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R K

Fscs Deposit Protection Scheme Limit Cut To £75K From 2016

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​The Prudential Regulation Authority (PRA) is today announcing changes to depositor and policyholder protection provided by the Financial Services Compensation Scheme (FSCS). For the majority of depositors currently covered by the FSCS, the existing level of deposit protection (£85,000) will be maintained for six months before changing to £75,000 after 31 December 2015.

The PRA is required by the European Deposit Guarantee Schemes Directive to recalculate the FSCS deposit protection limit every five years and set it at a sterling amount equivalent to EUR 100,000. The process and timing is specified by the Directive and is not at the PRA’s discretion.

The FSCS currently protects deposits up to £85,000 in the event of the failure of a bank, building society or credit union. This compensation limit was set in December 2010, based on the sterling equivalent of EUR 100,000 at the time.
The new limit has been set today at £75,000. However, HM Treasury has today put in place legislation to maintain the existing limit of £85,000 until 31 December 2015 for depositors who were previously protected by the FSCS and continue to be protected (including individuals and small companies). This transitional measure helps to ensure that depositors have suitable time to plan for and adjust to the change and will protect most depositors from experiencing a sudden change in the amount of compensation available in the event of the failure of a bank, building society or credit union.
The Directive also extends deposit protection to some categories of depositors that were not previously protected by the FSCS, such as large corporates. The new limit of £75,000 will apply to these newly protected depositors from today.
For those depositors who were previously protected by the FSCS and who are contractually tied into products with balances above £75,000, the PRA is consulting on rules to help manage the impact of the limit change. This consultation ends on 24 July 2015. Pending the result of the consultation, the intention is to allow depositors to withdraw funds between the old and new limits without penalty from 1 August 2015 until 31 December 2015 if they experience a decrease in deposit protection as a result of the limit change.
Other changes
From today, 3 July 2015, depositors with temporary high balances will be covered up to £1 million for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later. This is to ensure that depositors are protected when they deposit funds over the limit as a result of specified events, including following a house sale or funds received from a ‘life event’ such as a divorce settlement or inheritance, for a period of time until they have had sufficient time to spread the risk between institutions to appropriately protect these funds.
For insurance policyholders, the PRA has changed the insurance limits for FSCS compensation to increase protection for policyholders in the event of an insurer failing. This increases the limit to 100% of cover for all long term policies, for professional indemnity insurance and claims arising from death or incapacity. This reflects the potential for significant adverse consequences to policyholders, and the wider financial system, of cover being disrupted. The limits for all other types of insurance remain the same.
Edited by R K

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Tis a cruel irony that as the Euro plummets into the abyss those saving/hedging in sterling see the FSCS protection on their savings plummet along with it.

Alternatively (in The Office "every cloud" fashion) if UK were to trash sterling then the savings protection limit would rise. Which is nice or perverse depending on one's perspective.

Edited by R K

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Tis a cruel irony that as the Euro plummets into the abyss those saving/hedging in sterling see the FSCS protection on their savings plummet along with it.

Alternatively (in The Office "every cloud" fashion) if UK were to trash sterling then the savings protection limit would rise. Which is nice or perverse depending on one's perspective.

Well I'll take the protection-limit cut as a pre-warning that something is approaching, and house prices are set to take a deeper adjustment downwards. It's not just the saver side to take a forever beating.

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I suppose if you further consider that it isn't indexed (apart from to the Euro!) then it has effectively fallen around 25% in real terms in the last 5 years.

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Absolutely nothing to do with Sterling strength v Euro. Why should it? Why not Sterling strength/weakness v Aussie Swissie Dollar?

This is because the Gov knows that if the housing bubble pops or the over-debted bankrupt banks go down (both highly likely) , they want their obligations reduced

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Well I'll take the protection-limit cut as a pre-warning that something is approaching, and house prices are set to take a deeper adjustment downwards. It's not just the saver side to take a forever beating.

Yep. The government must know something is afoot, because I doubt the EU directive prevents the government from having its own better protection.

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So how does this work if the Euro hyperinflated, unlikely but possible the ratio could end up been £1 for 100,000 Euro. A totally nuts ratio.

Theoretically yes.

IIRC this all started when the Irish govt. g/teed 100% of deposits without limit when they went bust without EU agreement. UK limit at that time was only £35k so it would have been rational for UK savers to stick all their savings above that limit in Irish banks. So to prevent this regulatory arbitrage the EU agree a EU wide limit of E100,000 which at that time = £85k for UK to be reviewed every 5 years. So this is the 5 year anniversary and the reduction to £75k reflects the currency movement i.e. a weaker euro. I suppose part of it then is to prevent money flows out of EZ banks into UK banks to gain from what would otherwise be a higher £85k limit.

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Absolutely nothing to do with Sterling strength v Euro. Why should it? Why not Sterling strength/weakness v Aussie Swissie Dollar?

This is because the Gov knows that if the housing bubble pops or the over-debted bankrupt banks go down (both highly likely) , they want their obligations reduced

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Is anyone else getting a bit uneasy ?

Enough to have been drawing lumps of cash out over the past fortnight, yes.

The cut in protection doesn't affect my finance as I'm still under it, but I'm keeping my own small stash just in case there's a temporary problem. Not much else I see I can do.

Surely this doesn't have much of an effect on anyone though? If you've got over £75k in your name in a bank, just open up an account with a different bank and plonk the difference with them, surely? (Of course, that's if you believe that the promise of protection is any good, but it's surely a wise move given what we have to work with).

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Is anyone else getting a bit uneasy ?

I'm not a fan of Deposit Guarantees (reason below) - but seeing we've now had all the decades of bad-banking that resulted from them (and level-on-level other schemes such as insurance which proved worthless for AAA+ overvalued CDOs etc).... I've got no choice but to favour Deposit Guarantees against these house prices. What other choice do younger renter-savers have against monster house prices; their savings need to be protected.

So they've trimmed the level. Probably not enough to trigger any real concern from savers (renter-savers), but it people do take some money out of the system (cash - no leverage), as an 'uneasy' reaction - that becomes deflationary.

Following the stock market crash in 1929, currency grew by 16 percent annually until 1933. This was a contributing factor to the shrinkage of the overall money supply. Deflation happened in spite of the fact that the Fed, by the account its chief economist, "embarked on a policy of easy money which it pursued through the depression." The Fed kept the monetary base expanding at a 4 percent annual rate from 1929 through 1933, yet the overall money supply collapsed, partly because of strong demand for no-leverage money.
The Off-Budget Liquidity Squeeze

Bankers Will Fight Deposit Insurance Guarantee -

Would Cause, Not Avert Panics, They Argue

Bad Banking Would Be Encouraged

And Honesty Discredited, Says Foes.

-NEW YORK TIMES headline,

March 26, 1933

Although the banking community is prepared to accept a rigid revision of the banking laws, there is one proposal that bankers here still vigorously oppose - any plan for guaranteeing bank deposits. Attempts to guarantee deposits, the bankers say, have always ended disastrously.

A study of the operations of guarantee laws was made last year by Thomas B.Paton, general counsel of the American Bankers Association, and the bankers rest their case on his brief. Mr Paton found that from 1908 to 1917, guarantee laws were enacted by eight states; Oklahoma (1908); Kansas (1909); Texas (1909); Nebraska (1909); Mississippi (1914)l South Dakota (1915); North Dakota (1917); and Washington (1917). "Disastrous results," he said, "led to the repeal in 1923 of the Oklahoma law, in 1927 of the Texas law, in 1929 of the Kansas, North Dakota and Washington laws, and in 1930 of the Nebraska law..."

The chief arguments of the bankers against a bank deposit guarantee law is that it encourages bad banking, discredits honesty, ability and conservatism, and would cause not avert panics. They say the public must eventually pay...

Congress ignored the evidence in creating federal deposit insurance because doing so was in the interest of powerful rural congressmen. Note that all of the states that enacted deposit insurance in the early part of the century were large states with extensive farm economies.

There was little or no pressure for deposit insurance from financial centres like Boston, New York, Chicago or San Francisco. But small-town politicians and small-town bankers did have a reason to guarantee deposits. They wanted to forestall the development of a national banking network of the kind that serves other modern economies.

To preserve small, inefficient banks required isolating them from the market process. This meant not only limiting competition across state lines. It also required finding a way to attract low-cost funds into what were often small, unstable institutions.Federal deposit guarantees fit that latter requirement.

In effect, the local banks were drawing on the good credit of the Treasury to cancel much of the high risk of small-town banking. The beneficiaries were not so much the small depositors as members of Congress, along with the owners and managers of locally controlled banks that otherwise would have disappeared. The local bankers stayed in business isolated from competition. They became major campaign contributors.

The myth, of course, is that Congress was motivated to protect small depositors to prevent them being wiped out in another depression. While this no doubt played a role in engendering popular acceptance of the deposit insurance scheme, the idea that the depression resulted in massive losses to depositors is much exaggerated. In fact, total losses by depositors in banks that failed from 1929 through 1933 were just $1.413 billion. Adjusting from inflation, the losses to taxpayers caused by deposit insurance in the 1980s were at least twenty times higher than all the losses from bank failures during the Great Depression.

This does not even account for opportunity costs of malinvestments in empty office buildings that will have to be torn down, abandoned strip malls, and housing projects that failed. When the government counts GNP, it does not subtract the sums that were lost by loan officers at now insolvent financial institutions.

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I'm not a fan of Deposit Guarantees (reason below) - but seeing we've now had all the decades of bad-banking that resulted from them (and level-on-level other schemes such as insurance which proved worthless for AAA+ overvalued CDOs etc).... I've got no choice but to favour Deposit Guarantees against these house prices. What other choice do younger renter-savers have against monster house prices; their savings need to be protected.

So they've trimmed the level. Probably not enough to trigger any real concern from savers (renter-savers), but it people do take some money out of the system (cash - no leverage), as an 'uneasy' reaction - that becomes deflationary.

Taken out 6K in the last week....now under bed.

Would rather some desperate burgular had it than some banker burgular

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Just had a thought,

Many, myself included, has deposits on long term bonds, below 85K and above 75.

Those bonds have now become a target for the bankers !!!!!!!!

Holy f**k.

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Just had a thought,

Many, myself included, has deposits on long term bonds, below 85K and above 75.

Those bonds have now become a target for the bankers !!!!!!!!

Holy f**k.

Then stop lending your money (seemingly risk-free) to banks, while complaining or worrying about banks and bankers.

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Taken out 6K in the last week....now under bed.

Would rather some desperate burgular had it than some banker burgular

I can understand your motives as you're not throwing away high interest.

I've got less. £1K and a bit more in $. £1K cash proved useful in the past like when I had to bail out a relative, who called me from City at 2am; she'd parked in restricted area and car towed and impounded. Meant I could help immediately. Anything more than that I'd feel security uneasy about, (and tempted to spend) - your circumstances may be different.

All in all I think banks are far better capitalised for shocks to come than 2008. Seen the stress-tests. Also I don't want to have to reconvert any cash when there are changes to notes in the future. (I'm not sure when the new £20 note is coming out, but it's being planned.) Some might see this trimming of deposit insurance as HPI+++ positive, but I think it's a big negative for house prices.

Just to say I'm not sat on cash-out-of-the-system (other than small amount in £ and $).

After bubble-on-bubble, my savings in the financial system (including savings accounts/ISA), in trust banks can better handle a HPC now, with a shock bonfire-of-the-boomers/btlers (wealth) to come. Although the appetite for it is lacking on all sides at the moment, it seems to me. So maybe another 10 years.

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Whatever the motivation behind the projected change, the way we should look at this is as follows; The 'guarantee', which isn't a guarantee any more since the wording was quietly changed a couple of years back, is a warning that if you hold more than the limit in any one institution the government consider your wealth fair game for legalised theft.

My bank said I had to give them notice on my instant access account if I wanted £3k out in cash. I said, "So its only instant up to the instant I ask for my money then?" Minutes later they paid up since a bank full of customers was earwigging on the exchange.

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So the UK gov will likely use the bail-in structure for the next bank failure. Only problem - they own rather a lot of bank stock. I did wonder why George was so keen on the proposed Lloyds fire sale.

We've split our savings across multiple currencies, accounts and countries but doubt it will make any difference in the end. The FSCS limit is all well and good. As Greece should admirably illustrate, however, the scheme doesn't say when you can have your money. £50 a day for four years or so won't be that much good to anyone. And that's likely the best case.

Will probably try and take advantage of GBP strength to offset against inflated property prices in Europe.

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So the UK gov will likely use the bail-in structure for the next bank failure. Only problem - they own rather a lot of bank stock. I did wonder why George was so keen on the proposed Lloyds fire sale.

We've split our savings across multiple currencies, accounts and countries but doubt it will make any difference in the end. The FSCS limit is all well and good. As Greece should admirably illustrate, however, the scheme doesn't say when you can have your money. £50 a day for four years or so won't be that much good to anyone. And that's likely the best case.

Will probably try and take advantage of GBP strength to offset against inflated property prices in Europe.

An interesting point re Greece. I'm thinking aloud here so this may be b0llux but if Greece were to exit the Euro but remain within the EU and thus still be covered by the treaties and deposit protection directive then Greek bank a/cs would remain covered up to 100,000 Euros Drachma equivalent. Since they would have their own central bank this would on the face of it be little different to UK sterling protection. Greece of course would be slightly better off in that situation since they would have not only a primary surplus but most likely a strongly growing economy (after initial period) unlike UK.

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Enough to have been drawing lumps of cash out over the past fortnight, yes.

Since leaving your money in the bank is just an unsecured loan to them at a pathetic interest rate, that seems perfectly rational.

I just leave enough in the bank for monthly expenses. I spent the rest on building materials (which has got a lot more expensive since I bought it).

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