was discussed on the Money Programme (Radio four) some weeks ago the general feeling was that once ministers had looked at the cost they hoped everyone would forget about £100,000 guarantee! They do seem to have got away with it!

Pretty much sums this government up, lot's of bluster and shouting, a fair bit of running around in circles and about turns (suprised they don't disappear up their own backside) and then sweep it under the carpet. I imagine they've done all they intend to do on the matter.

Meltdown_2

RayWolfe wrote: »

One point of clarity.
The figure that was talked about by Government - in passing - was 100,000 dollars, i.e., the present US limit. That would equate to 50,000 pounds, not a million miles from the present figure.

An increase (to a level unspecified, IIRC) was suggested by the Treasury/BoE/FSA in their consultation documents. They probably had £50,000 in mind.
Remember that the £35,000 figure (originally 100% on first £2000 & 90% on remainder up to £35K) was fixed some years ago. A simple upgrading in line with inflation (whichever index you care to believe) would take it close to £50K, perhaps.

I'd also say that I think this whole issue has been really overblown, The last retail bank/bs that went bust was the State Building Society in about 1958

1959

and no one lost their deposits. But I guess it makes good copy to give people something else to worry about and to beat the Government up about.

earlgrey_3

moonrakerz wrote: »

By "ordinary", I presume you mean Labour voters in the North East - as has been pointed out many times, would the outcome have been the same if it had been the Southern Rock bank based in tory Guildford ?

Err, are you under the curious impression that there were no NR savers in Guildford? As someone who lives near I can assure you there is a busy branch there and very many customers.

In fact, the picture most often shown on TV and where savers were interviewed was outside of the Castle Street, Kingston upon Thames branch, also in Surrey and just a few miles along the A3 from Guildford. Shown here again on the Telegraph website.

Northern Rock Kingston branch.

See http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/17/bcnqueue117.xml

Don't look any happier than those savers in the north you sneer at do they? And in case you're wondering, I didn't have any savings with them.

Of one of the customers interviewed outside the Kingston branch the Telegraph said: 'One elderly couple were queuing to withdraw their entire £150,000 life savings. "We will lose £1,500 because of a penalty for withdrawing our money too soon," said the man from Morden, south London, who did not want to be named.

"But I am 75 years old and I must have this money because it is all I have got until I die. I took £65,000 out on Friday, but my children told me to take the rest out today." '

Whether he was a Labour or Tory voter it doesn't say.

moonrakerz wrote: »

If you are going to have a free market economy, you take the rough with the smooth.

If your kind of economy is one where pensioners end their lives in poverty after losing their life's savings then you're welcome to it - but it's not one I would ever want to see here.