Bank Deposit Protection Scheme

[triskelion]

If that is your attitude then the whole sector should be de-regulated and back we go to the early 80's or even worse.

 

Nothing is risk free, but the economy needs a banking sector which is stable, dependable and relatively risk free.

Regulation and a compensation scheme are not the same thing though, and it is evident from events in the UK and Ireland that higher levels of guaranteed compensation do not necessarily encourage a stable banking sector.

 

When the runs on Northern Rock and HBOS occured, or on Irish Nationwide, people obviously weren't thinking "Its okay, I'll get my money back if they go bust" they were thinking "GET MY MONEY THE FUCK OUT NOW!"

 

With that in mind, although I agree with what you say about the banking sector up to a point, I don't see how that's related to higher level of depositor compensation.

[pongo]

I'd want to see it in writing as I can't believe, given the recent scandals involving Irish offshore account holders, that the Irish government actually wants to fund the cost of covering offshore businesses who they have accused of robbing them of revenue over the years.

 

http://www.angloirishbank.co.im

 

The Irish Government today announced (30th September 2008) that they have put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank) covered bonds, senior debt and dated subordinated debt (lower tier II). The guarantee will cover all existing aforementioned facilities with Irish institutions including Anglo Irish Bank Corporation plc and all related deposit taking subsidiaries (including Anglo Irish Bank International). The guarantee is for a two year period until 28th September 2010.

 

The agreement would seem to put the non Irish IOM subsidiaries at a disadvantage.

[oldmanxfella]

The agreement would seem to put the non Irish IOM subsidiaries at a disadvantage.

 

Well thats the interesting bit. All this move by the Irish government has done is guarantee more British banks get into difficulties next week as billions that wouldn't have normally moved off their books gets wired across the Irish Sea. Its not too clever a move really - most people know that some of the Irish banks have had difficulties for a while and knowing this the Irish Government thought up a great ruse where they guarantee their deposits so that they instantly get in billions of new money they would not normally have got to shore up their positions. This temporarily might shore up the banking sector but some of the banks are still fundamentally shitty, but people now don't care because of the guarantee so they move shit loads of money into them.

 

The question is "What happens after the 2 years?" The guarantee ends and the money files back out again because there is no point in running the risk of holding the deposit in a shaky bank anymore, the result being that the Irish banking system is more fucked than it was before.

 

In fact the worst possible thing is that the EU overrule the guarantee scheme on the grounds of it being anti competitive, and then the money that's been transferred across flies back out to somewhere else next week leaving the Irish banking system in even worse a position than it was to start with.

 

This is a crisis of confidence and you can't spray a turd with gold paint and try to pass it off as a gold bar.

[Gladys]

Nothing is risk free, but the economy needs a banking sector which is stable, dependable and relatively risk free.

 

why?? the government could serve the function of banks for capital projects and industry. and then for the masses you only get what you earn without the promise of this or that interest. if you want to gamble, fine, hit the bookies. but you shouldn't be told to save your money in the bank on a few percent interest only to have the bank liquidate and effectively rob you. banks are still a gamble, but not one you realise you are taking.

Whether banking is provided by the public or private sector it has to be stable etc.? Why would any other state of affiars be acceptable?

[Snaipyr]

If you're really that concerned about your savings and the shortcomings of the compensation scheme here, then the best bet is to put your money in an NS&I account via the IOM Post Office. It's 100% backed by the UK treasury so in theory should be the last one standing if all others have gone to the wall. If the UK goes bust you lose, but if it gets to that stage the pound will be pretty much worthless anyway.

 

I thought (maybe mistakenly?) that the IOM Post Office were no longer able to the offer NS&I facility?

[Snaipyr]

Nothing is risk free, but the economy needs a banking sector which is stable, dependable and relatively risk free.

 

why?? the government could serve the function of banks for capital projects and industry. and then for the masses you only get what you earn without the promise of this or that interest. if you want to gamble, fine, hit the bookies. but you shouldn't be told to save your money in the bank on a few percent interest only to have the bank liquidate and effectively rob you. banks are still a gamble, but not one you realise you are taking.

Whether banking is provided by the public or private sector it has to be stable etc.? Why would any other state of affiars be acceptable?

 

Wholeheartedly agree.

[Lee54]

Maybe this is what the Irish Governments been looking for, for years shed loads of Irish money has been hidden in offshore banks costing the Irish Government £millions in lost taxes, pay back time.

 

RBS which owns the IOM Bank are one of the biggest Banks in the US, and if the US Government fail to win the vote on the bail out, RBS could be in a load of trouble. RBS need the deal to go through in the US so they can dump most of their bad assets into one of the bad banks.

[BigDave]

If you're really that concerned about your savings and the shortcomings of the compensation scheme here, then the best bet is to put your money in an NS&I account via the IOM Post Office. It's 100% backed by the UK treasury so in theory should be the last one standing if all others have gone to the wall. If the UK goes bust you lose, but if it gets to that stage the pound will be pretty much worthless anyway.

 

I thought (maybe mistakenly?) that the IOM Post Office were no longer able to the offer NS&I facility?

They still had the literature in Ramsey post office a few weeks ago, and it's still on the website. (Although being on the website is no guarantee I suppose)

[manshimajin]

The agreement would seem to put the non Irish IOM subsidiaries at a disadvantage.

Well thats the interesting bit. All this move by the Irish government has done is guarantee more British banks get into difficulties next week as billions that wouldn't have normally moved off their books gets wired across the Irish Sea. Its not too clever a move really - most people know that some of the Irish banks have had difficulties for a while and knowing this the Irish Government thought up a great ruse where they guarantee their deposits so that they instantly get in billions of new money they would not normally have got to shore up their positions. This temporarily might shore up the banking sector but some of the banks are still fundamentally shitty, but people now don't care because of the guarantee so they move shit loads of money into them.

I guess the UK Government did a very similar thing when it underwrote all the deposits in Northern Rock 100%? Maybe the Irish Government learned a lesson from them? I understand that Northern Rock still has stronger guarantees than the other UK banks.

 

One gets the feeling that Gordon and Alistair are upset they did not think of this first - a comparison of two different Celtic cultures - one 'wise' the other 'smart'? As of today I know where I would rather keep my money - and funnily enough I am a client the category of person that seems to get forgotten in all this. One gets the feeling that the UK and the EU are fiddling whilst Rome burns which opens up a need to take action in Ireland.

 

Incidentally the action taken by the Irish has raised the Irish Governments cost of borrowing funds by 30 basis points (as of now) so it is not going to be cost free.

[ai_Droid]

I guess the UK Government did a very similar thing when it underwrote all the deposits in Northern Rock 100%? Maybe the Irish Government learned a lesson from them? I understand that Northern Rock still has stronger guarantees than the other UK banks.

 

Funny you should mention that: http://news.bbc.co.uk/1/hi/business/7647914.stm

 

Definitely It's a nationalised bank with double the rates of National Savings, no surprise people have been falling over themselves to open savings accounts.

 

One gets the feeling that Gordon and Alistair are upset they did not think of this first - a comparison of two different Celtic cultures - one 'wise' the other 'smart'? As of today I know where I would rather keep my money - and funnily enough I am a client the category of person that seems to get forgotten in all this. One gets the feeling that the UK and the EU are fiddling whilst Rome burns which opens up a need to take action in Ireland.

 

I'm not sure it's a great idea, why should banks operate without risk? It'll just encourage them to behave worse than they have before, and they've created this situation we're in. The existing protection offered is enough in my view.

[pongo]

I'm not sure it's a great idea, why should banks operate without risk? It'll just encourage them to behave worse than they have before, and they've created this situation we're in. The existing protection offered is enough in my view.

 

The Investor Protection schemes do not protect the banks as institutions, or the shareholders. They protect the savers. That is quite different.

 

In general terms - Govt depositer protection schemes reflect faith in the quality of the regulation under which the banks are licensed.

 

The problem for ordinary IOM savers is that they are at a disadvantage compared to UK savers. The local subsidiaries of ordinary UK high street banks are not protected by the UK govt scheme. But if IOM residents put their savings in UK banks then any interest income will be potentially double taxed (first in the UK and then by the IOM). Likewise - products which are tax free in the UK are liable for tax on the IOM (eg some of the NSI products which IOM residents are allowed to hold).

[The Old Git]

But if IOM residents put their savings in UK banks then any interest income will be potentially double taxed (first in the UK and then by the IOM).

Presumably you can supply the necessary documentation to say you pay tax in the IOM and receive the interest gross without any tax deduction? That's what I'm doing with my Smile account.

[Dunroamin]

IOM Government scheme is useless as amounts "guaranteed" is too small, any repayment would take years, and the IOM Government has "no skin in the game"!

 

It relies on other banks based in the IOM being able to pay enough money out of future reserves into a central pot for the depositors in the bankrupt bank to receive compensation - after enormous fees are paid to IOM Government and its appointees to adminster the scheme. One only has to see how the FSA as a leech on the financial instituions on the IOM has grown like topsy to justify its exisitnece to see how the scheme would work against the depositors!!

 

Furthermore, if one bank went down for billions in the IOM what is to stop the others from pulling out immediately and transferring their business and accounts to UK/Jersrey to avoid meeting any liability under the IOM scheme?

 

As regards the Irish guarantee, two comments:

 

1. for them to have made such an outlandish guarantee, surely the Irish banks must be in serious trouble or why do it?

 

2. As the amounts in deposits held by the Irish Banks is at least twice and more likely three time the Gross National product (the amount Eire Ltd earns per annum in income) how on earth can it meet any obligations under the guarantee? It is like me, with no assets other than my job, signing a guarantee to the bank for someone else's debts knowing that the amount I may be asked to pay amounts to three times my salary!! Do not be fooled by either the IOM or Irish "guarantees" schemes! I would think that the use the National Savings or UK Gilts (which are tax free so far is the UK is concerned) are looking positive!!

 

But hell what do I know.................................!!

[pongo]

But if IOM residents put their savings in UK banks then any interest income will be potentially double taxed (first in the UK and then by the IOM).

Presumably you can supply the necessary documentation to say you pay tax in the IOM and receive the interest gross without any tax deduction? That's what I'm doing with my Smile account.

 

I did not know that that option existed. Thanks. Something else to investigate Now that you say it - well it seems obvious.

 

Do you have to fill in a UK tax return in relation to the potential for liability ... ie even though nothing is ultimately due probably ?

[Tugger]

But if IOM residents put their savings in UK banks then any interest income will be potentially double taxed (first in the UK and then by the IOM).

Presumably you can supply the necessary documentation to say you pay tax in the IOM and receive the interest gross without any tax deduction? That's what I'm doing with my Smile account.

 

I did not know that that option existed. Thanks. Something else to investigate Now that you say it - well it seems obvious.

 

Do you have to fill in a UK tax return in relation to the potential for liability ... ie even though nothing is ultimately due probably ?

 

I'm not convinced that this option does exist. It will be UK sourced income and so it will be subject to UK tax. When you receive your net income in the Isle of Man you should be able to avoid paying additional IOM tax on it under the double tax arrangements between the UK and the IOM, but I would have thought that the UK tax was the one you wanted to avoid.