[BBC News] Manx savings protection reviewed

[oldmanxfella]

oldmanxfella - you raise extremely interesting points and clearly have good insight and knowledge on these issues. I get the feeling that you are hinting at what the options might be, but refrain from spelling these out.

 

I'm not really hinting, I'm suggesting that it is a little like mutually assured distruction with the UK.

 

Irish banking subsidiaries in the IoM are now covered by the Irish scheme but all other deposits are not. If there is a mass defection here to Irish banks or to banks elsewhere in Europe because of the IoMs low deposit protection the British banks are screwed as its them who are going to have to meet the outflows in their IoM subsidiaries. The sensible thing for the UK gov to do is make some sort of additional commitment on these subsidiary accounts because its the UK banking system that will pick up the tab if there is flight of capital in the offshore businesses.

 

Hypothetically if £2bn switched from, say, Natwest Offshore to Anglo Irish IoM the main effect is going to be felt at Natwest in the UK who is going to have to cover the outflow of cash in its offshore subsidiary. So if people are really worried enough about our DCS to shift accounts its perhaps just as big a problem for the UK government.

 

The question is would a UK bank (or the UK government) ever suffer the shame of letting a subsidiary of a UK bank fail?

 

Conversely if everyone closed their offshore account and moved it onshore it wouldn't actually be too bad for the UK but I doubt people would want to do that as there are better rates available offshore and it might involve tax charges to move assets back into the UK so they'd likely try to keep the account out of the UK if they can. The balance is, I think, that the UK and IoM schemes have to mirror each other which they did when the IoM scheme was set up in the first place.

[Mr Woo]

It's worse than that, for some reason that I was unable to understand, even after phoning the FSC, it appears that we would be charged interest on any claim.

 

Have a look on their website, it appears thus:

 

"In order to claim compensation you will have to assign your rights to the whole deposit to the DCS manager and you will be charged interest on the amount of your claim."

 

Bloody hell! How can they charge you interest on your money? Surely that is a mistake?

 

It wouldn't surpise me though if this was right. It would probably end up that actually you receive an invoice from them, for interest owed for your 10k over 15yrs. Interesting...

 

Rab

 

It's right Rab, unbelievable but true. Check out their (The FSC) Depositors Compensation page (http://www.gov.im/FSC/investor/dep_comp.xml) It's the next to last bullet point in the first section. I phoned them to tell them they'd made a mistake as I assumed they meant they would PAY interest. The person I spoke to assured me it was correct, they would CHARGE interest. I asked why and was told I would have to speak to their accountant to get an answer to that.

[manshimajin]

The question is would a UK bank (or the UK government) ever suffer the shame of letting a subsidiary of a UK bank fail?

 

Conversely if everyone closed their offshore account and moved it onshore it wouldn't actually be too bad for the UK but I doubt people would want to do that as there are better rates available offshore and it might involve tax charges to move assets back into the UK so they'd likely try to keep the account out of the UK if they can. The balance is, I think, that the UK and IoM schemes have to mirror each other which they did when the IoM scheme was set up in the first place.

It's a guess, but the headlines would be pretty bad in the UK if a big UK bank's subsidiary was unable to meet its obligations to depositors in the IOM or Channel Islands - which might in turn make the UK Government pretty unhappy as they would have to deal with the financial consequences of a rush on a major UK bank. I think we have already seeen that in the present environment it does not take much to create panic.

 

I also assume that a lot of holders of small accounts won't do anything - not sure if the 80:20 rule applies here - 80% of the money is in 20% of the accounts. If the banks lost the big money but kept the majority of accounts it could be another expensive experience for them.

 

The person I spoke to assured me it was correct, they would CHARGE interest. I asked why and was told I would have to speak to their accountant to get an answer to that.

Thanks for checking this out. Clearly the staff have no idea and have not been briefed by their managers - great! Is this a way of recovering administrative charges? Maybe Government departments are not used to paying interest - only to charging it! Sounds like there is a need to publicise this if they don't know why they are doing it!

[pongo]

there are better rates available offshore and it might involve tax charges to move assets back into the UK so they'd likely try to keep the account out of the UK if they can.

 

Some very competitive rates in Ireland and many of the UK rates are not so bad either. I also believe that security will be more important than capital growth for most people at the moment.

 

I'm going to guess that many people (eg working overseas) who have their accounts here have never previously stopped to wonder whether their money is less secure on the IOM. Everything has changed now. Previously it has all been about rates, tax advantages etc. The (perceived) security of institutions will clearly be a much bigger issue down the road. Things are not going to go back to how they were before the past few weeks - even as things gradually improve.

 

A friend of mine in mainland Europe has his work pension paid into a Manx subsidiary of a bank he had used when he lived in the UK. They recommended the IOM to him - they advised him that it was normal. He has no connection with the IOM other than that. I very much doubt that he ever previously stopped to wonder whether money in IOM banks was less well secured.

[oldmanxfella]

I'm going to guess that many people (eg working overseas) who have their accounts here have never previously stopped to wonder whether their money is less secure on the IOM. Everything has changed now.

 

I totally agree with you. The point is that now they have said that they are going to "review" the DCS they have to do something. They can't spend months and then come back like last time and say "its staying the same" as many expat account holders are going to smell a rat if that happens.