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Bank Of England Making Short Term Guarantees Up To 1 Million -- Multiple Merged Threads

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The PRA has this morning released its consultation on depositor protection, which seeks to implement the requirements of the EU's Deposit Guarantee Schemes Directive.

http://www.bankofengland.co.uk/pra/Documents/publications/cp/2014/cp2014.pdf

The part of the consultation that will perhaps be of most relevance to HPC members is the proposed rules on Temporary High Balances (THB), for example the proceeds of the sale of a residential property held in a bank deposit account.

The proposal is that THBs will have protection up to a limit of £1 million (with an exception made for compensation awards for personal injury claims, where the amount will be unlimited) for a period of six months. The PRA claims that this will cover 99% of residential property transactions.

The rules will likely come into force on 3 July 2015.

Below is an extract of the proposed wording of the THB rules:

PRA_Consultation061014_THBs.gif

Edit: for clarity

Edited by FreeTrader

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http://www.theguardian.com/business/2014/oct/06/savings-limit-1m-pounds-bank-of-england

Savings of up to £1m in collapsing banks are to be protected for up to six months under new proposals from the Bank of England intended to avoid chaotic scenes reminiscent of the run on Northern Rock.

The £1m limit will apply only to money temporarily deposited in a bank, for instance from a house sale or insurance claim. The Financial Services Compensation Scheme (FSCS) guarantees savings up to £85,000 in banks and building societies which run into financial difficulty, a limit which applies across the EU and was set after the 2008 financial crisis. The six month temporary guarantee will save customers having to race to break their savings up into £85,000 blocks to deposit in separate banks in an effor to ensure their cash is covered.

The £1m limit will cover 99% of house sales and 92% in London, according to the Bank’s estimates.

In a series of measures intend to protect customers when banks are on the brink of collapse, the Bank is also calling for changes to the way the customers are paid out of the FSCS.

http://www.bankofengland.co.uk//publications/Pages/news/2014/125.aspx

http://www.bankofengland.co.uk/pra/Pages/publications/cp/2014/cp2014.aspx

Summary of the main proposals

DGSD

  • Funding: The FSCS will be funded by ex-post levies, with access to funds collected from the UK bank levy with PRA approval. Any funds used from the bank levy would be recouped from deposit-taking firms over time.
  • Eligibility: Most large corporate depositors will now be eligible for deposit protection. This brings wholesale-only deposit-takers into the scope of PRA requirements (eg SCV) for firms holding FSCS-eligible deposits.
  • Temporary high balances (THBs): There will be temporary deposit protection for up to 6 months above the £85,000 limit for certain types of deposits classified as THBs, such as the proceeds from private property sales. Protection will be up to £1million in most cases.
  • Disclosure: There are new disclosure requirements for firms to inform depositors about the compensation arrangements, including use of a prescribed information sheet. FSCS posters and stickers will be amended to take into account THB coverage.
  • Speed of FSCS payout: This is reduced from 20 to 7 working days for most depositors, with full compliance by 2023. The UK currently has a seven calendar day target for most depositors.

Continuity of access

  • Separation of accounts: Firms will have to create and maintain systems that can separate eligible covered and uncovered balances and place the uncovered balances into a separate account.
  • Prioritisation of accounts: Where customers have more than £85,000 across multiple accounts, amounts held in more accessible accounts will be prioritised when separating covered and uncovered balances.

Appendices to the CP include proposed changes to the PRA Rulebook, two draft supervisory statements and one new statement of policy for the FSCS.

Readers may also wish to refer to The implementation of ring-fencing: consultation on legal structure, governance and the continuity of services and facilities - CP19/14, Ensuring operational continuity in resolution – DP1/14, and Policyholder protection – CP21/14 also published on Monday 6 October 2014.

Responses

The consultation will close on Tuesday 6 January 2015.

So, apparently not for permanent balances, just temporary balances due to particular circumstances.

house sale good?

equities sale?

business sale?

Boe loves to keep it vague enough to mess with your head.

Edited by R K

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So if you know when it's all going to go t!ts up, you can dump your 'assets'/property/shares, park the cash in the bank for 6 months, and buy back the newly devalued assets.

Sounds like an insider's charter to me. As always, the pertinent question is 'Who benefits'?

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It sounds like they are preparing for it to happen. More of when it happens not if it happens. Just wonder who is going to get caught out. With 22 bank (I think ) £85,000 in each of them. The rich will keep their wealth in bonds and shares.

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It sounds like they are preparing for it to happen. More of when it happens not if it happens. Just wonder who is going to get caught out. With 22 bank (I think ) £85,000 in each of them. The rich will keep their wealth in bonds and shares.

It appears to be driven by an EU wide directive for implementation July 2015.

I've had a very cursory scan of the detailed document I've linked above (it froze on me so I guess many others are too) and the thrust of it seems to be to speed up bank resolution following a failure. The (up to) £1m depends on the nature of the deposit made and relates to specific deposits for specific purposes, examples being house sale, insurance payouts, compensation payouts, for a limited period (up to 6 months) to enable the depositor to split the monies amongst multiple banks in order to take them back under the permanent £85k g/tee. Hence the 'temporary' nature.

The proposal is it will be funded by levies on the banks (plus one off and ongoing costs). So that means everyone pays ultimately, although the benefit is clearly targetted to high net worth individuals with homes valued up to £1m (per person?) presumably after paying off any mortgage. All financial g/tees are effectively a subsidy of the wealthy by the poor, of course.

I recall Mervyn King talking about this at a parliamentary hearing and it was very much along these lines. Temporary sales proceeds. The assumption was that nobody keeps cash >£85k in a bank for any length of time. They invest in assets.

Edited by R K

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Oh yes, got to ensure all that lovely housing profit (credit pumped into the system) is protected. Anyone who has saved over 85k from hard work can go fk themselves, they've got to run around getting multiple savings accounts.

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Oh yes, got to ensure all that lovely housing profit (credit pumped into the system) is protected. Anyone who has saved over 85k from hard work can go fk themselves, they've got to run around getting multiple savings accounts.

Agreed!

or if you decided equities were overvalued and wanted to park your SIPP cash in banks for a couple of years and re-invest in a bear market. Tough luck!

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Surely this just raises the cost which will ultimately fall on savers with reduced interest rates.

I think the BOE has noted an increase in cash being held in short term low interest rate deposits. What does a bank / private wealty managemend do now if you have those millions pound from house sale? In money market funds ?

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Just how many deposits is this really going to cover?

Surely anyone with any brains would split this type of cash up immediately to mitigate the risks.

The need for doing this surely indicates the banking system isn't that healthy?

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Oh yes, got to ensure all that lovely housing profit (credit pumped into the system) is protected. Anyone who has saved over 85k from hard work can go fk themselves, they've got to run around getting multiple savings accounts.

Totally.

Yet another policy designed to stop people "irresponsibly" saving and instead do the right thing and "spend, spend, spend". :blink:

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Just how many deposits is this really going to cover?

Surely anyone with any brains would split this type of cash up immediately to mitigate the risks.

The need for doing this surely indicates the banking system isn't that healthy?

No, it surely indicates that there is an insured limit of £85k which they are proposing to temporarily increase to up to £1m for certain balances for a limited duration.

Above £85k and outside of this proposal your money is at risk as it always was (except when they suspended the prior limit of £33/35k 'cause they realised it was meaningless).

If they ever have to execute bail-ins then there needs to be some limit no?

Edited by R K

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Dear god.

They really do love discriminating against anyone who dare invest their money anywhere other than housing.

This sounds like a good policy built on good intentions. If you are moving house, and are in between selling and buying, there is a high probability that you may temporarily have a lot of money in your account. You can almost imagine how the policy conversation went:

Policy wonk A: So we will let banks go bust and if you have more than £85k in your account, that is your problem. You can't say there has not been enough publicity about the FSCS.

Policy wonk B: But what if someone was just in the middle of moving house and had received the proceeds from the previous sale, had already exchanged on another house, and then had their bank go bust, taking everything but £85k with it, leaving them homeless and with an obligation to complete on another house, but no money?

Policy wonk A: Ooh, that's a thought, we should make a provision for that.

Policy wonk B: And what about if someone had just retired and decided to draw down 25% tax free and before they had a chance to do anything their bank went down...

etc etc

This is a policy that will let banks go down and have it happen more fairly. I am all for not saving banks, but I think we need to recognise the utility nature of banking and this may occasionally mean all us having a lot of money in an account for a very brief period of time. Most of us would not be affected, but some would, just by very bad luck, much like happening to walk under a tree when it collapses on you.

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http://www.bbc.co.uk/news/business-29514900


Savings of up to £1m are to be protected under new proposals from the Bank of England aimed at avoiding a Northern Rock style run on a bank.


Only money temporarily deposited in a bank, because of a house sale or an inheritance, for example, will be protected for a period of six months.


Under current rules a maximum of £85,000 is protected.


The new rules are due to come into force by July next year.


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Policy wonk B: And what about if someone had just retired and decided to draw down 25% tax free and before they had a chance to do anything their bank went down...

etc etc

They've apparently decided not to cover that. Just house sales.

Unless you are Policy wonk B and know different?

Policy wonk RK: What about people who have decided the bubble the FED/BoE have created in the equity markets is going to burst with devastating consequences and decide to sell all their investments tomorrow. Why aren't we protecting those assets but ARE protecting house sale assets? We're going to look like right dumb f*ckers!

Edited by R K

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wouldn't a better option be for the BoE (which can't go bust as it can print the stuff) to offer zero interest deposit accounts to Mr & Mrs Average guy for dealing with large amounts that are "in transit" or "waiting for six months".

Hell they could even charge a fee - I'd pay 100 bps to know that my life savings were save while I got my stuff sorted if I'd just sold a business/won the lottery etc

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wouldn't a better option be for the BoE (which can't go bust as it can print the stuff) to offer zero interest deposit accounts to Mr & Mrs Average guy for dealing with large amounts that are "in transit" or "waiting for six months".

Hell they could even charge a fee - I'd pay 100 bps to know that my life savings were save while I got my stuff sorted if I'd just sold a business/won the lottery etc

Great idea, you could call it something like "National Investments and Savings"

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They've apparently decided not to cover that. Just house sales.

Unless you are Policy wonk B and know different?

Policy wonk RK: What about people who have decided the bubble the FED/BoE have created in the equity markets is going to burst with devastating consequences and decide to sell all their investments tomorrow. Why aren't we protecting those assets but ARE protecting house sale assets? We're going to look like right dumb f*ckers!

I think that this is covered under 10.2 (2) (i).

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wouldn't a better option be for the BoE (which can't go bust as it can print the stuff) to offer zero interest deposit accounts to Mr & Mrs Average guy for dealing with large amounts that are "in transit" or "waiting for six months".

Hell they could even charge a fee - I'd pay 100 bps to know that my life savings were save while I got my stuff sorted if I'd just sold a business/won the lottery etc

I suspect they would not want the admin! Edited by Ah-so

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http://www.bbc.co.uk/news/business-29514900

Savings of up to £1m are to be protected under new proposals from the Bank of England aimed at avoiding a Northern Rock style run on a bank.

Only money temporarily deposited in a bank, because of a house sale or an inheritance, for example, will be protected for a period of six months.

Hmmmmm....... What do they know that we don't?

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I totally agree.

The difference is that I downloaded the document at 10.30am when it was officially released, read through it in detail, and posted a thread on it giving my own summation of the content that I thought would be of interest to members of this forum.

You started your thread based on an article in a newspaper, and later gave your impressions following a "quick scan through" of the paper. Your subsequent posts show you hadn't fully digested the PRA proposals.

If we've reached the stage where the thread title is now more relevant than OP content, then I'm most definitely wasting my time here.

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