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Why our banks are vulnerable

Robert Peston | 09:22 UK time, Tuesday, 30 September 2008

The most important markets announcement this morning is that the Irish government has placed an unlimited two-year guarantee on all deposits and some debt in six Irish banks, to "safeguard the Irish financial system".

The emergency measure follows an extraordinary 26% fall in Irish bank shares yesterday.

This has huge ramifications for us.

Potentially it puts British banks at a massive competitive disadvantage - especially since other European governments are also taking urgent steps to reassure their citizens that their bank deposits are safe.

There is a widespread perception that the £35,000 limit to deposit protection in the UK, and the proposed increase to £50,000, are inadequate - and that the absence of full protection makes our banks more at risk of a run on retail deposits.

That has two damaging effects.

It spooks giant global money managers and providers of wholesale funding - and if they were to accelerate their withdrawal of cash from UK banks, well we'd see a domino-effect of horrible banking failures.

Second, it undermines the confidence of investors in our banks shares - which is why their share prices have become so vulnerable to sharp falls.

So top of the list of what this government could do to limit the damage to us from Washington's bail-out bungle would be to announce with immediate effect that all deposits in UK banks are 100% guaranteed by the government.

The chancellor did this after the run on Northern Rock last September.

There's a powerful argument that he should do it again.

PS. There is also a perception that our banks remain at a disadvantage compared with those in the eurozone and the US in respect of the assets they can swap for central bank loans.

Although the Bank of England has, over recent months, widened the collateral it will take in exchange for loans, there is a perception (which is as important as the reality in a climate of hysteria) that it is less amenable in the way it provides financial support than either the European Central Bank or the Federal Reserve.

This is something that the Bank of England can and should probably address, fairly speedily, if it wants to shore up the confidence of money markets in the robustness of our banks.


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  • Comment number 1.


    If all deposits are guaranteed there is no risk in banking all your cash with the dodgiest deposit holder who pays a bit more interest. We need to get away from the idea that individuals need take no personal responsibility for their financial cannot always be up to the Goverment to bail them out...

  • Comment number 2.

    He should and I hope he will ... the cost of the insurance should be met 100% by the banking industry.

    No state aid for these guys, I'm afraid.

  • Comment number 3.


    You are 100% right. We need Brown and Darling to take the initiative rather than being seen as reacting to events.

    Last night's Newsnight showed just how ineffective the FSA has been at anticipating developments over the last 12 months, so savers have little or no confidence in the tripartite arrangements.

    In this vacuum, the only effective stabilisation would be a simple statment of a 100% guarantee in all UK banks.

    The hugely volatile movments in UK bank share prices yesterday and today - even with the shorting ban in place - just underlines how important this is.

  • Comment number 4.

    It is all very well the Irish Government offering such an assurance to their banks depositors - but with what are they backing it up?

    What 'assets' are they offering as collateral?

    Their guarantee is fanciful.

  • Comment number 5.

    How much cash is being transferred from the Commercial Banks into National Savings at the moment.

    Isn't National Savings a more secure home ?

  • Comment number 6.

    Good post, Robert.

    Has Congress (or the whole USA) missed the point that money knows no boundaries.

    Is their parochial thinking blinding them to the real problems, and going to do them some real damage?

  • Comment number 7.

    If the government had acted months ago to introduce this measure much of the damage done to banking confidence in this country could have been avoided.

  • Comment number 8.

    Peter Mandelson, Gordon Brown, Robert Preston et al. It makes my blood boil that these stalwarts of Europe and the Uk have the temerity to criticise the US political system for voting down the Paulson bail out package. What right do they have for attacking the US taxpayer and expecting them to fund the rescue of the UK financial system. Things are a lot tougher in the US than the UK right now and yet we stand here moaning and whining, which is typical of a nation that has lost it's sense of ownership. I have the impression that these great British Isles have really become the 51st state. Ordinary US taxpayers hate the idea of subsidising Wall Street vultures while at the same time being kicked out of their homes. It's time we stood up, accepted responsibility, dig in, rein back and batton the hatches. We will survive this with frugality, appreciation of life versus consumerism and good old fashioned improvisation. We are all to blame for this mess and for us as British citizens and Europeans to expect the American taxpayer to bail us out is maddening in the extreme. Well done Congress. If only our politicians would listen to the people before throwing our hard earned taxes at incompetent institutions and instead plough the money where we the taxpayer want it sown. Pathetic.

  • Comment number 9.

    Northern Rock is fast approaching its cap of holding 1.5% of all national savings, it is estimated that it will reach the limit within a fortnight but this could speed up. The government need to work out a scenario of whether they will they refuse to take deposits or not. If they do refuse to take new deposits or offer a very bad interest rate of new savers to Northern Rock this cause a stampede to Irish banks.
    The Post Office runs accounts by the Bank of Ireland and the Anglo Irish Bank also has a presense in the UK. I'm sure a lot of worried people with large savings will be moving money while the world financial crisis carries on.

  • Comment number 10.

    Just what we need. And don't worry about the lesser banks offering slightly more interest, they're all regulated by the same body....FSA.

  • Comment number 11.

    The US infected the world economy with the on-selling of its toxic subprime loans internationally, but hasn't got the spunk to make amends for its disasterous contagion. This failure risks bringing down the world financial system and it will by turn bring down the US system with it.

  • Comment number 12.

    If you buy an ISA or a bond from the Post Office, the provider is the Bank of Ireland. Such deposits are covered by HMG up to 35000 pounds but does the Irish Govt 2 year guarantee cover deposits over 35000 pounds? If so this would give them a commercial advantage over our own banks and building societies. Time now for HMG to match the Irish guarantee.

  • Comment number 13.

    This is all well and good but it would surely be no more than an empty promise. Would the Gov really be in a position to pay out? Who is their insurance policy with to cover this? How long would it take?

    I think if the situation arose by where a huge high street back collapses taking customer savings with it then our society will crumble before our eyes and there won't be a thing the Gov can do about it.

    Hold onto your hats.......

  • Comment number 14.

    my problem is, even if the government guarantees all our savings are safe how long will it take for them to pay up? history would suggest we could be in for a long wait.

  • Comment number 15.

    When will a Bank exec be prosecuted? That'll be never.

  • Comment number 16.

    BoE needs to act more like Eurozone ECB and US Fed? Why? Because they have done such a bang-up job till now?

    If the UK government is going to "guarantee" 100% all deposits then we should simply do away with our banks and have retail size gilts. Why should the banks be able to set the interest rates on what is essentially then government borrowing?

    Before we get all excited about this proposal in Ireland why don't we see what affect it has.

    Oh and PS, most of the deposits are corporate not retail.

  • Comment number 17.

    Dear Robert

    So it is official Britain is in Recession, official given by the BBC.

  • Comment number 18.

    Robert you stated

    "There is also a perception that our banks remain at a disadvantage compared with those in the eurozone and the US in respect of the assets they can swap for central bank loans"

    Through this whole sorry saga, the government and BOE have been the last to act compared to what other goverments and Central Banks have been doing.

    I thought London was the financial capital of the world... Surely someone in the capital has a original idea or plan to get us out of this mess (after all, they are partly to blame for the problem... What a bunch of muppets)

  • Comment number 19.

    GB said last night - 3 times in fact - when interviewed about the congress decision... HE would do anything to ensure the stability of the UK financial system... THIS IS HIS CHANCE.... So, come on GB... make an announcement...

  • Comment number 20.

    Dear Robert
    Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role.
    Thatcher has done more damage to Britain than two world wars ever did.

  • Comment number 21.

    At least the Irish have a potential solution. Mumblerbrown and Ditherdarling take note.

  • Comment number 22.

    i agree that a 100% deposit guarantee makes sense. but this won't do anything to recapitalise the banks, nor do i think it will stop a run on hedge funds, money market funds, the stock market, etc, if these things are going to happen.

    @ 4 - it's backed by the uk taxpayers = the entire uk economy. duh.

  • Comment number 23.





  • Comment number 24.

    First thing I did this morning was check the Irish Times website knowing that the Irish govt would have to do something ....certainly decisive, and kind of contrasts with DarlingBrown favouring the going to the brink approach.
    From a personal point of view got much comfort regarding my deposits with Anglo Irish........though your first contributor pricked my conscience a bit. In my defence, I have ignored press best buys citing First Save interest for term deposits since digging found they are backed by Bank of Nigeria, not a totally know quantity, fair to say.
    There is a role here for the FSA calling to account those 'dodgy banks' but on Newsnight last night they were clearly holding their hand up and saying fair cop, caught napping these last few years.
    What amazes me though, is that this is the same FSA that played hard ball with the Insurance industry, regarding with profits, and who required major restructuring of security of cover they had. Didn't anyone in FSA look across sectors at requirement to apply same principles of good risk management?

  • Comment number 25.

    "There is a widespread perception that the £35,000 limit to deposit protection in the UK is inadequate - and that it makes our banks more at risk of a run on retail deposits."

    The deposit protection covers building societies too, when you say "bank", Robert, presumably you mean building societies too as well?

    Clarifying when "banks" means "banks and building societies" would be helpful for those of us with savings in the latter.

  • Comment number 26.

    This could be a great opportunity. Why not call the Irish govt's bluff?

  • Comment number 27.

    With all the current uncertainty, what chance is there that the HBOS/Lloyds TSB deal might fall through? What would be the likely fallout?

  • Comment number 28.

    If the stock markets are falling, it implies that there is some selling.
    In which case there should be some proceeds.
    Where are those proceeds being put?
    Are they going into Building Societies, National Savings or just under the mattress?
    Or is there not any actual selling (ie no-one actually buying) and the index is just a reflection of price tickets on the shares?

  • Comment number 29.

    It would settle nerves if the compensation level was to be increased.

    The Tories offered to fast track this through parliament before it recessed for the summer but Brown/Darling didn't want to do this for some reason despite their own suggestion that it would be raised to GBP50,000. Dithering again!

    A crisis of confidence requires certainty. This would help.

    A particular concern is the large number of UK residents with money in overseas banks registered to operate in the UK. Given, for instance, the recent problem with Glitnir there are bound to be a number worried about Icelandic banks, i.e. Kaupthing Edge and Landsbanki (Icesave). I presume, therefore, that Robert, when he refers to "UK banks", means all those institutions that fall under the Financial Services Compensation Scheme?

  • Comment number 30.

    #15 I imagine...hope that the SFO., I'm sure their remit covers this, are quietly getting on with investigating all those self-cert, 125% morgages, the rating agencies across-the-board AAA rating of CDO's and MBS's aswell as the accounting and audit practices that allowed SIV's etc.

    It's just if the SFO where to announce publically that such investigations were underway, right now, one of the features of the 1929 crash that we haven't seen so far... bank executives taking a rapid, unspported fresh air decent from the top floor... might become common place!

  • Comment number 31.


    That is an horrific claim to make. I'm a bit of a lefty if i'm anything, so I'm no Thatcherite but people died in those wars. Millions of People.

    Accusing a frail old woman, who has pretty much lost what remained of her faculties of being responsible for our current situation is hardly a constructive addition to this debate.

  • Comment number 32.

    Until such guarantee is given I imagine the simple saver will be daily pondering the import of (presumably) responsible articles that advise one to look around for favourable rates. As one certainly can. Decisions: better to stick with a taken-over bank that has a yo-yoing share price, because if we don't that's a run? Better if a run is on the cards to move anyway to a bank which has not been created in part by de-mutualisation? And pays a percent point higher on deposits?

    None of this looks good for HBOS. Am I right? Is nationalisation becoming the solution of choice because commercial solutions are limited or may be failing? I would worry about that.

  • Comment number 33.

    This argument that I can just deposit my money anywhere under a 100% guarantee doesnt wash.

    The responsibility to regulate the banking system is with the authorities.

    Joe Public is simply not in a position to do so.

    If a bank is dodgy the regulators should act immediately.

    If the reugulator doesnt act, how on earth do we expect an individual member of the public to second guess the regulator?

    The Irish move just recognises reality.

  • Comment number 34.

    I hope we have enough troops left in the country to protect our society instead of being abroad being target practice for the nutters.

  • Comment number 35.


    I think you've called it right here, but sadly we don't really have a government at the moment.

    Gordon Brown was obviously hoping that the US would sort it out for him and he would get some of the credit by "being over there" at the time. Now they haven't passed their plan (probably for the right reasons) he seems to be at a loss to know what to do - indecision rules!

  • Comment number 36.

    Still trying to post my first message. Previous attempts have failed but have been taken over by events!
    Should we now be worrying about building Socs. If they are picking up the tab for banks the cost will have to be passed on to mortgage holders. Therefore more repossessions, more costs, and on goes the spiral.
    Is the cost capped if more banks go down?

  • Comment number 37.

    By the way, #3....of course the Irish government can back it up.

    The Irish government has one of the lowest debt to GDP ratios in the OECD.

    Besides, as we have seen, most banks get sold on in part if in trouble.

    The key thing is that any bank can get into trouble through lost confidence, no matter how misplaced.

    In this context, the 100% guarantee is the only sure counterweight to perverse market forces

  • Comment number 38.

    How large was the run? It must of been sizable to have the Irish government act. I cant believe they just come out with this on their own. By thier very nature, governments can only react to actions taken by others.

  • Comment number 39.

    The bitterness of many contributors towards bankers and banking is understandable but it is misdirected in time and target. The time to deal with errors of the past is after the markets have been stabilised and the targets for criticism will be headed by Mr G Brown.

    During the next few weeks or months it is vitally inportant that bureaucrats and anti-capitalists do not get control of the markets. They love to seize on any problem, enlarge it into a crisis, and seek to take powers they should not be given.

    I have been amazed how politicians have been talking up the scale of market difficulties whereas in similar past times they, and the Central Banks who used to handle such matters, always sought to understate them to avoid causing panic. Today's politicians seem moreintersted in appearing macho rather than effective crisis control.

    By the way, if any of you saw Boy George or Young Dave discussing these matters did you not find it encouraging Brown is still PM? Although he caused the problem at least he has what used to be called "bottom" whereas the young pretenders seem to have no depth.

  • Comment number 40.

    #30 Can't see it ever happening. I'd like to see Gordon Bust prosecuted for his irresponsible neglect but this too will never happen. Why can't the banks be forced to reveal the extent of their involvement in toxic assets? The reason why Santander has the cash to takeover the high street is that thanks to Franco(Yip a Facist) banks in Spain are not allowed to have off balance

  • Comment number 41.

    To answer the question with what can Ireland back it up ?

    Ireland has since 2001 been stashing 1% of our GNP in a fund called the NPRF.

    I think this move is a masterstroke by the Irish government.

    Individuals and corporates will flock to the Irish banks.

    I'm an Irish man, I think the British government needs to get the finger out now.
    Britain is in a lot deeper than either Ireland or for example Sweden and needs to act now.

    There may be gains to be had if these 4 Irish banks can pick up some British banks for a song.

  • Comment number 42.

    On the face of it this is a sensible move by the Irish, but such a gaurentee could leave their banks open to bets against them and reserves being 'raided' by hedge funds and other investment sharks.

    The UK position was articulated by Lord Turner last night, when he stated (and it was clearly why he was on Newsnight) that no UK depositor had lost since the start of the 'credit-crunch'.

    UK strategy is to assume everyone 'knows' that the Bank of England and the Gov't will protect savers, without making a formal staement to that effect - do we believe them?

  • Comment number 43.

    On the face of it this is a sensible move by the Irish, but such a gaurentee could leave their banks open to bets against them and reserves being 'raided' by hedge funds and other investment sharks.

    The UK position was articulated by Lord Turner last night, when he stated (and it was clearly why he was on Newsnight) that no UK depositor had lost since the start of the 'credit-crunch'.

    UK strategy is to assume everyone 'knows' that the Bank of England and the Gov't will protect savers, without making a formal statement to that effect - do we believe them?

  • Comment number 44.

    Is it not true that, although banks seem unwilling to lend to each other or, indeed, anyone, at the moment; ultimately their profits arise from lending money.

    So no matter how loud they whinge at the moment, in the end they'll have to start lending again, in order to have any sort of viable business model.

    Are there not a lot of banks "crying wolf" at the moment in the hope that we hapless taxpayers/consumers will save their bacon, when, in the end, commercial reality will force them to save themselves by resuming "normal" business?

    I accept that they may, in these circumstances, be lending at higher rates, but may this not actually be less costly to the taxpayer/consumer than saving their fat-cat backsides "for free"?

  • Comment number 45.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 46.

    #32 The problem now with the lloyds-HBOS tie up is that the original deal valued HBOS at about 275p? per share. The market currently values HBOS at 125p per share.

    If those figures stick over the next couple of days, this deal looks almost as bad (paying too too much) as RBS's purchase of ABN-AMRO last summer.

    As a corporate shareholder in Lloyds I would be insisting that Chairman and directors go back to HBOS and enlighten their board of the current, new market reality.

    And Lloyds can still walk away and if there are no other suitors HMG will own another bank.

    Which will be nice!

  • Comment number 47.

    I'm surprised that people have been calling Robert a doom maker etc etc.

    Do people actually realise (or are they calling ones bluff) as to the potential consequences?

    A bit off topic, but the bail out in the US is not just about sub prime mortgages - it's the whole credit derivatives thing also which is enormous.

    For the US to vote against it was pure politics and nothing else.

    Back to this blog, if deposits disappear out of UK banks, then they no longer become viable due to excess leveraging.

    So, we invoke the FSCS ? can't that's empty.

    What about the credit events triggered by the UK bank no longer being viable?
    Ooops loads of credit derivative contracts swing into play.

    Who is owns the risk of those credit derivative contracts? Umm another UK bank. What if they can't afford it?
    Umm they become non viable

    and so it goes on.

    Interesting article (for a layman like me) explaining all of this on

  • Comment number 48.

    It may have escaped some of the comentators on this blog but...

    'The Government' is not some independent entity with bucket loads of free cash (or gold - thanks to Brown's previous bright ideas).

    It is funded by us, the tax payer. The Government has no assets because Gordon Brown has spent a decade selling off every building, hospital or state-owned utitlity to the private sector to pay for their fanciful New Labour projects. We don't manufacture and we don't export to any great degree. We, like America, have been living the playboy lifestyle, flogging the crown jewels to fund it.

    The chickens have come home to roost and it ain't gonna be pretty. I understand that confidence tricks are required if other countries offer them but, frankly, all these guarantees are worthless.

    In times like these a guarantee from any government is about as useful as a chocolate teapot.

  • Comment number 49.

    So the Irish govt is going to 100% underwrite the bank deposits of Irish taxpayers

    ...if all else fails presumably with Irish taxpayers money?

  • Comment number 50.

    We get what we deserve is not fair with this 'crisis' we have got so used to spin we don't know our rear end form our elbow any more.
    Why? because we have career politicians who have never done a proper job except they sure know how to line ther pockets.
    A regulator, in the FSA who is only good at trying to close the gate after every horse has bolted, and a Bank of England that appears reluctant to do what it does best and tell eth banks to grop up and stop pleading hardship.

    At some stage soon this will all change but until it does we must disbelieve, for our own sanity, what we are told because the facts are clear those doing the telling haven't a clue.

  • Comment number 51.


    I saw that too, but give the guy a break.

    he's probably had no sleep for a week!

  • Comment number 52.


  • Comment number 53.

    Dear Robert,

    I understand that you are trying to assist your friends and contacts find a way out of this mess. You must remember that this is a mess of their own making.

    Our financial system is not fit for purpose and hasn't been for sometime. Casino banking is not a way forward no matter how you see the current financial climate.

    We would be better off discussing the form of your "New World Order" mentioned in previous blogs than to carry on discussing the how we can keep the old system going.

    The real question is:

    How can we create a new financial system that will work for the global population from here on and what form will it take?

  • Comment number 54.

    The line that needs to be taken should ensure the following:

    1. The financial stability of the country is maintained, that business can be done and people get their wages.

    2. The banks and their shareholders will be the ones to suffer most, not the tax payer. Of course this will affect many pension funds, ordinary bank employees, and ordinary shareholders.

    3. The blame game cannot be avoided. The level of incompetence, greed and lack of regulatory oversight is absolutely staggering. Do the banks not know how to assess risk? Did they learn nothing from Barings bank and Nick Leeson?

    4. A full explanation of exactly what has happened, how it happened, and how it is being fixed together with the full implications must be delivered to the public. The explanation should be such that members of the public, news media, and politicians all understand the problems we face. This explanation should be given by the Prime Minister and all questions should be answered. What we do not want

    5. There needs to be a full criminal investigation into the actions of bank executives and their auditors with reference to what was reported to their shareholders. Here, if criminal wrongdoing is uncovered, then we would fully expect very long jail sentences for those responsible.

    6. If the tax payer is bailing out the banks, then the banks must not be permitted to increase their charges to the taxpayer in order to recoup their losses. There will be no quick return to huge bank profits. The tax payer, who is paying for the rescue, will get their pound of flesh. Any bank that has benefitted from tax payer funds will not be permitted to pay huge and wholly undeserved salaries to their executives, top managers and traders.

  • Comment number 55.

    I think the Irish government has done the right thing. Ultimately, financial markets are all about confidence, and any move which tends to build confidence has to be positive.

    Note that the Irish move guarantees deposits. It does not guarantee bank shares or bank directors, so it is not any kind of bail-out for bankers.

    Ireland also benefits from being in the Eurozone. It derives strength from being in a bloc which includes economies such as Germany and France.

  • Comment number 56.

    So Robert you're effectively arguing for a slow competitive nationalisation of the global financial system. A world where governments compete to shore-up dodgy failing banks. Think about it for a minute: ever more cast iron guarantees being offered by ever more nervous governments. What a mess. If we have a run on retail deposits, surely that is simply we as consumers of banking services deciding, given the information available, to place our money where we feel it meets our financial needs. Our business, not the government's or any government's business. How many of our 'deposits' have been left in banks that the regulators knew some time ago were not viable? This hasn't bothered our government so far. They simply made the banks special pleading secret, which in turn placed depositors, who, given true information on the stability of the bank where their deposits are held, ignorant of how well or how badly the bank that has their money is doing.

  • Comment number 57.


    Am I missing something when I propose a simple solution to this crisis- The banks have lots of bad debt witch means they have to write it down meaning they need more capital. We all know what a farce that pretty much turned into last time, surely the government could 'buy in' to the banks (there are only really 4 left now) on condition that the banks come clean- write down the bad assets to a agreed low level. This would then mean that all the banks knew the situation of the others hence rebuilding confidence, and had sufficient capital to see them through. This could be done in the form of a preference shareholder or some sort where by the UK tax payer has invested in our (highly profitable) banks at there current low price, and in the future as they recover they could buy back the shares from the taxpayer making a small profit for us and ensuring a stable banking system in the long term. I know this would be similar to nationalisation of the entire banking system, but so long as less than 50% of the company was 'owned' i do not see the problem. Surely in crisis like these a emergency EU law could be passed allowing such actions?

  • Comment number 58.

    I'd be interested to know which bank or building society Robert Peston chooses to hoard his (doubtless) very large salary and savings in? He must have a fairly good idea where is safest.

    I don't imagine he reads these comments (despite the number addresed directly to him), but just in case - Any advice RP?

  • Comment number 59.

    Is Gordon Brown going to actually DO anything?

    Now is the time for him to prove, once and for all, that he is either a statesman, capable of delivering both bad news and a solution, or just another member of the political elite hiding behind a Scottish accent and a fascade of socialism.

    He just reminds me of George Bush when he heard about the 9/11 attacks. Like a rabbit in headlights.

    C'mon Gordon. Do something decisive.

  • Comment number 60.

    Why our banks are vulnerable ?

    Because we manufacture only a fraction of what we consume and are in debt to the people who do make the stuff. (China, Asia).

    This will become clearer when the new owners of the banks become apparent.

    Its been a national collective illusion.

  • Comment number 61.

    Agreed, this is necessary. But I am a bit concerned about the attitude of the Bank of England, especially the Governor. Is he flexible and pragmatic enough to do this, and does he have an appropriate sense of urgency? His talk of moral hazard and anxieties about inflation seem somewhat irrelevant at the moment.

    Is Bank independence a help or a hindrance at the moment?

  • Comment number 62.

    If I was forced to chose between a guarantee backed by the Bank of England and one guaranteed by de Valera's Republic, despite or maybe because of my strong Irish connections, I will prefer that of the Bank of England.

    Sure, it is time that the British state started to grow up and stop being a blue meanie in every sense of the word. Guarantee cash deposits and you will naturally get more cash deposits: useful things when liquidity is generally poor. This might be called thinking outside the money box.

    To refuse to guarantee cash deposits larger than a relatively small sum suggests to me that they are expected to disappear.

    Despite my intense dislike of Mr Brown and all that he stands for I do feel that after a very wobbly start over Northern Rock the government has to date made a pretty good fist of a bad hand. Personally, I feel this is more down to Darling than his boss.

    The banks also need to raise their game and it appears they are now starting to get the message.

    All need not be doom and gloom.

  • Comment number 63.

    I'm sorry but are most commentators talking about some other Irish economy I don't know about? The Irish economy has been the first to slip into an officially defined recession; house prices are in freefall; Irish banks have been investing hugely in commercial property development in the UK - and commercial property prices are likewise in freefall. At least housing - unlike office blocks - has a certain demand inelasticity since people need places to live - they don't always need shiny new offices or shopping malls. Don't forget that the late lamented Lehman Bros were hugely exposed to commerical property as well as sub-prime. Personally Ireland and Iceland are the two places where I'd prefer not be sticking any spare cash.

  • Comment number 64.

    I have some questions for everyone who wants to play the blame game:

    1) Is the greed that everyone is complaining about a new phenomenon?

    2) What is the difference between greed and incentive?

    3) Was the greed inherently a bad thing or is it only bad now that the banks are unstable?

    4) How many of you have performance-related pay or bonuses and consider yourselves over-paid?

    5) Is placing blame more important than ensuring that real people who do real work (like myself - I'm a software developer, not an economist or banker) keep their jobs and houses?

    6) Is it more important to protect tax-payers or tax-payers' jobs?

    7) If our financial system is not fit for purpose, is that a big pointer that capitalism is to blame, or are people being hyperbolic?

    It seems to me that the underlying cause of this crisis is political: politicians have been too scared to legislate against banks and businesses in case it rocked fragile economic growth. New Labour did not want to be labelled anti-business. And everyone seems to have buried their heads in the sand.

    I am not an economist, and hindsight is 20-20, but even I could see that house prices in the UK were making unsustainable gains - that people were jumping onto the buy-to-let bandwagon and there was at least one television program in the UK warning that self-cert mortgages were an easy way for borrowers to fraudulently borrow more money than they could afford to repay.

    It seems to me that bankers were behaving like bankers; it was the legislators who weren't legislating to protect the public interest. That's capitalism: it's based on greed. If you don't like it, we could throw it away; but I suspect that there isn't anything better.

    The one thing to take away from this is that the non-interventionist policies of the right are completely inappropriate for a democratic political system. Politicians *must* intervene and bankers and businessmen must take it on the nose.

    I don't suppose anyone will read this, but it seems to me that the housing market in the US and UK was essentially an elaborate Pyramid Scheme. If you were in early enough on, you might have made money; but people who joined most recently are going to lose a lot of money.

  • Comment number 65.

    The Government must now guarantee ALL UK bank deposits. It would be a good idea if everybody who agrees would send an email to Downing Street. The trouble is, there is currently no facility to send an email on the Downing Street site. You can only send a Fax. Who has a Fax nowadays? £35,000 is not enough. Even for some old timer like me who has spent 40 years working in a factory. We keep our money in the bank because we don't trust pension companies to still be around when the time comes to pay out.

  • Comment number 66.

    Can you give us your 'worst case scenario' for the next few months or year?
    Tell us blow-by-blow what you would expect to happen if the US can't hold up their own economy and the UK starts to slide too........what would you expect to happen, and in what order?
    I don't ask because I'm a doom-merchant; I am truly interested in the inter-connectedness of will the dominoes fall?

  • Comment number 67.

    I remember the government giving the 100% guarentee -- I don't remember them withdrawing it?

    So when did the government withdraw the 100% guarentee?

    - Glad I haven't relied on it!!

  • Comment number 68.

    > How can we create a new financial system that
    > will work for the global population from here on
    > and what form will it take?

    It's easier to decide what form it must _not_ take. Simple “money” was suitable in, say, Tudor times, and even managed to survive the industrial revolution. But it is an ancient invention and it is no longer fit for purpose in the 21st century. It is very unhelpful nowadays, and causes all manner of economic imbalances, envy and improper behaviour. Indeed, some have even suggested that it is the root of all evil.

    The time has finally come to do away with money. The replacement must be fair, incorruptible, transparent and equal. Oh, and the “new money” must be far harder to tax. That's the only way to go now, I'm afraid.

  • Comment number 69.

    is a guarantee really going to prevent runs? if a bank was perceived as dodgy wouldn't Joe Public withdraw his savings anyway, to avoid the necessity of going through a no-doubt lengthy recovery process through a FSCS claim which could mean his money is not available to him for a number of months?

  • Comment number 70.

    Re 31

    The "horrific" comment you complain about merely seeks to compare the economic damage caused to the British economy by Thatcher and the economic damage caused by 2 world wars.

    It does not say anything at all about any human death toll - only your comment does that.

    By the way did you get the idea that frailty and loss of faculties can be a defence from past actions from the strategy adopted by General Pinochet - a known mass murderer and a known friend of Mrs Thatcher.

    "and ye shall be judged by the company that ye keep"

  • Comment number 71.

    FTSE 100's just gone up. So lets not get too excited about a fallout from the US government's failure to pass a bailout just yet.

  • Comment number 72.

    guaranteeing 100% is a great idea, it would instantly stop any proposed run on a bank which if it happened in the current climate would bring the whole house of cards down! The problem is, how do you get G Brown to do anything, he waffles and dithers but there is little positive action. Robert you must have his telephone number, do us all a favour and call him now and tell him to do something!

  • Comment number 73.

    39 - "in similar past times they, and the Central Banks who used to handle such matters, always sought to understate them to avoid causing panic."

    has it occurred to you that they may be understating it and the real situation is far worse?

  • Comment number 74.

    Re #2

    "Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role."

    And what have Blair and Brown done to stop "the rot"?

  • Comment number 75.


    This is a superb post.

    The blame game, I'm afraid, has been a British sport for a long time now. At various times in recent years, we have blamed many diverse categories of people. Immigrants. Single mothers. Benefit claimants. Foreigners. Europe. Politicians. Hoodies. Even footballers. Now, bankers. Anybody, so long as it isn't us.

    This is a collective mess. Irresponsible bankers? Lax regulators? Spineless politicians, happier to ride the 'boom' bandwagon rather than admit that 'bust' always follows an unsustainable boom? Yes, all of these. But also irresponsible borrowers. Voters.

    It needs a collective solution, not a pointless blame-game.

  • Comment number 76.

    Last weeks the Irish government backed deposits up to 100,000 Euros each after pressure from the public and now this. It is fantastic and if our Government were to do the same investors/savers would pile back into bank deposits exactly what the banks need.

    Our government has been talking for over a year now about raising the amount of the guarantee from 35,000 and they have done simply nothing, nil, zero. What a wonderful bunch!

    And as for the FSa....

  • Comment number 77.


    The major 'disadvantage' Northern Rock faced was that -as a wholly UK owned bank-they went to the BoE for a facility other central banks were putting in place without a song and dance (in their legitimate role as lender of last resort). European and US banks did not have to deal with a central bank that 'leaked' the 'story' to the press. Nor did they have to deal with a national broadcaster knowingly spreading panic in the name of their big 'scoop', then gleefully reporting the panic they themselves had caused. NR were disadvantaged by being British and the BBC played a big part in that.

  • Comment number 78.

    All this talk of when will "they" (HMG) pay up... there is no "they" - it's taxpayers money, yours and mine.
    I don't know what the solution is, but find it galling that so much talk of a rescue now doesn't do any good for those of us who suffered, and are still suffering, from past recessions and financial debacles.
    It's simple, we live now, as we did then, in a capitalist culture. We placed our bets...
    Throughout my 52 year life we've lived with assumed inflationary growth. Whatever makes any of us think it can carry on forever. Maybe it's time for a serious correction, no matter how painful.
    Anyway, as a small offshore group of islands, what right do we have to be the world's 4th wealthiest nation - whilst millions starve each day?

  • Comment number 79.

    Robert, if one of the big banks goes under there is not enough money in the FSC compensation scheme to refund people's savings. You know this. The FSC knows this and the government knows this.

    One of the big banks in this country would have something along the lines of £200bn in deposits so where would that money come from if they went bust? A levy on the other banks is all well in good but in such a dire circumstance where Barclays or RBS went under, levying that much money from the remaining banks would cause them to go under too.

    The FSC scheme is an empty promise designed to stop panics and bank runs, but as a real guarantee of peoples money its completely worthless.

  • Comment number 80.

    BBC - Enough, really!!

    Time to move on from this rather exciting debate and start looking at the wider (real-world) effects? You don't have much to say on that do you/ Except 'What it means to you' and other rather wishy-washy blogs!'

    There have been 3 major party conferences in as many weeks but despite the incalculably vast amounts of taxpayers' money ploughed into failing banks I have not heard anyone speak for the taxpayer. I mean, how is this money going to be recovered? Tax money is earned by people, and given that the UK has been a net importer for decades the flow of money is OUT of the UK, which means that unless one party or another wakes up to the FACT that unless we start exporting again the UK is going to go BUST. But still all three major political parties seen to think the stuff falls out of the sky. Hello?

    You don't need to be a BBC economist to predict what's coming:

    1. Rapidly rising prices
    2. Inflation going thru the roof
    3. Shops closing, firms going into liquidation
    4. Huge rises in unemployment
    5. Foreclosures and repossessions
    6. A wave of court cases for debt that will tie up the system for years.

    The end result will be less and less choice for anything. 'Can't get this', 'can't get that' and more dependence on cheap stuff from SE Asia that falls to bits the second time you use it.

    Those banks who got themselves into a mess get government help, ordinary businessmen and individuals get bankruptcy orders. If you think that's right or fair you belong in an asylum but the whole country seems to marching off a cliff, whereas in the USA angry Senators with real exposure to business are actually saying, 'hey, stop this crazy investment into financial failures, let it burn out and let's get on with rebuilding our economy'.

    Any student with a modest grasp of contemporary history knows that no country on earth can do that like the USA, but in the UK, we ordinary taxpayers have to just sit and watch economic chaos smash everything we've worked for for decades with no hope of a bright future for use - let alone our children.

    I hope there are some MPs reading this..

  • Comment number 81.

    My savings are with National Savings, the Nationwide and the CO-OP - none of which are listed on the stock exchange.

    Does this mean they are safe?

  • Comment number 82.

    The BoE/Treasury/FSA must follow suit and guarantee all deposits in the major British banks.

    If it fails to do so there will be a massive flight to safe havens which will further destabilise the whole UK financial industry.

    Next week will not do - this action needs to be taken by Thursday.

  • Comment number 83.

    Can only agree with #75. For every irresponsible lender there is an irresponsible borrower.

    The only insurance that should be offered to banks beyond the FSCS £35000 limit should be an optional scheme banks could enter into, perhaps with FSCS. The premium they would pay should be assessed by the insurer on the basis of the riskiness of the individual bank's business model. Banks could advertise the level to which their deposits were protected.

  • Comment number 84.

    When asking 'should the government guarantee all deposits?', we need to note one thing: IT ALREADY DOES, in all but name.

    NR was rescued, because the run on the bank, and the likelihood of depositors losing money, was politically unthinkable. That remains true. If a bank gets into trouble, it has to be rescued, either by arranging a shotgun marriage with another bank or else by state intervention.

    Since the practical reality is that retail deposits are protected, it might be a good idea to just come out and say so, thereby boosting confidence.

    My fear is that Brown won't see this, and act. His latest policy gimmick - of using other banks to underwrite the BB rescue when we all know that the final recourse is to taxpayers - just put additional pressure on the remaining banks and damaged their share prices, to no purpose other than political posturing.

    Brown has a habit of announcing things which sound fine for a few minutes but then bite back (like the 10 pc tax fiasco) when people think it through. His bumbling, dithering incompetence is really scary.

  • Comment number 85.

    "Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role.
    Thatcher has done more damage to Britain than two world wars ever did."

    What a muppet. Thatcher saved this country and was not worried about the tough decisions that were needed. Her legacy has been squandered by Bliar and his dithering clunker Brown. This is a typical rallying call fom the nutty left - quote Thatcher and deflect attention from the shallow, weak government that has been foisted upon us. Get back to the point - we need strong government intervention and we need to match the Irish as far as guarantees are concerned for all the reasons Robert says.

  • Comment number 86.

    Please can't we all start thinking about each other instead of ourselves. We need to move back to considering the common good first and ourselves second. Lack of self regulation, greed and self interest is what's got us into the mess we're in now. I am sick of money being something you think selfishly about. News like this will be leapt upon by middlemen and financial advisors who will shout at us to 'switch and ditch' our savings into whatever Icelandic/Indian/Irish bank they make most commission from although they won't put it like that. Now's the time to stop acting selfishly and instead think about what's best for us all.

  • Comment number 87.

    Irish banks are empty lets think of a way to get plenty

    We are not trying to be funny we are going to guarantee the money

    Withdraw all your cash from all Uk banks and on your way out say 'thanks'

    Walk down the street with loads of wonga and pop it into the Irish bank you cant go wronga

  • Comment number 88.

    I can't see how the governement cannot agree to bail out investors, since it is successive governments that have told us that saving for our pensions is our responsibility. It's bad enough seeing our pensions funds ebbing away by the day - to have them written off because the bank or insurance company they were with went bust is unthinkable.

    However, the banking industry must have to put up some kind of bond (like tour operators do) so that ultimately the banking industry pays, not the taxpayer.

    However unjust your friends in the city believe it to be, the senior execs. in the banking and finance industries need to be held to account for the reckless way in which they conduct their businesses, playing with other peoples money, and other peoples futures.

    A new broom is required - and a return to the "old fashioned" system from the 1960s is long overdue.

    Money isn't made - it's earned! (Smith Barney advertising slogan from the late 1970s if I recall correctly)

  • Comment number 89.

    I’m curious ……..
    There has been an enormous amount of money made available to banks from central banks. I believe this money has been many times over subscribed. – Where does this money go and what happens to it?

    Do banks simply hold on to it ? or is it put there to get banks lending again. If the latter – Do they use these funds to lend between themselves, or is the purpose to get banks lending to business and individuals.

    Have been following the blogs with interest, but I don’t really understand how the mechanics work.

  • Comment number 90.

    So, which Private Equity and Hedge Funds are holding toxic bonds or indeed, will need to refinance themsleves soon ?

  • Comment number 91.

    First you lose your Pension.

    Then you lose your Job.

    And then you lose your House!

    But, maybe a first time buyer will be able to have a Mortgage to Buy YOUR House!

  • Comment number 92.

    Why couldn't B and B swop assets and take advantage of the Bank of England scheme ?

  • Comment number 93.

    Why all this wailing and gnashing of teeth??

    If the wholesale banks are frightened to lend to other banks...

    But their central bank, be it ECB, BoE or FED, says that the banks are okay to lend to,..

    Why don't the Central Banks cut out the wholesale banks from the system, or threaten to, and lend direct to the retail banks?

    Caveat being... No reposessions of domestic mortgaged homes:-

    No new mortgages to be issued, but the loans to be used to reduce the rates of interest on current mortgages....(gives protection to those that have most to lose)

    New mortgages to be available after 6 months of stability, 20% deposits required.(stops the gamblers)

    Capital Gains Tax on homes sold within 10 years of purchase...(stops the speculators)

  • Comment number 94.

    Can someone explain to me why banks are suddenly failing? They seem to wake up in the morning and go 'oh dear, we've failed, we owe many millions, better sell up'. How is this happening?

    A case in point is Wachovia. Wachovia was in the running to buy one of the earlier failed financial institutions only a few short days ago, yet today it's gone belly-up. How can a company go from being so confident that it wants to buy up something to being taken over itself so quickly?

  • Comment number 95.


    Very good points.

    Your comment on middlemen prompts me to add something. As more and more people get into worsening financial difficulties, the scope for exploitation by the unscrupulous will become much more serious. I can already imagine the loan-shark types rubbing their fingers in glee. A horrible thought.

    Some of this exploitation might be via legally-valid (but grossly exploitative) contracts signed by people through ignorance or panic. We might need to consider some kind of equity courts, which can invalidate grossly exploitative contracts on principles of simple equity.

  • Comment number 96.

    For decades we in the 'civilised' world have lived lavish lives of over indulgance on a credit card and our chickens are now coming home to roost. Our lifestyles are unsustainable, as is the present free market system. Peak oil is here. Get growing your veggies and wrap up warm.

  • Comment number 97.

    Why ha nothing been said about the accountants whose job it is to audit banks
    and ensure they trade safely

  • Comment number 98.

    It is conceivable that the freeze the banks have imposed on lending to one another and the fact that lending rates are higher than they should be, is being deliberately orchestrated by a small goup of powerful bankers. In an attempt to regain control of the money markets that spiralled out of control in the years since the financial markets were deregulated.

    In the years since the city"big bang" took place all manner of investment banks and hedge funds were allowed to grow and prosper on the assumption that their illusory ideas (money making scams) did actually work in creating money. During that period the main banks, the regulatory bodies and the government lost control of the supply and reissuing of money and the ammount of debt owed (by the banks, the government as well as ordinary citizens) was allowed to grow to the point where it it could never be repaid.

    As events in the past have shown when that happens these powerful bankers will do all that is necessary to preserve their money and status and to restore order in the financial markets, regardless of how brutal their actions might be. If that involves driving weaker banks under or businesses going bust, with the shedding of tens of thousands of jobs, that will not deter them.

  • Comment number 99.

    Requesting 100% guarantee on retail deposits to banks and building societies seems an over reaction to me.

    De-risking retail deposits would imply a lower interest rate should be offered by the banks.

    Would the Government have the resources to provide a 100% guarantee on all deposits? - the Irish economy is small and the deposits held in their system tiny compared with UK.

    The UK economy is open and our retail banks have exposures abroad (e.g. RBoS with Fortis ABN Amro assets) Why should the UK government underwrite deposits held against risky non-UK assets.

    This is a global problem needing a global solution

  • Comment number 100.

    It is an obvious thing to do to guarantee all deposits in our banks.
    Money is swirling around the system at the moment because of this ridiculous situation where everyone is having to split their savings into small chunks and spread them around.
    If the banks are to be recapitalised it is much better that this is done by individual savers rather than the taxpayers.
    Better rates of interest are needed to lure back the' cash under the bed'.
    So money will be more expensive to borrow in the short term but at least it would be available.


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