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All banks are safe

Robert Peston | 16:15 UK time, Monday, 1 December 2008

December 1 2008 is a historic day for British banking - because it's the day when the chancellor by his deeds (if not his words) made clear that he's providing 100% protection for all retail savings and deposits in British banks.

How so?

Well in normal times, savers in a small bank such as London Scottish would have been protected only up to the limit of the Financial Services Compensation Scheme, which is £50,000 per saver.

London Scottish defines the notion of a marginal bank. It is a genuine tiddler, with deposits of just £273m, and is not by any stretch of the imagination a vital cog in the financial system.

In normal times, its collapse - which was announced today - would not pose a serious threat to the banking system. And therefore the rule of caveat emptor would apply to those who chose to deposit their cash with it.

But these are not normal times.

The chancellor fears that if any saver were to lose out from the demise of London Scottish, that could prompt significant and damaging withdrawals of funds from other small banks and building societies.

To use the regulators' lingo, there would be contagion, possible runs at all but the very biggest financial institutions.

There are for example about 40 building societies with deposits of less than £1bn each.

So Alistair Darling has taken the extraordinary step of promising that no retail depositor in London Scottish will lose a bean, that all depositors will get all their money back, even if they've deposited more than £50,000 at the bank.

If savings in a bank as small as London Scottish are fully underwritten by the Treasury and the taxpayer, then in practice there is 100% taxpayer protection for all retail savings in British authorised banks.

Which begs the question why the chancellor doesn't simply acknowledge the reality and formalise this 100% guarantee.

That he hasn't made explicit that he's adopted a policy of total deposit insurance won't make life any easier for him, as and when some kind of normality and calm returns to the banking system.

The chancellor will, at some point, have to stand up and say that the £50,000 limit is a real limit. As and when that happens, there may well be a drain of funds out of small banks.

So surely it would be better to explain now why he's guaranteeing all banks' retail liabilities so that there's some coherence to any subsequent decision to withdraw the guarantee.

And if he were to guarantee the deposits in an explicit way, he might also be able to negotiate some kind of fee or reward for taxpayers from the bank beneficiaries.

Comments

  • Comment number 1.

    Alistair Darling and Gordon Brown should have said that all deposits were safe as soon as the Northern Rock problem became apparent the consequence of not doing so are well documented.

    The terribly inefficient 2.5% vat reduction that is costing business up to a reported 0.3 billion to implement to say nothing of the lost week of pre-Christmas sales is yet another example of the poor judgement of the treasury civil servants who advise Alistair and Gordon and of their own poor grasp of reality.

    Career politicians and career civil servants joust do not understand the way the real world works.

    I think that it is no longer possible to defend these people - but I also think that any potential replacements are worse - we are stuck with these relative incompetents, I am afraid.

    I can only see one solution and that is to draft in senior and experienced managers from the business world into the treasury with that ability to both oppose and propose legislation as it seems that the way we produce both politicians and treasury mandarins is incapable of producing anything but a pool of poor judgement.

  • Comment number 2.

    London Scottish Bank is ranked 100 (out of the 159 UK incorporated banks) in terms of asset size. It has seen its gearing double over the past 4 years! Its pre-tax losses for the year to 31.10.07 at £16.4million were greater than the corresponding profit for both of the previous 2 years. It is a blantant case of overtrading which in the real business world would have led to a spectacular collapse with a "serves you right" attitude from all quarters. Now that the taxpayer is bailing out both the smallest banks as well as the biggest what is the point in having limited liability banks at all? They might just as well all be closed down leaving just one state lender. Bizarre or what? I've known anything like it.

    John Hemming-Clark
    Editor, Bank League Tables 2009

  • Comment number 3.

    as a credibility issue the custody of cash should guaranteed in blood (all 100% obviously)

  • Comment number 4.

    "The chancellor will, at some point, have to stand up and say that the £50,000 limit is a real limit. As and when that happens, there may well be a drain of funds out of small banks."

    Quite a lot of what the government has done aren't solutions, but short term paint over very large cracks. As you say, there's an unspoken agreement that ALL our deposits are safe... right up to the point that the government decides it can't afford to do that any more. At which point the Northern Rock queues will look like pension day in the post office when the UK goes into a collective panic.

    So today's problems are being stored until they become tomorrow's crises. For after a general election, perhaps?

  • Comment number 5.

    Historical indeed, because it's also the day when the 2.5% VAT reduction kicks in, the mighty fruits of all those PBR huffings and puffings.

    Truly, the economy is saved !

    PS, Robert, have you totted up the cost of this guarantee ...?

  • Comment number 6.

    I take it that those affected, like those in Icelandic banks, will voluntarily return the additional interest they earned by putting their funds in such institutions? This is yet another open ended, uncosted and unwise liability assumed by this Government at our expense.

  • Comment number 7.

    If Darling didnt stand on for this one IT

    WOULD BE THE END OF THE CITY.

    Our cash is still in IRELAND.

    DARLING must give a GUARANTEE for

    all UK Banks.

  • Comment number 8.

    In not making an explicit guarantee, is HMG not simply leaving the door open for preferential solutions in specific cases(e.g. sale of the deposit book to another bank, as per B&B)? In doing so it may offer an outcome with lower risk/liabilities to the taxpayer, whilst savers remain protected (and can subsequently withdraw their cash if they wish).

  • Comment number 9.

    The Centre for Economics and Business Research calculates that U.K. bankers alone have reaped more than 31 billion pounds in bonuses over the past four years.

    That’s GBP 31,000,000,000. Personal pay. On top of salary.

    With no personal risk. And no personal financial investment. In 48 months.

    I find it difficult regard this amount of money arriving in bankers personal pockets in such a short time as other than a misappropriation of the assets of the non-banking community, whether legal or not. While technically legal, SIVs, derivatives, CDSs, the off balance sheet charade, and the blind eyes willfully turned to risk management have purposely made a farce of moral hazard and regulation. Regulation that was not the enemy of so called free enterprise, but regulation that was put in place on behalf of society to stop the very things that have happened and to provide stability to a system on which all of us are dependant.

    Each and every one of us (and that will include our children) is being forced through taxes to recapitalise banks which are crippled in part because so much cash has been taken out by the people who work(ed) there, and in part because the so called assets created by the bankers (paid commission up front) turn out suddenly to actually be worth pence in the pound.

    I deeply resent the economic carnage and personal pain this has caused, and will continue to cause to the people around me and the country I live in. And it is utterly galling that in such a short time many bankers have become rich forever on the proceeds of the very deals we are all having to pay for now.

    It is time as a society to decide whether we will tolerate inactively such pain for the many for the excesses of so few. Excesses made in breach of the spirit, if not the letter, of regulation and fiduciary duties owed. It is time to decide whether these same bankers should be publicly shamed or legislated into returning at least a proportion of enormous amount of money extracted up front from deals which have proven cataclysmic for everyone else.

    I suggest a six year retrospective tax hike to 50 per cent on all bonuses up to GBP 2 million, and 75 per cent over that. Fair? After all, we are all being asked to retrospectively pay for these excessive bonuses by government borrowing on our behalf to get capital back into the banks.

  • Comment number 10.

    1. At 4:40pm on 01 Dec 2008, John_from_Hendon wrote:
    "Alistair Darling and Gordon Brown should have said that all deposits were safe as soon as the Northern Rock problem became apparent the consequence of not doing so are well documented."

    An excellent and much forgotten point. When most on here were blaming Robert Peston for single-handedly bringing down NR, they forget that the Treasury were inactive and unheard for several days of the 'crisis'. They also forget that the compensation package was then little known (or publicised) and that it was for approx 92% of up to 30K in savings at the time; not the open and full guarantee that the Chancellor has stumped up since late 2007.

    The queueing only stopped when AD guaranteed every pound in a NR savings account.

  • Comment number 11.

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

  • Comment number 12.

    Poor Darling: I had such hopes!

    Now he only seems capable of running around with yet another bucket to catch the drips.

    When are they going to fix the roof?

    Can they fix the roof?

    Do they understand what a roof does?

    Are they able to conceptualize a roof?

    This government seems to be perpetually on the wrong foot. They complain that the Tories would do nothing, but doing nothing is at least a strategy.

    All we have now is some sort of non-specific policy of action, devoted to dealing with the bump in the cushion left by the last person who sat on it.

    Might I suggest they revert to wringing their hands. This is action and it would demonstrate concern. It would be just as effective.

  • Comment number 13.

    The interesting question here is: where does it stop? We have extended the guarantee from £35000 to £50000; from the implicit guarantee of the major banks to the small banks; how much further will guarantees go? I try to answer that question at https://www.knowingandmaking.com/2008/12/psychology-of-contagion.html

  • Comment number 14.

    I have this image of Darling with a trilby and a cashmere coat, I mean would you trust this man - or indeed any of his associates - with a guarantee?

    But then this is all somewhat academic. With the likelihood of our banking system going into sustained toxic shock from the as yet unaccounted for credit default swaps, we will soon enter a stage when banks do not have enough money to underwrite all their debts - and neither will the Government.



  • Comment number 15.

    The term dragged kicking and screaming into it comes to mind - not so much a question of whether he's managing the economy as being engaged in a cheap imitation of a Disney dog going fire-fighting, as being blissfully happy to assume Denis Healey's old mantle of having undertaken the most expensive adult education course in human history. Whereas he might have salvaged something by taking matters in hand, no, he waits for the fifth bank to go belly-up before reacting.
    The trouble is, by the time he reacts, the economy's in mid-air over a thousand foot drop and unlike a cartoon, there's no elastic arm in the form of North Sea oil to pull us back this time.
    Welcome to the Third World and the Acme Bank Guarantee.

  • Comment number 16.

    I remember only a few short weeks ago that we assumed wrongly that when the banks were recapitalised it would be inevitable that 100% of savings would be guaranteed at the same time.

    This would stem the outflow of money from the banks to Ireland and elsewhere.

    This did not happen and the inevitable happened leaving taxpayers to plug the massive hole.

    Now we are seeing the consequences yet the government still dither.

    Liquidiity and lending go hand in hand yet this government are treating depositers with such contempt unless they do give a firm 100% guarantee they may lose even more.

    Surely it would be much cheaper to give a better interest rate on savings than have to borrow at much higher interest rates from abroad.

    I begin to wonder if anyone in the Treasury has any imagination.





  • Comment number 17.

    Re Anothermrmicabwer (message 9).

    The bonuses paid to bankers were all presumably taxed at 40% with the banks paying employers NI on top. If the banks had paid corporation tax HMRC would have received considerably less income. By that measure the bonuses were good for the government which is part of the reason that they turned a blind eye to what was going on.

  • Comment number 18.

    As a depositer in Northern Rock I can well remember Darling's interview on the Friday of 'That Week'. He absolutely refused to confirm government assistance or support but kept refering to the fact (?) that the FSA had assessed NR and found it to be sound. Not reassured in the slightest we took out our cash!

    As I had been previously caught out by the Equitable Life farce - I just didn't want to be caught again! Incidentally despite the EC and Ombudsman asking the government to re-imburse Equitable clients for FSA failings there is still no action. I'm not convinced this couldn't happen again.

    Are you really sure Robert that if a big bank went down they wouldn't just walk away? Personally I feel that if they can get away with not paying they will...

    GH

  • Comment number 19.

    Does this mean that if he doesn't let us all have the protection of 100% re-fund for deposits over 50K we can sue them ?(I won't say stupid because why add to an exisiting situation).

  • Comment number 20.

    Does this mean that if he doesn't let us all have the protection of 100% re-fund for deposits over 50K we can sue them ?(I won't say 'stupid' because why add to an exisiting situation).

  • Comment number 21.

    Dearest Robert,

    You need to explain how we deal with the conundrums of the present economic situation.

    Conundrum 1 - The cut in VAT will put around 13bn back into the economy, but once the fall in base rate has fed into a corresponding fall in savings rates, savers will see their income (interest) fall by over 15bn. The result of of fiscal loosening alongside monetary loosening is therefore a reduction in the amount of spending money in consumers' pockets. And that's before you factor in the promise we arlready have of higher taxes in 2011

    Conundrum 2 - Reckless lending by banks got us into this mess, but now we all want them to continue and even expand lending despite the deflationary pressures in the system. So now the more they lend, the bigger the hole they will dig for themselves.

    I know it might be painful, but the market must be allowed to sort this out without artificial props (unrealistic levels of Government borrowing), otherwise the economy will be paralysed for years to come. A short and deep recession followed by recovery is going to be better than five or even ten years of stagnation and massively high taxation.

  • Comment number 22.

    People are losing patience with these rule changes.

    Were the bank's deposit liabilities covered by FSCS' pitiful fund, added to public borrowing or monetised? This question has direct bearing on the credit market!

    Has no-one heard of short dated Gilts or banking with several banks?

    Where do we stand with any financial regulation?

  • Comment number 23.

    Run around saving the WORLD FROM ECONOMIC COLlAPSE,

    Run around and save anything SCOTTISH

    Run around and save any IRRESPONSIBLE spenders.

    Run around and quickly call an election and say" I AM RUNNING AROUND TO SAVE THE UK"

  • Comment number 24.

    If contagion were to start by the run on a smaller bank are we really to believe that the UK has sufficient to cover all deposits.

    It just doesn't seem feasible that we have sufficient unless we mortgage everything to the treasury to do with sit it wishes, and then who woudl want to be paid with British pesos?

    We appear to have gone thorugh the stage of merely questioning the assets of banks and Insurance companies and realising they do not have enough to questioing the very credibility of H M Government.

    For sure if this cabinet were running a major plc they would be out on their heals.

    So why on earth should we assume simply because they are cabinet ministers running the board they have one ounce of credibility or ability to do the job?

    Please Robert when are you going to address the real and fundamental problems we are all really facing now?

  • Comment number 25.

    It would not be prudent to place reliance on the 100% guarantee for London-Scottish (there were only about 10,000 depositors anyway) being repeated, so this is in fact a worthless 'policy', which does nothing to re-establish the confidence of depositors in general. "Trust me, I'm Alistair" doesn't wash.

    In fact, those who are imprudent may well now be tempted to be very stupid indeed and stick all their cash in the highest interest-earning account they can find, if they believe that Alistair really will compensate them for the whole lot.

    Many people may not appreciate that money in solicitors' client accounts is only protected up to one £50,000 FSCS limit per individual. So if the solicitor's bank goes bust in the few days before completion, you may have no house and no money either, except £50,000 (or £100,000 to share in misery with her indoors, if a joint purchase). If the Treasury wanted to do something really useful, they should formalise a 100% deposit guarantee for conveyancing purposes, if nothing else. And no, I am not a solicitor. But Alistair was, so he should know about this....

  • Comment number 26.

    #3 "as a credibility issue the custody of cash should guaranteed in *blood* (all 100% obviously)"

    It is since HM Vampires are busily sucking it out of us working stiffs !!

  • Comment number 27.

    We are living in a state of emergency, and these acts prove it.

    DO NOT PANIC !

  • Comment number 28.

    Presumably this article is a bit of kite flying prior to the official announcement of 100% guarantees - covering wholesale deposits too?

  • Comment number 29.

    The headline should read "all deposits are safe".

    "All banks are safe" is a rather sweeping statement that is open to misinterpretation (how safe is their equity?), and even though no fiduciary duty is owed here, editors should err on the side of accuracy.

  • Comment number 30.

    Bet Nero is fiddling in his grave! He'll soon have the full philharmonic to join him!

  • Comment number 31.

    The number of people with deposits is only a small percentage of the population.

    There are many banks that they could spread the money they own with.

    The government is just adding to the problems as it will have to withdraw this cover sooner or later.

  • Comment number 32.

    Surely your title should read -

    All banks are safe - as safe as our State.

    Curious how we heard more Euro-mongering today.

    Can you not see what is happening here ?

    cheers

  • Comment number 33.

    This is all very short horizon financial stuff, as usual make it up as you go along. Pre budget report - Lets jump the gap, its only 2 years then economy is up, 2 or so days later Mandelson saying to the effect we dont know how what or when. No focused plan and presentation so there probably isnt one.

    As for the chancellor will have to stand up and say there is a 50k limit etc etc, I note there is no name referred to, just a position.

  • Comment number 34.

    Perhaps Banks are safe but is sterling?

    What happens when foreign investors refuse to buy British government debt?

    Where does that leave the pound?

    Eventually the UK will be forced to join the Euro.

    Thatcher's filibuster will be seen for what it was.

  • Comment number 35.

    The world can only be helped by realizing the true meaning of humanity’s global state, which we have reached. We are a single organism, and as such, we should live in equality, with universal equal distribution, absolute bestowal of one’s entire profit for society’s benefit, and love for one’s neighbor. This is similar to the way an organism operates: all cells and organs operate in absolute harmony, as otherwise there would be illnesses (crises), even to the point of death (extermination).

    All this must happen gradually, but it is necessary! Hence, our main objective is to provide humanity with a global education, in order to teach it the meaning of a “single organism” using examples from nature. People - especially the leaders - must realize that there is no way back to the old rules. For the first time in history, the world has become different. https://www.laitman.com/2008/11/can-we-avoid-a-recession/

  • Comment number 36.

    As with so much else from this Chancellor and his predecessor GB, this will be a case of too little too late. John_from_Hendon earlier got it right. Our professional politicians and their advisors live in a parallel world.

    The VAT reduction will have the same kind of impact brought about by the miniscule change in stamp duty on house purchases.

    The 2.5 % reduction is actually 2.13% of the previous price. Experience of retail discounting is not required to see that given the deep discounts already to be found in high street stores and shops this additional reduction will become lost in translation and of zero significance to shoppers.

    It is true they do not inhabit the real world.

  • Comment number 37.

    What hypocrites!
    When Eire guaranteed all savings the UK Government was complaining and now...

    Why did they need to put London Scottish into administration? If anything its assessment of liabilities is probably better (in terms of accuracy of estimates) than the big banks. I suppose tiddlers can be taken over or let go.
    However Cattles and Provident Financial shareholders will be very afraid at the moment.
    However is this once again the North/South divide - Manchester's finest along with other Scottish/North of England entities all taken over by the Government.

    Finally why does no one want to give me 12% for my capital (ie savings)?

  • Comment number 38.

    18,

    I feel the same, if RBS went down for example there are 1.8trillion of liabilities (and they are LIABILITIES btw).

    Could we afford to bail them out?

    AD whistling away and rocking his head from side to side (I can't hear you)

  • Comment number 39.

    12#
    Don't think anyone would want to take up suggestions from a person who thinks that sitting down causes a bump in the cushion unless ,of course, their backside is inverted.

  • Comment number 40.

    In all this, there is a built-in assumption that the lender of last resort, i.e. the Government via the BofE has a bottomless pit of money.

    It does not.

    Furthermore, I see that Lloyds TSB is trumpeting in its latest ads that it is one of the Worlds safest banks.

    Read the ads small print and you'll see that this is qualified via a report on 8th September 2008 in Global Finance magazine, which places Lloyds TSB in sixth place.

    Wonderful.

    Except that Dexia Bank is in eighth place in that report and by the end of September 2008, Dexia was been bailed out by sundry Euro Governments.

    Seems to me that Lloyds TSB needs to find another source of credence.

    By the way, financial institutions that operate full reserve banking systems are inherently more sound than those who 'run' (ho ho) fractional reserve banking systems.

    Therein lies the rub.

  • Comment number 41.

    Robert, what is your definition of the 'United Kingdom'? I ask, because it appears that retail depositors in the Isle of Man, Jersey etc. have not received the same guarantees. As these guarantees are being provided by the UK tax payer, surely IOM, Jersey etc. should benefit as well?!!

  • Comment number 42.

    Building a business is a labour of love that usually takes many years before the profits roll in. There are, however, those who cannot wait and seek quickers means. These generally come in one of three flavours. Asset stripping, raiding pension funds and pyramid selling (a.k.a. Ponzi schemes). When the financial logic of the credit crunch of 2007 is analysed in future years it will be seen to be the denouement of the largest pyramid scheme ever foisted on the gullible and the innocent.
    The essence of such a scheme is to find a mechanism to suck in an ever increasing number of investors to purchase an asset in order to inflate its value far beyond its intrinsic worth and to pull out before you run out of mugs. The asset in this case was housing, and through sub-prime, lax lending standards and securitization, punters, who had no business being there, were pulled into the market, pushing up house prices and starting the spiral. Securitization allowed the profits to be booked immediately and the risk passed on to some motley fool. The fact that so many of the motley fools turned out to be some of the highest paid financial brains on the planet should serve as a salutary warning to anyone entrusting their futures to advice from "financial experts",

    Yours Aye,

    Graucho

  • Comment number 43.

    tony blair has ripped the soul out of this country and gordon is gonna rip out the heart

  • Comment number 44.

    #41 AL-MAC

    The Isle of Man and the Channel Islands are not part of the UK. They are Crown Dependencies with their own Parliaments.

  • Comment number 45.

    I do confess the more I read and hear about the credit crunch and the way that governments are trying to deal with it, the more it reminds me of a never ending "shaggy dog story"

    As a qualified engineer my thoughts are akin to most other people who are not directly involved or employed in the banking industry. I don't fully understand why our government and other governments from around the world decided the banks, after they had behaved so delinquently, needed to be saved and at such an enormous cost to the taxpayers. The worry is that if they carryon bailing banks and businesses out at the present rate then pretty soon we will be talking about really serious ammounts of money (I'm only joking of course). On the other hand perhaps the financial markets are playing a new game called "name the ammount".

    The longer this nonscense carries on and with still no end in sight it is becoming ever more debilitating for everyone concerned, regardless of how much money the governments throw at the problem. Perhaps it is now time for all concerned to face up to the reality that maybe we truely are about to witness the end of global capitalism. The kind of capitalism where it is possible for a minority of powerful and unscruperlous people (or just bloody incompetent and misguided) to believe they have the right to lie to and deceive the rest of society about what it is they are actually doing simply in order to reward themselves with obscene ammounts of money or just to stay on in power.

  • Comment number 46.

    I think there will be some silver lining in the clouds, eventually.

    Already, many people in both the US and UK are becoming much more savvy about how the economy works, or fails to, this is a good thing.

    It has created a new sense of caution about with whom we invest, bank, and shop. This is good. Just today, I saw an ad from a car dealership that had completely abandoned the hysterical 'hard-sell' emotional approach toward the purchaser. Instead, there was a sales manager carefully explaining, 'We're not here just to foist a car off on you. Our children go to school with yours, we attend church with you, and we want to be proud of our business practices here. We want to be sure you have been well-served by us.'

    This is very, very good!! This is progress!!

    This attitude hasn't been seen in thirty years or more, and is long overdue.

    So, how does this relate to today's subjects of guarantee of deposits, and lengthening of mortgage default periods?

    If the government removes all risk to everyone in every transaction, we re-enter a world of moral hazard, where anything goes, and soon we return to a world where 'anything goes'.

    Risk is good. Prudence is good. Thrift and saving are good. Thoughtful behaviour is good.

    Let's not smother the needed cultural changes as we try to stabilize the economy...that 'baby and bath-water thing'...

    While we exercise compassion short-term, let's keep some basic moral verities in mind for the long term.

  • Comment number 47.

    The government and it's BOE has declared war on the pound and on anyone who has dared to save. So the protection of savers is surely not close to Darling's heart. I guess the 100% guarantee of banks is a convenient means of causing the hyperinflation they dream of, now that their beloved bubble has burst. Closing-down sale of the pound is underway.

  • Comment number 48.

    #9 anothermrmicawber

    Good post and agree with some of your sentiments and worries.

    £31billion of bonuses in 4 years !!

    Real gold was swapped for non-existent "fine clothes" in the fairy tale of Emperor's New Clothes. What the story didn't mention is from whom will the king try to replensihed the spend gold? Of course and as always, from the people whom have lost their respect and trust for the king and his ministers.

    Still pondering about the £2trillion mentioned by Robert in one of his earlier blog. I am still very puzzled as to where all the money have gone. All the banks, at least the retail banks and some well known investments banks, are making large losses. One man's loss is another man's gain, so, has all the money and profits gone into private and offfshore banks?

  • Comment number 49.

    It sure would be nice if the big business capitalists would stop asking for yet more handouts. It is very obvious that capitalism is only for the working class and socialism is for the wealthy.

  • Comment number 50.

    Originally posted by me at the start of this crisis:

    The ?5,000bn bailout
    3:45pm on 28 Oct 2008
    Taken from Wikipedia:

    A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. It has been known to come under many guises. (Sound familar?)

    Pyramid schemes are illegal in many countries (Really???), including the United States,[1] the United Kingdom, France, Germany, Canada, Malaysia, Norway, Australia,[2] New Zealand,[3] Japan,[4] Nepal,[citation needed] Sri Lanka,[5] Thailand[6] and Iran.[citation needed] These types of schemes have existed for at least a century.

    further in the text - the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses (Really!!!)

  • Comment number 51.

    Salutations to #50 wakeupbritain, whose posts I had missed, for having spotted the true and treacherous nature of this nasty little saga,

    Yours Aye,

    Graucho

  • Comment number 52.

    #47: Deposit guarantees invariably guarantee the nominal sum, but not its purchasing power. Losses take place, but the effects are distributed among all holders of the currency. A clear and solid cap limits the inflationary liability. This minnow of a bank was the perfect opportunity to back words with deeds, instead the government chose to second-guess crowd psychology and panicked. Instead of a timely lesson in spreading investment risk, we receive a bailout of those who refuse to take a day out to manage their financial affairs and we take on a further massive liability through precedent. This government cannot see past tomorrow. Robert Peston says Alistair Darling will have to stand up and enforce the £50,000 limit some day, but he had only one chance to blow it.

    All banks are safe indeed, at what cost to sterling?

  • Comment number 53.

    Repaying IceSave over £50k was a mistake, simple as that. The rules were £50k so that should have been that.

    Speaking as someone who (stupidly) had £55k in there, when I thought I would lose £5k I was very angry, but angry at myself for having got myself into this mess. I couldn't believe it when Darling said everything was safe. Thank you Mr Darling, but you were wrong (not that I'm giving it back!)

    In fact, anyone who had over £35k was playing with fire as the rules only changed to £50k the morning the IceSave news broke!

    He's now set a precedent and I agree he can't now go back. But even so, it's not worth the risk, you can't trust anything this government does.

  • Comment number 54.

    There's little doubt that the Chancellor would have learnt from the mess that Australia had got themselves into by their government's 100% guarantee of all retail savings and deposits - it had triggered a run on investment funds, which had led to nearly all of them being frozen at the detriment of many pensioners.

  • Comment number 55.

    here we go round the mulberry bush, the mulberry bush the mulberry bush

    Headless chicken and knee-jerking comes to mind!

    Pardon me for saying, but it's all my fault-it honestly is-I asked for bets last week on the next bank to fail, and look what happened!

    Btw, surely it's not the number of savers, but the number of pounds? Perhaps AD can guarantee all the money cos none of them have more than £50,000? You can almost see him thinking up such a meaningless guarantee to look good!

    We should have put rates up to keep the faith in our currency alive, then supported it with a raft of measures (already suggested the night before rates came down). Effectively we've already had a run on banks as investors have taken their money elsewhere-Ireland I think it was if memory serves....!

    This is such a comedy of errors:a soap opera even! Time for a new TV series-Chancellor-starring our very own AD. Better still, feature length Spitting Image as one poster suggested a few weeks ago!

    Stop drip feeding us bad news a morsel at a time (don't you just love mixed metaphors!). Dump all the dirty linen in a massive pile, burn it and rebuild from the ashes.

    WE, THE PEOPLE ARE NOT STUPID!
    We, THE PEOPLE WANT THE TRUTH!

    MUTTLEY.....DOOOOO SOMETHING!

  • Comment number 56.

    #34 "Eventually the UK will be forced to join the Euro. "

    But will the Eurozone what a lame duck UK to drain their already strained resources even more.

    In addition, they may insist on a due diligence with the re-stating of UK PLC's books to show *ALL* debts including all off-balance sheet items. This may show Gormless Gordon for what he is !!

    Furthermore, after Italy had to swallow the bitter pill of the failed attempted Alitalia bailout, they may not be too happy with the UK bailouts of certain banks and not others !!

    Verily, it is as a certain rather famous Corsican said, "Trouble come not as single spies; they come in big battalions !!"

  • Comment number 57.

    Sorry, for shouting! Had a tense day-VAT inspection!

    Thanks for your tolerance and understanding-I feel much better now!

    BTW-anyone else noticed empty shelves at their local supermarkets? Supply of some standard items seem quixotic - 1 week no regular potatoes, this week no cucumbers or egg mayonnaise sandwich fillers.

    A random night I think!

  • Comment number 58.

    #46 "'We're not here just to foist a car off on you. Our children go to school with yours, we attend church with you, and we want to be proud of our business practices here. We want to be sure you have been well-served by us.'"

    Translation - We are not here just to swindle you; we are here to make sure that no other shark or shyster swindle you because you are our captive market !!

    This is called the "us and them" stealth marketing strategy !! When this happens, panic is bubbling not far beneath the surface. This will be followed by protectionism and then open warfare !!

  • Comment number 59.

    #50 "These types of schemes have existed for at least a century."

    Actually, they have been in existence for a lot longer than that. Read about "The South Sea Company" of 1720 from which saga came the descriptive noun for such happenings - the bubble !!

  • Comment number 60.

    #59 ishkandar

    Or John Law's Louisiana bubble.

  • Comment number 61.

    All retail deposits are safe? Crash Brown got over 1 Trillion GBP handy?

    Normally I would think that simply printing what the Treasury tells him under the table would be rather dangerous a la MP Green but I guess it isn't a criminal offence to leak positive government news....

  • Comment number 62.

    There has been a pattern of bail outs every few weeks which results in the falling stock market bouncing back a little, against the prevailing downward trend. What happens when there is no more money to bail out with? A massive stock market crash? I.O.U.K.? Bankrupt Britain?

  • Comment number 63.

    The only way that banks can guarantee all bank deposits is by being ready to print money also known as advanced Mugabenomics ,

    This as has been pointed out,potentialy reduces purchasing power should recipients of such largesse find that their matresses cannot handle the load and decide to go on a RETAIL THERAPY binge before everbody else does.

    At which point the real tsunami will come ,in the meantime we have the tsunami precursor -deflation as money is sucked up to meet margin calls [seas going out]

    which at the moment is confused with the real thing .[in 3 years time we might all be saying Phuket where's my water wings]


    Fractional reserve banking was given into the hands of lunatics, who increased risktaking to increase their bonuses and the nominal value of their property holdings

    ,also driven and con doned by MP errors ever eager to increase the value of their tax dodge [london residences]to infinity and beyond ,even if it meant that working [working]couples could not get onto the housing ladder without getting lamminated into the bottom three layers of the greatest credit ponzi the world has ever known before it colapsed taking them to paloooooookahville [ARMageddon]

    Perhaps we can blame Wlliam caxton ?

    In short secular leaders sold their AAA souls to the Devil
    .

  • Comment number 64.

    63 Whos prongnosis will show they are heading for a good forking and tipping into the bottomless pit .

    However i would like to take this opportunity to thank the halfwits incharge of the show for reducing my tracker mortgage [as i predicted two years ago]

    Better late than never !

    I shall give them till Christmas to reduce it to one percent [if its good enough for the Japanease ,its good enough for us ]and i am looking forward to a prolonged recession so as not to miss any of the credit crunch humour .

    0% interest for all debts is the only wayout way .

    We need a national credit crunch day ,with the laying of wreaths on a giant stone ATM with fallen shoppers at its foot[in the middle of st James square ,]The public can purchase imitation credit cards to put in their lapells once a year with proceeds to victims families.

  • Comment number 65.

    50 Pyramid schemes are as old as the Pharaohwell state and are well attested by the oversuply of those that wish to make complete tuts out of themselves at taxipayers expence

  • Comment number 66.

    I propose an amendment to anothermrmicawber's retrospective higher tax rates: 100%. And a similar rate over earnings over £250k, BIK taxed in full in the year of receipt. Equity requires progressive taxes and greed needs to be brought to heel. Let's face the empty threat of emigrating! There are plenty of gifted people who do not require gross returns to satisfy egos.

  • Comment number 67.

    John from Hendon says that we should draft in senior managers from business and the "real world" to rescue us from the incompetents at the Treasury - that wouldn't be the same senior managers that got us into this hole in the first place, would it? The ones who decided that banks should speculate with our money to a lunatic degree of unknown risk? I share you pessimism in general, John, but I feel your cure would be like a medieval doctor bleeding a patient who has anaemia.

  • Comment number 68.

    #67. cyberblithe

    "I share you pessimism in general, John, but I feel your cure would be like a medieval doctor bleeding a patient who has anaemia"

    I am thinking that the horrors of maladministration and the production of undesirable consequences through sheer lack of understanding of the impact of their policy changes on the real world and business might at least be understood if there were some people in government who had actually done something other than politics and being a civil servant.

    The whole business of deliberately talking the pound down so that we import inflation, the undesirably deflationary effects of reducing interest rates because of the impact on the ability of savers to spend when borrowers will still be unable to spend and the billion pound cost of changing vat just before Christmas - talk about own goals!

    We need real people who live in the real world not these chumps!

  • Comment number 69.

    So, are you inferring Robert, that the banks lent to hedge funds so that they might bring them down? Hoist by one's own petard?

  • Comment number 70.

    All deposits are safe? For such a recent pessimist Mr Peston you seem quite optimistic that this isn't a depression. What happens if we can't raise any more feunds from the money markets in a years time? I'd doubt if the IMF would agree to an all deposits are safe outlook then.

    I don't believe this to be the case in the future but it's a bit tempting fate to claim such hyberbolic statements. Will all banks be profitable in two years time?

  • Comment number 71.

    Some good posts here - #21, #46, #52... The world's governments missed their chance to put a firebreak around the (mainly investment, not retail) banks a year or so ago and limit their losses to them alone - let them go bust and be done with it. Short term pain while trades get resettled and some hedge funds go bust, etc., and then the real economy can get going again on the basis of trustworthy lending (all the bad banks would have gone, so people would know that any surviving bank was surviving because it was strong, and trust would therefore follow). But the govts decided to pass the buck and delay the day of reckoning, so the buck got passed to retail banks and other financial institutions and now it's in both the real economy and at the level of governments (and therefore taxpayers; being one and the same). So the problem was socialised for fear of accepting failure (Brown's "We've abolished boom and bust" will be the slogan of the hubris that drove this refusal to accept failure), and now everything's failing and no longer can the floodgates be held shut. The upshot? Currency devaluation. No one will buy the level of government debt required to fund the attempt to prevent the natural cycle of recession/growth, so the only way to avoid bankruptcy is to devalue the debt burden using the printing press. Upshot - the prudent (savers) get implicitly taxed and relieved of their savings to pay for the reckless borrowers who, it has been decided without referendum or even acknowledgement, need to be protected from their foolishness. And so the money moves from the wise to the foolhardy. with everyone incidentally suffering on the way.

    For less philosophical rambling, look out for countries (who knows which?) going bust as they get the money-printing wrong and conjure up hyperinflation. And should we invest in other assets - US Dollars, gold, other commodities...? I don't know - maybe it's a better idea to invest in skills... farming comes to mind...

  • Comment number 72.

    Alistair Darling's move certainly sends a mixed message.

    Let's just leave alone the implications of an unfunded liability of a 100% guarantee.

    What are the implications to savers, who seem to be increasingly under attack and plundered as a source of cheap funding. The suggestion of a 100% guarantee is that it shouldn't matter where I put my money.

    Doesn't it? Am I still not exposed to loss of interest and extension of tenor (receiving my money later than I expected).

    It seems to me proper due-diligence still applies despite the suggestion that it does not.

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 73.

    While it has clearly become necessary to provide full or near-full deposit guarantees, this needs to

  • Comment number 74.

    It would be bonkers to formally guarentee all savings for one simple reason - once made, it would be almost impossible to withdraw such a guarentee and a couple of years down the line such a guarentee would simply force banks to offer more and more bribes to customers to maintain market share, knowing that the state would pick up the tab.

    On the otherhand it would be bonkers not to in practice guarentee UK savings in the short term, otherwise everyone would transfer their funds to one of the state owned banks, causing a run on the banks, forcing the state to take them over.

    Incidently did anyone watch Poirot on the telly over the weekend? The story involved a Bank called the London & Scottish and some dodgy US Bonds

  • Comment number 75.

    While it has clearly become necessary to provide full or near-full deposit guarantees, this needs to come with some caveats to prevent reckless behaviour and to force consumers and institutions to properly price their risks:

    1) Most standard insurance policies require the customer to cover the first £XX of any insurance claim. Given that a desposit guarantee is basically a form of insurance (funded by taxes rather than premiums) the current system of the government covering the *first* £50k is the wrong way around: instead, the government should insist that the customer takes the first, say 10% loss, with the government covering the rest. This forces the customer to take some kind of penalty (and thus encourage careful future saving) but not so much of a penalty that it creates panic in the system.

    2) Likewise, the banks themselves need to pay in some way for the inherent risk involved in their business (which as we see taxpayers now have to cover). The desposit guarantee scheme should at least partly be funded by some kind of compulsory insurance premium - and as with any insurance premium, the level should differ according to various indicators of the bank's financial health (eg. capital ratio, ratings, CDS spreads, etc.). As well as directly funding the deposit guarantee scheme, the differing insurance premiums should encourage better behaviour on the part of the banks.

  • Comment number 76.

    I agree with most of the comments, espacially #9.

    The government has sat back over the years and watched whilst banks have lent with utter negligence, their agents collecting commissions for handing out money that will never be repaid.

    This lending has been part funded by unscrupulous investors who have piled into to any high-interest account on offer, never pausing to question what the bank actually does with its money. These investors, including even those who have invested in the Channel Islands to escape tax, now bleat for their money back.

    The proceeds of this greed are gone forever into the pockets of the very people who caused this economic crisis and this goverment is too weak and self-serving to do anything about it.

    Instead, as have the Republicans in the US, they shovel all the problems into the future, burying toxic trash for the next generation.

    What do they care, who by averting their eyes have secured the patronage of the super-wealthy elite to fund their post-ministerial living?

  • Comment number 77.

    I have to confess that I do not understand the reason for limiting the guarantee to £50,000.

    Suppose 5 (fortunate) people have £250,000 pounds that they wish to save. If they each put the £50,000 into each of 5 banks, and one of those banks fails, the government is bailing out to the tune of 5 x £50,000, or, in other words, a total of £250,000.

    However, suppose the government imposed no limit to the guarantee (which seems to be the implication of Robert's blog), and each saver puts £250,000 into a different one of the 5 banks. If any of those banks were to fail, the public liability is again £250,000.

    Also, it is not obvious what financial institutions are part of the same group. I have just opened a savings account with Saga. However, the actual investment is with Birmingham Midshires which in turn is part of the Bank of Scotland. So care is obviously necessary when trying to spread savings around to meet the £50,000 limit.

  • Comment number 78.

    Oh dear ChiefWhiteHalfoat are you still trying to say that the big UK banks were run well pre 2007? Haven't you worked it out yet? Our retail banks and some of the big US retail banks were operating on an investment bank model.

    If you have 3% of cash assets compared to 97% of debt how long do you think you can 'ring fence' a major blowup of the financial system? If it had been succesfully ring-fenced do you think that financial institutions would have seen it as a very real scare, or just proof that their irrational exuberance was correct and that the role of government was to bail them out so they could go go go again? Big shock in 2007, what did they do? Nothing cos if they did believe disaster was ahead their business model only lead to bankruptcy. So yet again we save them.

    You seem to have possibly one of the worst grasps of the problems inherent in retail banks turning themselves into investment banks by Glass-Steagall's backdoor that I've ever come across. Please if you think the government passed the buck then you go off and do something better with your perfect knowledge.

    I think you'll find financial institutions have passed the buck for thirty odd years with Continental Illinois, the Tequila Effect, LTCM and the Dot Com Crash. Blame the governments but the free market is most to blame. It really is quite tiresome to read 'geniuses' saying the government failed, whilst your geniuses of the free market didn't question their model when the biggest financial disaster came to light; involving virtually all large international banks. You would have done no different in 2007. The UK booms with the US and busts with the US, we may not boom next time with the US but if anyone is seen to take us out of that cycle then it's political suicide.

  • Comment number 79.

    I understand the point that Banks can't sensibly grant mortgages at rates below the rates they are having to pay to borrow i.e the LIBOR rate, so the Bank of England rate is something of a red herring.

    What I don't understand is why they don't simply pay their savers a sensble rate. This would still be well below LIBOR so they could then could pass on interest rate cuts to borrowers, as well as keeping their savers happier.

    It's not rocket science surely?

  • Comment number 80.

    Chris you're missing something crucial. The big high street big four barring HSBC are to all intents and purposes bankrupt. The money going out the door in write downs and servicing humungous debt is more than they earn by massive ammounts.

    Hence any differential between BoE interest rates and savings rates is a cost to them. Where do you think someone can make 6% interest on their capital when major indexes are down 40% in a year? If the LIBOR rate is still high it is because banks are unwilling to lend to each other. As commercial entities they've been financing long term mortgages through short term low interest Libor loans between themselves. What do you think happens when they need to gobble up loans in a dissapearing Libor market that is also operating at rates that make their business model unprofitable?

    If a bank were to loan money who do you think meets the criteria of reliable customer? Who can turn enough profit to pay back a ludicrous interest rate when most companies are turning a £ into 60p?.... probably much worse.

    If you have 3-4% of cash assets but 96-97% of debt, any savings a non passed on 1% reduction in interest rates for a saver would be eaten up by a loss in income from loans in the order of magnitude of 30 times plus. And that would only be if loans were at the same interest rate as savings; never found that in business. It's not rocket science that the creation of easy credit doesn't lead to the saver winning and the creditor being cautious. You can't pass on what the banks don't have. Essentially your saying the state should pay for fools debt.

    Ridiculous credit has got to stop and people need to pay off their debts. It ain't rocket science to see it'll be easy.

  • Comment number 81.

    Meant to say it won't be easy.

  • Comment number 82.

    With respect to the comments of Surrey_Pensioner (#77), I agree, the whole deposit guarantee issue has become a bit of a shell game. We know, that the government is all but explicitly guaranteeing deposits to 100%.

    However, there is a psychological effect and the 50,000 induces depositors to spread their deposits. This is beneficial to the smaller banks as people would more likely place their larger deposit with a more reputable bank.

    However, regardless of the deposit guarantee limit, you are always exposed to loss of interest and delay in receiving your funds. Spreading your deposit will mitigate this risk somewhat and allow you to benefit from some of the higher rates on offer.

  • Comment number 83.

    With respect to the comments of Surrey_Pensioner (#77), I agree, the whole deposit guarantee issue has become a bit of a shell game. We know, that the government is all but explicitly guaranteeing deposits to 100%.

    However, there is a psychological effect and the 50,000 induces depositors to spread their deposits. This is beneficial to the smaller banks as people would more likely place their larger deposit with a more reputable bank.

    However, regardless of the deposit guarantee limit, you are always exposed to loss of interest and delay in receiving your funds. Spreading your deposit will mitigate this risk somewhat and allow you to benefit from some of the higher rates on offer.

  • Comment number 84.

    Can Investment Banks provide any guarantees
    e.g. Unit trusts & funds protect investments and growth. Asset pricing does not wipe off billions. Bad investments by fund managers are eaten up by them.

  • Comment number 85.

    #75 tebiru wrote: "The desposit guarantee scheme should at least partly be funded by some kind of compulsory insurance premium"

    That already exists, it is how the FSCS is funded. However, the premiums and the fund are negligible compared to a typical bank's deposit liabilities and banks have rejected suggestions that the scheme should be pre-funded to a higher level. The real weight behind compensation schemes is always open-ended government borrowing and in the last resort, printing. It also means certain companies that never paid into such a scheme can have their liabilities covered too.

    Your suggestion of a more traditional insurance scheme with a fixed proportion excess payable by the depositor is intriguing however. It would give the public an incentive to scrutinise balance sheets, which is no bad thing and could create the competitive pressure the industry needs to get its affairs in order. A market-based solution that gets the public educated and involved in oversight would be most welcome. After all, deposits are an investment and should be treated it as such, with the same due diligence. It seems some wealthy people expect a risk-free ride and the government is happy to humour them at everyone else's expense.

  • Comment number 86.

    With respect to the comments from WerringtonSilent (85), such a market-based solution has recently emerged - yours truly.

    As we have recently learned through painful example, there is no return without risk and that risk increases with the return (Icesave et al).

    While retail depositors are covered by FSCS they are still exposed to other types of risk as I explained in a previous comment (83).

    However, small businesses above a certain size will not qualify for FSCS protection. Their deposits will fall under wholesale deposits and they will have to line up as creditors, as is the case currently with London Scottish.

    So the imperative to due-diligence is well founded.

  • Comment number 87.

    Ok Robert, a straight question. With the inside knowledge you have on where those in the know are putting their cash can you please tell the rest of us? Having sold my house last August and not bought another yet I would effectively be homeless if my bank pulled up the drawbridge. Other than stashing a lot of cash in the freezer and the sock drawer, where the heck else is there to put it? AND, suddenly the constant updates and analysis on the current financial system on BBC News is slowing rapidly. Yes, other very important issues do indeed to be aired and rightly so but PLEASE, its so obvious that there is a game plan here to anaesthetize the public from any up to date happenings. I didn't even know London Scottish had gone under! must have been at the M&S sale....Thanks for a great up to the minute blog Robert. The only place we can find out whats happening. Dig deep at those Christmas parties!!

  • Comment number 88.

    You didn't get answers from him on the up, he'll dare not give you answers on the way down.

    It is priced in the CDS market that Santander is the safest bank present in the UK apart from HSBC; though HSBC UK is a seperate entity to the parent company it is it's Asian parent company re-capitalising it at this moment. So if you want a super safe bank it's HSBC or Abbey National (now Santanders UK registered bank). Personally I don't trust the Chinese market so on that it'd be Abbey National.

    But really as long as your money's in the big four you'll be safe unless the world goes to pot. If it does go to pop state owned or not it really doesn't matter who owns your bank as to whether it survives, though I'd be happier state owned than say Barclays.

  • Comment number 89.

    Fund managers inherited the world's wealth and lost it in endeavors to equal or exceed the qualities or actions of another. Their job was guaranteed, but the inheritance not. Just as a child can lose earthly inheritance, we can lose heavenly inheritance.

  • Comment number 90.

    tatruth, thanks for your comments on safest banks. Well, if the world does indeed 'go to pot' we won't have to worry about where to put our money anyway, we'll be back to the barter system of exchanging a couple of sheep for a pig and living in smaller communities. Not before time in my opinion. Though much suffering has and is being caused by the greedy and selfish, at least this crisis is beginning to wake people up to the mass theft of the many by the few.

 

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