Continuing Transactions After Bank Liquidation

AA91065 · 12 January 2018 at 3:03PM

Hi all,

Hopefully someone can help..

I understand from a friend at a bank that banks will usually sent the FSCS a single customer file containing all the information for the regulators on customers who are due compensation & how much this will be. Once this file has been received by the regulators, it will take them about 7 days to send a cheque to the depositor for their compensation amount

My question is, if a bank was to go through liquidation, when would they shut down all of their day to day processes (i.e. continuing to process customer bank transactions)?

Would this be stopped AS SOON AS they have sent their customer file to the regulators OR do they shut down all processes only AFTER the regulators have physically dispatched cheques to their customers?

My concern is if its the former, then I will need to make immediate arrangements to open another bank account at another bank to facilitate day to day transactions on my account (paying in salary). Also, if I get a compensation cheque, this will need to be banked at another bank account.

Hope this makes sense.

Thanks
Az

eskbanker · 12 January 2018 at 3:11PM

AA91065 wrote: »

My concern is if its the former, then I will need to make immediate arrangements to open another bank account at another bank to facilitate day to day transactions on my account (paying in salary). Also, if I get a compensation cheque, this will need to be banked at another bank account.

If you're that concerned about bank failure (and to be honest even if you're not) then it would be prudent to have a second current account with another bank in a different group.

As well as alleviating the scenario you paint, this also offers protection against technical failures that inhibit access to money, as well as other issues such as account suspension and card loss.

Don't delay, do it today!

AA91065 · 12 January 2018 at 4:14PM

Thanks for the response,

I suppose the question I'm really asking is, what does the FSA say in this scenario? If a bank is liquidated, when do banks shut down their processes? Is it after they've informed the regulators of which clients are due compensation OR is it after the compensation has been physically paid out?

Thanks
A

gt94sss2 · 12 January 2018 at 4:44PM

AA91065 wrote: »

I suppose the question I'm really asking is, what does the FSA say in this scenario? If a bank is liquidated, when do banks shut down their processes? Is it after they've informed the regulators of which clients are due compensation OR is it after the compensation has been physically paid out?

I suspect neither of those is correct.

The bank is likely to have to stop all their day to day processes immediately and only after that then send details of customers balances/accounts to the relevant body for compensation to be paid.

Linton · 12 January 2018 at 4:46PM

Surely a banks would have to stop all payouts immediately they believe themselves to be insolvent as trading whilst insolvent is illegal. The money shown in your bank account isnt yours, it's the banks. All you have is a promise by the bank to pay it to you on request. On insolvency as far as the bank is concerned you are just another creditor.

Edi81 · 13 January 2018 at 1:23AM

Remember that under FSCS the first £80000 or so is covered.
Banks are unlikely to fail particularly retail banks. Why the concern?

TheBanker · 13 January 2018 at 9:49AM

AA91065 wrote: »

My concern is if its the former, then I will need to make immediate arrangements to open another bank account at another bank to facilitate day to day transactions on my account (paying in salary). Also, if I get a compensation cheque, this will need to be banked at another bank account.

Not just you... Imagine if RBS hadn't been bailed out, and all their customers had to open new accounts. The other banks would not be able to cope!

The bank is supposed to have plans to allow an "orderly wind down". In reality, the most likely situation is the bank, regulators, treasury and FSCS would work together to keep things going, with accounts likely to be transferred en-masse to another bank. Similar to how Bradford and Bingley savings accounts were transferred to Santander over a weekend.

realaledrinker · 17 January 2018 at 8:20PM

The PRA are all over the banks like a proverbial rash. Each financial institution has to have a Recovery and Resolution Plan in place which is stress tested to ensure that an orderly wind down can take place. Look at the Co-op bank in recent times for example. The depositors balance would be transferred to another institution, using the existing bank’s infrastructure until they could be transferred in an orderly fashion.

Most of the earlier comments above are just idle speculation although not keeping more than £85K in one institution is sound advice.

Continuing Transactions After Bank Liquidation

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